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Confusion from 'Grokster,' Other Suits Slows Legitimate P2P Deals, Players Say

23 June 2006, Warren's Washington Internet Daily

A year after the Supreme Court Grokster decision, P2P companies still are struggling to contract with the content industry and make business decisions due to legal uncertainty, speakers told the P2P MEDIA SUMMIT Thursday. MPAA Exec. VP Fritz Attaway agreed on the lag in P2P's evolution from infringing to licensed, but said "it's always too slow" and disputed the idea that Grokster paralyzed the market. Entertainment lawyer Joshua Wattles called the climate "schizophrenic," with latent deals complicated by continuing suits against XM and others. "The content industry has not given up on exactly what they want to get," he said.

Congress has left P2P legal issues alone since Grokster, probably because the high court gave "the rules of the road and everyone is adjusting to the new climate," Attaway said. Innovation hasn't been stifled, he added, citing a "steady stream of folks coming into my office showing me business models based on a partnership with content owners."

But Phil Corwin, who represents Sharman Networks, the Kazaa client's maker, said Grokster left "greater incoherence" especially via its highly subjective determination of intent-based inducement. Apart from the MPAA-BitTorrent deal, he has only heard "anecdotal tales" about startups with promising deals, he said: "Hopefully that will change but it's not changing rapidly." Even the content industry is confused on what it legally can develop, Wattles said: "It's impossible to counsel" clients on whether particular business models or features are legit. "We may have to go through this thing all the way back to the Supreme Court," said Michael Weiss, CEO of StreamCast, which makes the Morpheus client and was a Grokster codefendant. The biggest change was that his company lost competitors, Weiss said to laughter.

At the same time, P2P is "fast becoming the orphan everyone wants to adopt," Weiss said, quoting a recent Strategy Analytics report. Attaway held to his role as poster child for the industry deemed the lesser of 2 evils for P2P firms, calling the film industry's nascent relationship with P2P a "marriage made in heaven." Weiss called MPAA "more open" than RIAA and "more on the cutting edge," citing its BitTorrent deal and Disney's move to add free TV episodes to its website.

Suits against technology firms -- most recently an RIAA suit against XM for its new receiver's recording capabilities -- have slowed the market, P2P speakers agreed. But Attaway, standing in for absent panelist RIAA Exec. VP Steven Marks, called the XM case "not as simple as you may have been led to believe." MPAA hasn't taken a position on whether the new XM devices' recording function constitutes downloading, and thus requires additional licenses, but Attaway called it a "reasonable argument."

Congress can spur P2P by erasing damages for secondary infringement, Corwin said. Given the right case, today's "astronomical" penalties would bankrupt even Microsoft, he said. Enactment of network neutrality will also help; as ISPs identify packets on their networks and limit patterns, P2P is certain to be targeted as bandwidth-heavy and possibly competitive to an ISP's services, he said. Though it has no official position on neutrality, Cisco and other vendors are likely to oppose neutrality, as they want to sell products that identify and block packets, Corwin added. Attaway played to the prevailing anti-govt. mood, attacking the neutrality preference. MPAA hasn't taken a position "yet," he said, but "we are very suspect of government regulation of the Internet."

Absent U.S. attention, EU bureaucrats are "not shy to make these decisions" about file-sharing and licensing, and U.S. agencies are taking their cues from European law "whether we like it or not," Wattles said. Public reaction in Sweden after a brief shutdown of P2P site The Pirate Bay has favored a compulsory license for downloads, Attaway said. The only way to do that and honor treaty obligations is "equitable remuneration... They are going to tax your business and your equipment" to pay for blanket licenses, he said: "That is not good for us and that is not good for you either."

The lesson dating to his roots in the home video industry is "technology's going to win and incumbent content companies are going to profit," Weiss said. Content firms go through 3 phases: Stopping new technology through lawsuits, controlling it through laws and then embracing and profiting on it, he said: "It does seem like we're taking a long time to get there." Apple CEO Steve Jobs is the "embodiment" of a bridge between content and tech, but that bridge has a direction, Wattles said: "The future HBO is more likely to be sitting in this room than any [content] company in Los Angeles."

Not all P2P is built on others' work, Weiss said. The Patent & Trademark Office recently granted a patent to Morpheus, and P2P can be seen as "the first major social networking site," since users could browse one other's folders and "strike up friendships." Litigation erased that early sense of P2P community, but when it returns and challenges industry darling MySpace, it will be "bigger than anything that anyone's seen to date," Weiss said. -- Greg Piper

P2P Notebook...

The dispute between Cablevision and content owners over its networked DVR boils down to a "copyright-lite attack," entertainment lawyer Joshua Wattles told the P2P MEDIA SUMMIT Thurs. Look at the plaintiffs and notice who's missing, he said: Sony. That's likely because "this is a direct assault on the Betamax decision" validating the customer's right to "library" content, backed up by Grokster's adding intent to induce as evidence of infringement by P2P firms, he said. A settlement is likely in the Cablevision case -- the best possible outcome, Wattles added. Phil Corwin, a lawyer for Kazaa maker Sharman Networks handling infringement cases in the U.S. and Australia, said the dispute is no different than the XM dispute over recording capabilities and licenses. The MPAA could use Cablevision detractors' logic to say a Comcast DVR cuts DVD sales, he said: "What's scary is that... the content community continues to sue major business partners, not just upstarts." -- GP



Copyright 2003-6 Marc Freedman. All Rights Reserved.

All opinions expressed herein are those of the author unless otherwise noted. This web site at www.diariaa.com is non-commercial satire. It is in no way endorsed, sponsored, or affiliated with RIAA, the Recording Industry Association of America. All trademarks and copyrights mentioned on this site are retained by their respective owners.

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