Record Labels’ Suit Against Kazaa Starts in Australia

A closely watched trial that could have lasting implications for the peer-to-peer (P2P) industry has gotten underway in Australia, where the entertainment industry hopes to prove that P2P network operators are responsible for the illegal swapping they enable.

Major music labels made similar attempts in the U.S., but had their efforts stymied when an appeals court ruled that P2P networks can be used for legitimate sharing and that their owners are not responsible for how individuals choose to use them.

The trial, expected to last as long as three weeks, began with lawyers for five major record labels — Sony BMG, EMI and Warner Music among them — arguing that Kazaa software is used by 100 million people around the world and that as many as three billion music files change hands monthly.

The music companies said Kazaa is effectively the largest single distributor of music in the world, but that none of the revenue generated makes it into the hands of those who own the rights to the music: the record labels and the artists.

According to multiple press accounts of the proceedings, industry attorneys claimed in their opening remarks that Kazaa and its parent company, Sharman Networks, tried to “pressure” the music industry into adopting Kazaa’s technology as a digital distribution model for legitimate music downloads.

Kazaa has developed a digital rights management (DRM) technology and allegedly dangled it and the massive existing network of Kazaa users in front of the music companies.

Lawyers said that when such attempts to forge an alliance with the industry failed, Kazaa focused on spreading its software as widely as possible, creating a “copyright piracy engine” in the process. The labels contend that Kazaa could have done more to stop illegal swapping, but chose to protect its business instead.

The case is being heard by a judge in Australian Federal Court in Sydney. At least part of Kazaa’s operations are run from Australia.

“The Kazaa system is an engine of copyright piracy to a degree of magnitude never before seen,” attorney Tony Bannon told the court.

Been There, Tried That

The music industry had held out hope until last year that U.S. courts would side with it on the P2P network argument. However, when the U.S. Supreme Court failed to hear an appeal of a lower court ruling in favor of the networks, the case ended.

That hasn’t stopped the industry from moving forward on other fronts, including promoting legislation aimed at curtailing technologies that make copyright infringement possible.

The Australia case began in a highly controversial way, with record labels obtaining a search warrant and raiding Sharman’s offices and the homes of some top executives. A judge later denied the record industry full access to information obtained in those raids, but some of it is expected to be admitted during the proceedings.

Jupiter Research analyst Mike Mulligan said that evidence could be the smoking gun that changes the case from another nuisance to a more significant one that opens Sharman and Kazaa up to other legal actions, including potentially costly civil suits.

“Maybe, just maybe, this evidence will finally connect the dots,” Mulligan said, and show that Kazaa knew how its software was being used and even promoted that use.

Other Worries

Kazaa is already laying the groundwork for moving beyond music and movies, which many P2P supporters say will happen eventually anyway. They envision robust P2P networks that enable fast and free sharing of all types of files, allowing more collaborative work across long distances, for instance.

Kazaa recently signed a deal to bring the Skype voice over Internet protocol (VoIP) phone option to its network, for instance.

In fact, Jupiter’s Mulligan said the irony in the case might be that the legal woes catch up to Kazaa just as the sins it’s accused of committing start to become irrelevant as legitimate music downloads increase dramatically and as P2P evolves to include more legitimate uses.

“History is repeating itself here,” he added. “As with Napster, just as the music industry is finally catching up with Kazaa, the focal point of file sharing has already moved on.”

However, Kazaa has other concerns as well as the legal matters already on its plate. Kazaa has begun to slip from the top of the heap as far as P2P network use goes and fewer file sharers are utilizing its technology than before, according to some rankings.

Meanwhile, Security firm Computer Associates today named Kazaa the top Internet-based threat for network security. CA said Kazaa comes bundled with adware and other programs that users are not aware of, drains massive network computing resources and opens computers up to potentially severe attacks.

Other security experts agree that P2P networks pose an entire class of security risks that require special attention. “When you download a program like Kazaa, you are bringing your computer and your network into a much larger, hyper-connected network,” Sophos antivirus consultant Graham Cluley said. “That’s where the real risk lies.”

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