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Are file traders next?

Though a court has found makers of peer-to-peer software aren't liable for copyright violations that occur on their networks, downloading unlicensed MP3s is still very illegal.

    Friday's ruling that the makers of Grokster and Morpheus aren't liable for copyright infringement occurring as a result of people using their peer-to-peer software could spell bad news for the file traders themselves.

    Although the ruling is being hailed as a victory by file-swapping supporters, record labels are unlikely to step back from their attempts to stomp out free file-trading, which they view as a threat to their survival.

    In fact, the ruling could accelerate the labels' plans to go after individual users, especially when coupled with a decision Thursday in a separate case that gives them more power to unmask the identity of individual file swappers. In that decision, a judge said Internet service provider Verizon had 14 days to turn over the name of a subscriber accused of offering music files for download using the Kazaa file-swapping service.

    On Friday, representatives for the Recording Industry Association of America (RIAA) hinted the industry group would step up its efforts to pursue individuals in the wake of both decisions.

    "We are pleased with the Court's affirmation that individual users are accountable for illegally uploading and downloading copyrighted works off of publicly accessible peer-to-peer networks," RIAA CEO Hilary Rosen said in a statement. "This is precisely the issue we have been seeking to focus the public's attention on, and yesterday's decision in the Verizon matter makes clear that individual infringers cannot expect to remain anonymous when they engage in this illegal activity."

    If upheld, Friday's ruling on Grokster and Morpheus could make it harder for the record industry to go after technology that allows people to trade files, provided the companies that offer such tools have no control over how their technology is used. As a result, record companies are going to have to find other targets for their legal wrath.

    "The obvious alternative is what the record companies have begun to do: Go after the worst traders," said Mark Radcliffe, an intellectual property attorney at Gray Cary Ware & Freidenrich.

    Civil liabilities for willful copyright infringement are substantial, carrying a maximum fine of $150,000 per violation. Individuals accused of copyright infringement as a result of file swapping activities could also face criminal charges under the No Electronic Theft Act, with a guilty verdict carrying a maximum three-year prison sentence as well as fines up to $250,000.

    Already, the record companies have done more than sound a warning. In April, the RIAA sued four students who operated file-search services on their school's internal networks, accusing them of promoting widespread thievery.

    The entertainment industry hopes the high-profile suits will scare others out of operating such systems, or sharing files at all. But the strategy is risky for an industry that's trying to lure a group of tech-savvy youngsters into paying for content through official channels, instead of taking it.

    For one thing, the industry's targets are potentially its most rabid customers, and suing such people could be a bad public relations move.

    In addition, as a practical matter, tracking down and suing vast numbers of file traders and operators of file-sharing networks is a costly and impossible task.

    Michael Page, an attorney at Keker and Van Nest who represented the defendants in this case, said the judgment handed down Friday will force the record industry to develop alternative business models.

    "It puts pressure on the labels to take seriously that the public wants electronic distribution," Page said. "They're going to have to stop trying to figure out a way to make the Internet go away and figure out a way to use it."

    File-swapping crackdown coming?
    Jonathan Band, a lawyer with Morrison and Foerster, said he expects to see an rise in subpoenas seeking to identify file swappers. Thus, the ruling could actually be a boon to music sites such as Listen.com's Rhapsody and an upcoming service expected next week from Apple Computer, which are working with the record industry to mollify concerns about illegal trading.

    Such sites have endured protracted and painful negotiations with an industry that was reluctant to put its music online, but they may have more bargaining power as a result of Friday's ruling. Although some people will always be willing to deal with free file-swapping sites--which are often glitchy and difficult to use--many others might be willing to pay for the services long promised by the labels and by technology companies such as Apple, especially if they're user-friendly and reasonably priced.

    "They all have a vested interest in making these systems work," Band said. "The decision is going to force the record industry to take a long hard look at itself in the mirror and say, 'How do we go forward?'"