Monday's court ruling, which threatens Napster with potentially vast copyright-infringement damages, serves as a warning for some rival peer-to-peer services. But many of the companies that have sprung up in Napster's wake say they expect little legal fallout from the decision.
Companies that offer access to files that may be copyrighted must examine their businesses and ensure they are trying to abide by the guidelines outlined in Monday's decision as closely as possible, analysts say.
"Does this mean that peer-to-peer is dead? No," said Gartner analyst P.J. McNealy. "It just means that anybody who does peer-to-peer with a central file system may have to play policeman."
But an increasing number of companies are emerging that use similar technology for less controversial tasks, such as sharing files inside a corporate network, collaborative research, or other jobs less likely to draw the ire of entertainment giants. These companies, many of which are convening in San Francisco this week for the first big peer-to-peer trade conference, say their quickly growing technology niche isn't threatened by Napster's legal woes.
"Will there be fewer places to grab free music and not pay the artists? Perhaps," said David Copans, vice president of business development and chief financial officer for Applied Metacomputing, which makes technology for creating file-swapping tools. "But I think Napster will have no significant impact on the future of computing."
No black hats here
In essence, peer-to-peer networks provide a way to link PCs together without the need for powerful central computers, known as servers.
Software developers have
Gartner analyst Robert Batchelder says an appeals court ruling on Napster asserted that peer-to-peer (P2P) file sharing is legal--and many services will take advantage of that opening.
Start-up OpenCola, for example, recently received a $3 million investment infusion from Mosaic Venture Partners, Angel Investors and Torsar. Groove Networks, a system being developed by Lotus founder Ray Ozzie, just announced that it has signed its 100th development partner.
Many of these companies are using this week's peer-to-peer conference, sponsored by publishers O'Reilly & Associates, as launching pads for services they've been working on for the last year.
These range from companies such as NextPage, which already marks several big law and investment firms among clients of its document-sharing service, to new companies such as Thinkstream, which is demonstrating its distributed e-commerce technology for the first time.
These developers are seeking to avoid legal land mines as they work to create networks that would respect copyright holders by incorporating security features or serve markets that go beyond music services, such as collaborative research. They're joining companies that have seen peer-to-peer applications already implemented in unlikely places with no hint of legal troubles.
Software maker Billpoint, for example, has lined up customers such as online auction house eBay for its person-to-person credit card payment system. The network allows customers to pay each other directly, whether they are in American Samoa, Iceland or 35 other countries across the world.
DataSynapse, meanwhile, is among a host of companies hoping to take distributed computing a step beyond file sharing, using peer-to-peer architecture to link individual PCs into a virtual supercomputer and harness unused processing power.
The dark side of peer-to-peer?
Walking a more dangerous line are file-swapping services bent on supplying access to entertainment content targeted by aggressive copyright holders.
Some, such as Gnutella, are thought to be immune from legal assault because they are not backed by a corporation or other entity that can be sued. Others such as iMesh are based outside the United States, making it potentially more difficult for copyright holders to pursue infringement complaints.
Such factors have led some observers to believe that peer-to-peer technology and the file swapping it enables is essentially judgment proof, although companies that use it may not be.
"If they somehow manage to shut down Napster, they will get Gnutella, which is pretty much uncontrollable," said Tamon Marco, an investor in peer-to-peer network iMesh--an Israeli-based service with about 4 million members. Marco said he believes the service is in "full compliance with the law."
Such claims aside, sites that cater to music and other forms of content swapping can expect intense scrutiny from organizations representing content owners. Legal pressures from the Recording Industry Association of America and the Motion Picture Association of America have already contributed to the closures of several file-swapping services, including those operated by AngryCoffee, Scour and CuteMX.
Should Monday's appellate court decision in the Napster lawsuit stand, copyright enforcement looms as a significant issue for would-be file-trading sites, which might be required to expend substantial resources keeping unauthorized content off of their networks or else face liability for contributory infringement.
Still, some Napster alternatives said they are not concerned about such restrictions.
Jack Kay, chief executive of Hotline Communications, a peer-to-peer community that averages some 3 million members trading files at any given time, joined other content-trading sites in downplaying the appeals court ruling.
"I don't think Napster will affect Hotline in one way or another," he said.
The optimism expressed by Kay and Marco isn't shared by some of those who have already been targeted, however.
"If I were them, I'd shut down now," said Travis Kalanick, whose popular Scour Exchange service drew a lawsuit worth $250 billion, driving his company out of business. "If you're found to be on the wrong side (of the law), you could be sued for billions of dollars and lose. It's not worth the risk."