[rumori] WSJ: Music Industry Confronts New Internet Swap Threats

From: Carrie McLaren (carrieATstayfreemagazine.org)
Date: Sat Feb 22 2003 - 12:35:00 PST

February 21, 2003

Music Industry Confronts
New Internet Swap Threats


No one in the music industry has ever heard of Pieter Plass, the
chief executive of a construction-management company in the Dutch
city of Arnhem. But he and others like him may pose a serious threat
to big record labels and other entertainment companies.

Based in the city best known for the World War II battle that spawned
"A Bridge Too Far," Mr. Plass is about to go into business as an
enabler of Internet peer-to-peer services. He wants to provide
software, legal advice and other help to anyone who wants to start up
the next Morpheus or Kazaa, the renegade online bazaars where users
can swap copyrighted songs and movies for free. The twist is that his
clients would launch their companies in the Netherlands, where a
court ruling last March appears to provide legal protection for such

The Dutch decision is being appealed, and it isn't clear how far Mr.
Plass will get with his venture, which he's calling "The Honest
Thief." But the effort illustrates the breadth of the challenge
facing music companies and other owners of copyrighted works as more
peer-to-peer providers base their operations overseas.

Record-label officials maintain that the Netherlands ruling was an
aberration that will be reversed. Courts in South Korea and Japan
have already ruled against peer-to-peer services in copyright cases.
"We intend to enforce our rights not just in the United States, but
world-wide," says Cary Sherman, president of the Recording Industry
Association of America.

He also argues that under U.S. law, record labels should be able to
get American Internet service providers to block customers' access to
overseas Internet destinations that offer pirated music. In addition,
record labels have taken steps lately to go after individual
peer-to-peer users. A U.S. court recently found that American
Internet service providers must disclose the names of customers who
share copyrighted music online.

The record labels got a big win last month. A U.S. federal court said
that Sharman Networks Ltd., which now offers the Kazaa software,
could be sued in California even though it is based on the Pacific
island nation of Vanuatu and operates out of Australia. But a U.S.
ruling may not be enough to shut down services based in countries
where courts have said that peer-to-peer software is legal.
Peer-to-peer operators based overseas say they believe they have a
legal shield. "How are they going to enforce" a judgment? asks Rod
Dorman, one of the lawyers representing Sharman Networks.

In the Netherlands, Mr. Plass says he's prepared to take a
"calculated risk" and test the issue. In addition to the
construction-management company he heads, he owns a nine-employee
software firm, PGR BV, that has developed tools related to building
and real estate. Its programmers created an application that works
much like current popular services like Kazaa, enabling users to
exchange files between individual computers rather than downloading
them from centralized servers.

With his new venture, he plans to license the software -- which isn't
yet finalized -- to clients who will create Netherlands-based
file-sharing operations. His goal is to grab a chance to "make some
honest money," he says.

Mr. Plass and his future clients may not be the only ones to try to
exploit the Dutch ruling. Transparency Software LLC, a company based
in Memphis, Tenn., makes software that blocks computers from
exchanging copyrighted material on peer-to-peer networks, and it is
considering launching its own Netherlands-based peer-to-peer service.
The company would aim to have the operation contain no unauthorized
works, says Pierce Ledbetter, chief executive of Transparency
Software. But the Netherlands may provide "an extra layer of legal
protection," he says.

The ruling in favor of file-sharing services came last March from a
Dutch appeals court. The case pitted Kazaa BV, which then controlled
the application by the same name, against two Dutch performing-rights
organizations, generally known as Buma and Stemra.

The appeals court found that Kazaa wasn't responsible for users'
copyright infringements because it had no control over how its
software was used. Its ruling canceled a lower-court injunction that
had shut down Kazaa.

Buma and Stemra have appealed to the Dutch supreme court. Because the
case was limited in scope, focusing mainly on the injunction, the
ruling doesn't delve deeply into the copyright issues. The high court
is expected to disclose its decision in the fourth quarter, and Buma
and Stemra have suggested they wouldn't pursue a broader claim if
they lose. But Brein, a Dutch foundation that deals with copyright
enforcement, has said it will seek its members' consent to file such
a suit should Buma and Stemra lose.

Major music companies not involved in the case play down the
appeals-court ruling. In a "full-blown proceeding," Dutch courts
would reach "a different result," says Allen Dixon, general counsel
of the International Federation of the Phonographic Industry. U.S.
court decisions would also likely have force in the Netherlands, he

But it's "difficult to predict" which way the supreme court will go,
says Bernt Hugenholtz, professor of law at the University of
Amsterdam. As for the prospects of abiding by U.S. court decisions,
Tim Kuik, director of Brein, says a U.S. judgment isn't automatically
enforced in the Netherlands. It would probably have to go through a
separate Dutch court proceeding, he says.

Write to Anna Wilde Mathews at anna.mathewsATwsj.com and Charles
Goldsmith at charles.goldsmithATwsj.com


Peer-to-peer operators are under legal fire in the U.S., but many are
based abroad. A sampling of the biggest networks:
Service Based In Status
BearShare Miami Beach, Fla. Not being sued*
iMesh Israel Not being sued*
Kazaa Vanuatu Being sued in U.S.
LimeWire New York Not being sued*
Morpheus Franklin, Tenn. Being sued in U.S.
*According to company
Sources: CNET Networks’ Download.com, the companies

Updated February 21, 2003

Carrie McLaren
Editor, Stay Free!
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