Last waltz for Grokster

File-swap stalwart to pull plug on P2P network, hand $50 million in damages to studios, labels, publishers.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
File-swapping company Grokster has agreed to stop distributing its peer-to-peer software, following a $50 million legal settlement announced Monday with Hollywood studios and record labels.

Along with co-defendant StreamCast Networks, Grokster had been accused by the music and movie industries of contributing to widespread copyright infringement by people who used its software to download songs and films. Monday's settlement comes four months after the U.S. Supreme Court ruled substantially in the entertainment companies' favor.

Under the terms of the agreement, submitted in a Los Angeles federal court Monday, Grokster will immediately stop supporting its file-swapping network, and Grokster's owners will be responsible for paying a total of $50 million in damages to movie studios, record labels and music publishers.

"This settlement brings to a close an incredibly significant chapter in the story of digital music," Mitch Bainwol, CEO of the Recording Industry Association of America, said in a statement. "This is a chapter that ends on a high note for the recording industry, the tech community and music fans and consumers everywhere."

Although a significant step toward bringing the four-year legal case to a close, the lawsuit is not over yet. Grokster's co-defendant, Morpheus parent StreamCast Networks, remains operating, and it has previously indicated that it would continue fighting the case in lower courts.

However, momentum in the legal fight has shifted almost wholly to the entertainment industry's side.

For several years running, lower courts ruled in favor of Grokster and StreamCast, saying the companies were not responsible for their users' actions. The Supreme Court's ruling in June overturned that analysis overnight.

In a surprising unanimous decision, the nation's top court said that companies that deal in file-swapping software--and by extension, any technology company--could be liable for their users' copyright infringement if they had encouraged or "induced" it in any significant way.

"One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement," Justice David Souter wrote in the court's majority opinion.

That ruling has sent ripples of anxiety throughout the file-swapping world. The distributors of the WinMX software took their program offline a few months later. Executives at Meta Machine, which distributes eDonkey, the most popular file-sharing program, have said they hope to reach a settlement with the music industry, and change their business into a licensed, industry-approved service.

Grokster's future
Grokster's agreement with the entertainment companies could help accelerate that process.

A Grokster attorney declined to provide additional details on the settlement, or specifics on the ultimate future of the company, but said an authorized download service would ultimately emerge.

"The brand will live on," said attorney Michael Page. "It is shut down, but we look forward to launching a licensed, legal new version of Grokster."

A source close to the company said that the file-swapping network's assets would be acquired by Mashboxx, a legal peer-to-peer network supported by the record labels that is close to launching, and which was founded by former Grokster President Wayne Rosso. The new Grokster will essentially be a rebranded version of that Mashboxx service, the source said.

Visitors to Grokster's Web page on Monday were met with a terse explanation of why the software was no longer available, citing June's Supreme Court ruling, and a promise that a new version would come.

"There are legal services for downloading music and movies," the page said. "This service is not one of them."