If LimeWire builds legal site, will labels come?

Lime Wire managers have plans to transform the nation's largest file-sharing network into a legal music service, company representatives told CNET.

"It will have unrestricted downloading and streaming," a spokeswoman said in a statement. "It will be easy-to-use and easy to pay for. It will allow consumers to better discover music through advanced search tools, find more recommendations, and have access to millions of songs on-demand."

The only thing that might be missing from a new LimeWire music store is, well, music--or at least tracks from the four largest record companies. At this point, the top labels, which account for more than 80 percent of song sales in this country, want little to do with LimeWire.

There is plenty of reasons for that, music industry insiders told CNET. For starters, Lime Wire has yet to show the new service to the top labels: Universal Music Group, Sony Music Entertainment, Warner Music Group and EMI Music. Then, there's the fact that U.S. District Judge Kimba Wood last month found Lime Group, parent of software maker Lime Wire, and founder Mark Gorton liable for copyright infringement. Wood's decision could mean the defendants will be required to pay upward of $1 billion in damages.

Then finally there's this: during the past 18 months, representatives from some of the major labels have met with Lime Wire leaders on at least three different occasions to discuss creating a legal service, said the sources. Each time they were "rebuffed."

For most of the top record companies, the time for talking is over. On Friday, Lime Wire's attorneys must file papers explaining to the judge why she shouldn't order the file-sharing service shut down. This is in response to a request made earlier this month by the Recording Industry Association of America, the trade group representing the top recording firms, which asked Wood for a permanent injunction against Lime Wire. The judge has plenty of options and could place restrictions on the service without forcing it to close, but legal experts predict Lime Wire is unlikely to survive.

Lime Wire's management refused to discuss the meetings with the major labels or why an agreement was never reached but did issue a statement on the subject. "LimeWire has always been willing to work with the music industry in the creation of a solution that address labels concerns," a company spokeswoman said via e-mail. "Accusations that we are not willing to work with the industry are simply not true."

LimeWire was created in 2000 by Gorton, a bond trader and hedge fund manager. At that time, file-sharing services and networks seemed to spring up everywhere on the heels of Napster. Suprnova.org, Scour, LokiTorrent, OiNK, TorrentSpy have all either been shut down by the courts or closed due to the heavy cost of defending themselves in court. But none of them came close to reaching the size of LimeWire. Users of the software account for 58 percent of the people who said they downloaded music from a peer-to-peer service last year, according to a survey by the NPD Group.

Lime Wire's success is one of the reasons the music industry is unlikely to show Gorton or the company much mercy. The way label executives figure it, that success came at their expense. They point out that Gorton isn't one of these alleged freedom fighters distributing content for the good of the public--not that they agree with that either. But with Gorton, he was pocketing millions of dollars that rightfully should have gone to musicians, songwriters, and other music artists, say the sources.

When Wood granted summary judgment for the music industry, she noted that Lime Wire grew annual revenue from $6 million in 2004 to $20 million two years later.

In private conversations, important music industry decision makers have described Gorton and Lime Wire's administration as "disingenuous." These label honchos are skeptical that Lime Wire's is sincere about working hand-in-hand on a legal service. The speculation at the labels is that Gorton is attempting to clean up Lime Wire's image so Wood might go easier when assessing damages.

Naive or duplicitous?
To many at the big labels, Gorton only began reaching out after May 11, when Wood granted summary judgment and he began staring at a potential $1 billion judgment. It hasn't escaped notice that since Wood's decision, Gorton and Lime Wire leaders have launched a public relations campaign.

"Perhaps I was naive," Gorton told The New York Times last month as he described himself as someone who tried to do right by the music industry and that he believed the sector would eventually embrace his ideas. "If I knew when the lawsuit started what I know now about the music industry," he told the Times, "maybe we would have done something different."

To say Gorton's statements were met with skepticism in the music sector is an understatement. "Limewire's Mark Gorton has best spin doctor ever," Ted Cohen, a music-industry consultant and former EMI executive, wrote on his Twitter page. "Shame on NYT."

Even some from the peer-to-peer side say Gorton's version of history isn't supported by the record.

Wayne Rosso, the former president of file-sharing software maker Grokster, said that in 2005 he worked in coordination with Andrew Lack, the former chief of Sony Music, to try to convince the top peer-to-peer sites to go legitimate. Lack tried to convince the sites to adopt a filtering system so everybody could make money, Rosso said.

"At the time, [Grokster and I] sincerely tried to get licensed with any one of [the music industry's] ridiculous models at the time," Rosso said. "We did that because we wanted to convert the user base. We saw it couldn't go on like it was. We knew that the system had to change. It was a time of great chaos."

Rosso said he has some bitter feelings about negotiations with some of the P2P companies. "You expected the record companies to lie to you," he said. "You didn't expect these P2P guys to do it."

As for Gorton and Lime Wire managers, Rosso said they wouldn't even discuss the idea of creating a legal site. He said they and other P2P services believed "they were untouchable" because of some favorable victories that Rosso's Grokster had won in court. Rosso said he knew that the triumphs wouldn't last (and they famously ran out at the Supreme Court). After reading Gorton's recent comments in The New York Times, Rosso dismissed the executive's babe-in-the-woods self portrait.

"He's no Willy Wonka, I'll tell you that," Rosso said. "He knew what he was doing. The problem is Mark Gorton thinks he's smarter than everybody else. Certainly, he thinks he's smarter than his attorneys...I don't feel sorry for any of these guys. They had plenty of opportunity to do something legitimate. They chose something else."