Can the Music Industry Change Its Tune?

Would you pay $15.99 for a CD of your favorite recording artist if you could get it for

free on the Web? This question has shaken the music industry to its foundations. A

tremendous number of Internet users have taken advantage of online file-sharing

services where they can download digitized music files from other users free of charge.

The first such service to be widely used was Napster. Its Web site provided

software and services that enabled users to locate any of the 1 billion digitized MP3

music files on the computers of other online Napster members and copy them onto their

own computers for free. Napster's own computers did not store any music files, but

instead acted as a matchmaker. To obtain a specific music file, you would sign on to the

Napster Web site and type in the name of the desired song. Napster's central title index

would display the connected computers with that specific song. Napster then established

a direct connection between the requesting computer and the one storing the desired

music file. Your Napster software then would download that file onto your computer.

You could play the song on your computer and copy it onto CDs. If you stored it on

your computer, others could copy it from you. Napster quickly became so popular that

when it was shut down in 2001, it had more than 80 million users worldwide.

Napster users could legally copy and trade uncopyrighted material, but

reproducing copyrighted files without permission is illegal because the recipient does

not compensate the owner for the use of the intellectual property. In December 1999,

the Recording Industry Association of America (RIAA), representing the five major

music recording companies (Universal Music, Sony Music, Warner Music, BMG, and

EMI), which together were responsible for 80 percent of recorded music, sued Napster

for violating copyright laws. U.S. courts ordered Napster to stop allowing users to share

copyrighted music files, and the site closed down in July 2002 when it declared

bankruptcy. It has since been transformed into a legal fee-based online digital music

service.

Napster was held liable for the illegal copying of copyrighted songs because it

maintained a central index of members' music on its own central computer. Its closure

did not stop widespread illegal music file sharing. Alternative "peer-to-peer"

approaches to free downloading were developed that did not require a centralized

computer to manage the file swapping. Services using this approach include Kazaa

(KaZaA), Morpheus, and Grokster. Many of the estimated 37 million Americans who

have downloaded music have done so using Kazaa. According to research firm

BigChampagne LLC, users download more than 1 billion songs per week from Kazaa,

Morpheus, and other file-sharing programs.

Kazaa's corporate headquarters are located in Vanatu, a tiny independent island

near Australia. Kazaa's software is stored on individual computers, enabling anyone to

locate servers where individuals have stored music files available to be copied. Once the

software locates the desired song, it establishes a direct peer-to-peer link between the

two computers and downloads the desired song file, with no one paying any fees.

Distributors of the software claim that their software has valuable legal uses, and they

are not responsible if millions of people use it illegally.

To profit from its software, Kazaa allows pop-up advertisements and unsolicited

e-mail from vendors who pay for the service. Because the free trading of digitized

materials does not go through a centralized computer, no one knows what or how many

songs are being downloaded or by whom. But Kazaa reported that, by June 2003, its

Media Desktop software for computer-to-computer file sharing had been downloaded

270 million times.

The courts have been unable to shut down sites that only make the peer-to-peer

software available. On October 2, 2001, through RIAA, the major record label firms

filed suit against Kazaa, Morpheus, and other peer-to-peer services, alleging copyright

infringement against all firms who use Media Desktop and similar software to swap

copyrighted materials. However, because the exchange of music files is strictly between

two individuals, Kazaa claims it is breaking no laws and so cannot be shut down.

Instead, individual users of Kazaa's software are breaking laws and can be punished.

A big blow against the recording companies came on April 25, 2003, when a suit

brought by the major record labels, movie studios, and music publishers against

Grokster Ltd. (Grokster software) and StreamCast Networks Inc. (Morpheus software)

was decided in favor of the file-sharing services. The U.S. District Court in Los Angeles

ruled that the two companies could not

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