Music Industry Confronts New Internet Swap Threats; Netherlands court ruling provides legal protection for P2P

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Barry Ritholtz <ritholtz () optonline net>
Date: Sun, 23 Feb 2003 08:29:45 -0500
To: dave () farber net
Subject: Music Industry Confronts New Internet Swap Threats; Netherlands
court ruling provides legal protection for P2P

For IP; An interesting development,
-Barry  


Music Industry Confronts
New Internet Swap Threats
February 21, 2003

By ANNA WILDE MATHEWS and CHARLES GOLDSMITH
Staff Reporters of THE WALL STREET JOURNAL

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
operations.

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 says.

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.mathews () wsj com 1and Charles
Goldsmith at charles.goldsmith () wsj com 2

URL for this article:
http://online.wsj.com/article/0,,SB1045782158479680223,00.html


Hyperlinks in this Article:
(1) mailto:anna.mathews () wsj com
(2) mailto:charles.goldsmith () wsj com
(3) http://online.wsj.com/article/0,,SB1039018191727188393,00.html
(4) http://online.wsj.com/article/0,,SB1017356058302993400,00.html
(5) http://online.wsj.com/article/0,,SB1045155366137681863,00.html
(6) http://online.wsj.com/article/0,,SB1044719140284649320,00.html
(7) http://online.wsj.com/article/0,,SB1043175088163002224,00.html
(8) http://online.wsj.com/article/0,,SB1031180282400826315,00.html

Updated February 21, 2003


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