- The Washington Times - Tuesday, November 8, 2005

Grokster Ltd., which lost a Supreme Court fight over file-sharing software used for stealing songs and movies online, agreed yesterday to shut down and pay $50 million to settle piracy complaints by Hollywood and the music industry.

The surprise settlement permanently bans Grokster from participating, directly or indirectly, in the theft of copyrighted files and requires the company to stop giving away its software, according to court documents.

Grokster’s decision was not expected to affect the millions of Internet users who run the company’s file-sharing software to download music and movies online, nor was it expected to affect users of rival downloading services, such as EDonkey, Kazaa, BitTorrent and others.

Company executives indicated plans to start a legal, fee-based “Grokster 3G” service before the end of the year under a new parent company, thought to be Mashboxx of Virginia Beach. Mashboxx, led in part by former Grokster President Wayne Rosso, has signed a licensing agreement with Sony BMG Music Entertainment.

“It is time for a new beginning,” Grokster said.

Grokster’s Web site was changed yesterday to say its “peer to peer” file-sharing service was illegal and no longer available. “There are legal services for downloading music and movies,” the message said. “This service is not one of them.”

Mitch Bainwol, the head of the Recording Industry Association of America (RIAA), called the settlement “a chapter that ends on a high note for the recording industry, the tech community, and music fans and consumers everywhere.”

The recording industry says its five-year sales slump can be traced to networks such as Grokster that allow users to copy movies, songs and other files directly from one another’s computers.

The RIAA has sued more than 15,500 peer-to-peer users over copyright infringement.

It was not clear whether Grokster can afford to pay the $50 million in damages. Dan Glickman, the head of the Motion Picture Association of America, said the entertainment industry will demand full payment unless Grokster satisfies all its other obligations under the settlement.

Grokster’s brand will survive. The new fee-based version of its software will be available within 60 days, said one executive involved in the deal. The executive spoke on the condition of anonymity because the sale of Grokster’s assets is pending.

Mr. Glickman said Grokster will send anti-piracy messages to existing users, and the company is forbidden from maintaining its software or network. “Without those services, the system will degrade over time.”

Grokster lost an important Supreme Court ruling in June. Justices unanimously ruled that the entertainment industry can file piracy lawsuits against technology companies caught encouraging customers to steal music and movies over the Internet.

The decision, which gave a green light for the federal case to advance in Los Angeles, significantly weakened lawsuit protections for companies that had blamed illegal behavior on their customers rather than the technology that made such behavior possible.

The court said Grokster and another firm, Streamcast Networks Inc., can be sued because they deliberately encouraged customers to download copyrighted files illegally so they could build a larger audience and sell more advertising. Writing for the court, Justice David H. Souter said the companies’ “unlawful objective is unmistakable.”

“They’re out of business,” said Charles Baker, an attorney for Streamcast. “It’s over for them. There was a lack of desire to continue to fight this thing going forward.” He said the settlement does not affect Streamcast, the co-defendant in the entertainment industry’s lawsuit.

The Supreme Court noted as evidence of bad conduct that Grokster and Streamcast made no effort to block illegal downloads, which the companies maintained wasn’t possible.

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