The Future of P2P File-Sharing Networks

The debate about whether peer-to-peer (P2P) applications, which were first made popular with the Napster file-sharing network, should be legitimate or illegitimate continues to rage.

On one side are applications like Morpheus and Kazaa, whose makers say their products have many uses -- adding that they promote the legitimate ones and are not responsible for any illegitimate activities. On the other side are entertainment companies, such as Sony and Disney, which see those products as taking revenue from music labels and artists. The two sides have waged an ongoing war in the courtroom, a battle that continues unabated, and one in which consumers now find themselves as participants.

One can argue about the legality of such applications, but there is no debating their popularity. Sharman Networks, which makes the Kazaa P2P application, claims to have 20 million downloads per month, and StreamCast Networks, which makes Morpheus, says it has 115 million users worldwide.

Record Companies Losing Billions

The firms note that their products can serve many useful purposes, such as helping the U.S. Army distribute recruiting information and enabling the British Broadcasting Corp. to place a catalog of its databases online.

While the positive uses of file-sharing networks are unquestionable, P2P software seems to have gained most of its popularity by helping individuals illegally download pirated music files and, to a lesser degree, movies. The Recording Industry Association of America (RIAA), a lobbying group for entertainment firms, notes that record sales have dropped 31 percent during the last three years, from more than US$14 billion in 2001 to less than $12 billion this year, a change it views as stemming from widespread illegal duplication.

In response, the organization has waged an aggressive, ongoing legal battle to stop inappropriate uses of the software, and a ruling in its favor in 2001 was the reason why Napster closed down. Rather than end the debate, the ruling simply changed the way it was waged. "After the court made its ruling, P2P vendors examined it and delivered products that did not break the law," said Michael Goodman, a senior analyst with the Yankee Group.

A Step Ahead of the Law

The Napster system was declared illegal because it was a shared network with a centralized file-search system. Because company officials therefore had some control over what information flowed over the network, they were deemed responsible for copyright infringements.

Most of the current P2P vendors do not operate networks but instead provide software that others can use to build ad hoc, distributed networks. In these networks, users do not send files directly to others; instead, they let individuals download those files themselves.

Media companies argue that there is little difference between first-generation and second-generation P2P vendors. In both cases, the media companies argue, the vendors know their products are being used for illegal activities.

"We provided evidence to companies like Sharman Networks that their software was knowingly used for copyright infringements, but they did not seem to care," said Jonathan Lamy, a spokesperson for the RIAA.

Advantage P2P

As a result of the impasse, the groups have found themselves continually in court during the past few years. The most recent decision, made by the Ninth District Court of California, went in favor of the P2P vendors. The judge, citing a 1980 case involving Sony's VCR, noted that the company was not responsible for any copyright infringements undertaken by its consumers. The RIAA has appealed the most recent P2P ruling, a process that is expected to be completed by February 2004.

In addition to going after the software suppliers, the RIAA decided to bring action directly against individuals who illegally download music. In September, the RIAA served subpoenas to 241 people who each had made hundreds -- sometimes thousands -- of songs available over the Internet, and the organization went after 80 more individuals in October.

The group reached settlement with about half of those charged. In addition, the organization offered an amnesty program for individuals who wanted to avoid potential prosecution. As a result, more than 1 million illegal items have been deleted, and the P2P networks have seen significant drops in traffic: Kazaa's traffic is down by as much as 40 percent.

Potential for Compromise

While the vendors and the RIAA have been adversarial during the past few years, there is potential for a compromise. "Neither side wants to continue with the lawsuits, so the real challenge is to develop a new distribution model that satisfies both sides," the Yankee Group's Goodman told TechNewsWorld.

Apple Computer's (Nasdaq: AAPL) iTunes service illustrates a case in which performers and vendors have worked together to make music less expensive and more accessible to a wider range of potential customers while ensuring that producers and performers are compensated. Meanwhile, Altnet and Sharman Networks have released a secure commercial P2P service over the Kazaa network that lets users distribute authorized music, movie and game files to paying clients.

The industry is generating many ideas about how the two groups could work together. "We favor compulsory licensing where the government implements a tax on items, such as blank CDs or monthly Internet Service Provider fees, and that money is earmarked as compensation for artists and media companies," said Adam Eisgrau, executive director of P2P United, an organization that represents the application-developer interests.

However, the RIAA views such an approach as creating unnecessary government intervention that in fact would be illegal under existing copyright laws. As a result, it seems as if the two sides will look to the courts to settle their dispute for the immediate future.