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U.S. liability looms over Kazaa

Has the file-swapping network's parent company kept business contact with the United States minimal enough to avoid a U.S. lawsuit? A judge hears arguments on the case.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
A Los Angeles federal judge heard arguments Monday as to whether record companies and movie studios can sue the parent company of Kazaa, the most popular online file-swapping service, in the United States.

Much of Kazaa's future, from a business and legal perspective, hangs on the judge's decision. The parent company, Sharman Networks, is headquartered in Australia and incorporated in the Pacific Island nation of Vanuatu, and has tried to keep business contact with the United States to a minimum in order to decrease its legal risk.

If a judge says Sharman can be sued in the United States, Kazaa will get sucked into the same legal maelstrom that has grabbed Napster, Aimster, Audio Galaxy, Grokster and Morpheus, closing some of the popular services and threatening the existence of the others. The Kazaa case is the biggest yet in the recent copyright wars that have been testing the international reach of U.S. courts.

The judge did not rule on the issue Monday, but observers said he appeared ready to order Sharman to stand trial. A ruling is expected in the next several weeks.

"He seemed like he was pretty interested in keeping Sharman in the case," said Fred von Lohmann, senior intellectual-property attorney for the Electronic Frontier Foundation, which is representing Sharman rival Streamcast Networks in an associated case.

The issue of cross-border legal reach has become increasingly important as companies dealing in file-swapping, and other Internet businesses offering copyrighted works, have popped overseas. Record companies, movie studios and software companies have been forced to scramble and use unconventional legal and technological means to attack these services.

The Kazaa case itself may not lead to a sweeping legal precedent, however. Jurisdictional arguments rise and fall on whether a company has sufficient contact with United States residents to make it liable under U.S. law. However, in Sharman's case, the company itself has a contract with its peer-to-peer technology vendor, Blastoise, which says that disputes should be litigated in Los Angeles court, according to a record industry attorney.

"There's nothing novel in the law here," said Recording Industry Association of America (RIAA) Senior Vice President Matt Oppenheim.

Sharman attorney Rod Dorman said the earlier contract has been renegotiated so that any disputes would take place in the United Kingdom, not the United States. He says the company simply hasn't had enough business contact inside the United States to be sued there.

That doesn't mean the company is trying to avoid legal contact with the record labels or movie studios altogether. The copyright holders can come to the company's headquarters in Australia and sue it there, Dorman said.

"Sharman has not purposively availed itself of the privileges of doing business in California to a sufficient amount to establish jurisdiction," Dorman said.

Sharman has expanded its operations to allow commerce activities and advertising inside its Kazaa file-swapping service over the past few months. However, it has backed away from offering a promised paid subscription service, many of the subscribers to which would have likely been U.S. residents. That decision could be revisited should a judge rule that it is already subject to U.S laws.

If Sharman loses this round, the company will be added to a larger lawsuit ongoing against Streamcast Networks and Grokster, two rival file-swapping companies that use the same underlying technology as Sharman.

A critical hearing in that case will be held Dec. 2, in which both sides will argue that the case should be concluded immediately with a so-called summary judgment without going to a full trial. Each side is arguing for the completion of the case in its own favor.