Suit Fires New Salvo in Copyright Battle

Having shut down Napster Inc.’s free song-sharing service, record companies and Hollywood studios filed suit against a new and potentially more elusive trio of companies that let consumers copy music, movies and software through the Internet.

The targets--MusicCity.com Inc., Grokster Ltd. and Consumer Empowerment--provide free software that let users find and retrieve files from each other’s computers. Their “peer-to-peer” networks have flourished in recent months, aided by the court-imposed restrictions on piracy that drove users away from Napster’s service.

The suit, filed late Tuesday in federal court in Los Angeles by 28 music and film companies, is similar to one the music industry has pursued against Redwood City-based Napster. It accuses the three companies of infringing copyrights by helping consumers make unauthorized copies of movies and music and asks the court for damages that could run into the billions of dollars.

But the case also represents an important new front in the copyright holders’ battle against online piracy.

It’s the first to target companies outside the United States--Grokster is based in Nevis in the West Indies, and Consumer Empowerment is based in Amsterdam. And it’s the first to challenge peer-to-peer networks that have no central directory or distribution point.

Analyst P.J. McNealy of GartnerG2, a technology research firm, said file-sharing networks are moving offshore and becoming decentralized to avoid liability for copyright violations.

To succeed, copyright experts say, lawsuits against peer-to-peer networks need to show that the operators knew users were committing piracy, or that they controlled how their networks were used. Decentralized networks, such as the one shared by MusicCity, Grokster and Consumer Empowerment, were designed to avoid liability on both issues, they say.

“We have a piece of software that, by its definition and performance, simply allows people to communicate with each other,” said Steve Griffin, head of Nashville-based MusicCity. “What the user chooses to make available to the rest of the world from an information standpoint is totally their choice. . . . We do not know what it is, we do not control it.”

MusicCity’s Morpheus service, Grokster and Consumer Empowerment’s KaZaA share a common peer-to-peer network powered by Consumer Empowerment’s FastTrack software. That software links users to each other automatically, apparently without intervention by any of the three companies.

Matt Oppenheim, an attorney for the Recording Industry Assn. of America, said Griffin is “acutely aware” that consumers are using MusicCity’s Morpheus network to download copyrighted songs and movies. Given how much discussion there has been online and in the media about piracy on Morpheus, Oppenheim said, MusicCity officials can’t plead ignorance.

The record and movie companies joined forces in May to sue one other file-sharing company, New York-based Aimster, which also cites encryption as a defense. That case is still in its preliminary stages.

Neil J. Rosini, an attorney in New York who specializes in copyright issues, said ignorance may not be a defense “when you’re furnishing software principally for what is recognized to be an infringing use”--namely, making unauthorized copies of audio-visual files.

“The knowledge requirement is a bit of a moving target, but in my view the ostrich defense has its limits,” Rosini said. “Where those limits are remains to be seen.”

The Napster case may also have established that peer-to-peer network operators have a duty to guard against piracy, said Jeffrey Knowles, an attorney representing music publishers.

Some observers argue that the companies hurt their own defense by adding encryption, which demonstrated their ability to control the use of their network. Consumers couldn’t connect to the network or share files unless they downloaded a new version of the software.

Still, Griffin said the Morpheus network is perfectly able to run itself without any intervention by MusicCity. All MusicCity’s computers do, he said, is provide graphics and advertising that appear on users’ computers after they log in.

Officials at Grokster and Consumer Empowerment did not respond to requests for comment.