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Legal experts: LimeWire likely doomed

from – A federal court judge has likely dealt a death blow to LimeWire, one of the most popular and oldest file-sharing systems, according to legal experts.

Mark Gorton [pictured], LimeWire’s founder, could see a federal court decision force his company to shut down operations possibly very soon.

On Wednesday, CNET broke the news that U.S. District Judge Kimba Wood granted summary judgment in favor of the Recording Industry Association of America (RIAA), which filed a copyright lawsuit against LimeWire in 2006. In her decision, Wood ruled Lime Group, parent of LimeWire software maker Lime Wire, and founder Mark Gorton committed copyright infringement, induced copyright infringement, and engaged in unfair competition.

“It is obviously a fairly fatal decision for them,” said Michael Page, the San Francisco lawyer who represented file sharing service Grokster in the landmark case, MGM Studios, vs. Grokster and also represented Lime Wire’s former CTO in the company’s most recent copyright case. “If they don’t shut down, the other side will likely make a request for an injunction and there’s nothing left but to go on to calculating damages.”

With an injunction, the RIAA can force LimeWire to cease file-sharing operations. Music industry sources who spoke to CNET on condition of anonymity said the RIAA, the trade group representing the four largest music labels, is considering whether to seek an injunction prior to a status conference Wood scheduled for June 1. If that happens, LimeWire may have little room to maneuver and the company could be forced to shutter operations within weeks. Representatives for the Lime Group did not respond to interview requests. An RIAA spokesman declined to comment.

While Wood’s decision won’t come close to killing online piracy–there’s still BitTorrent and plenty of other ways to share files–she likely has scuttled a peer-to-peer service used by nearly 60 percent of the people who download songs.

She also may have ushered out the era of large, well-funded file-sharing services, at least the kind that help distribute mostly copyright-infringing content. By making Gorton personally liable for damages, Wood served notice that operating these kinds of businesses is now a very risky financial endeavor. If the RIAA gets its way, Gorton, Lime Wire, and Lime Group will collectively be responsible for paying damages of $450 million.

The other side of the LimeWire ruling is that it could thwart the development of technologies that one day might provide legitimate benefits to media companies, said Jack Lerner, a USC law professor.

“The problem is that some of these services may be the most efficient distribution technologies ever created,” said Lerner, a former attorney with the tech-focused law firm Wilson Sonsini Goodrich & Rosati. “It may take years and years before these technologies can fully be developed because they’re being shut down. When these technologies are in their infancy you see a lot more infringement, but as they mature they may be able to be put to good use.”

That kind of reasoning is unlikely to find many sympathetic ears in the recording industry. For a decade now, file-sharing companies have promised to help label execs make money and for years music execs have watched as piracy has gone up and music sales have gone down. Even after a long list of favorable court rulings forced a litany of peer-to-peer companies to either change business models or shut down, it always seemed like plenty of new services were willing to buck the odds: Napster, Scour, Audiogalaxy, Aimster, Kazaa, Morpheus, and, of course, Grokster.

The MGM-Grokster decision was supposed to have won the argument for the entertainment sector. In 2005, the U.S. Supreme Court set aside two lower court rulings that favored Grokster and unanimously found the file-sharing service could be sued for inducing copyright infringement.

Supreme Court Justice David Souter wrote in the court’s opinion: “We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”

Many copyright owners hoped that case would kill off illegal file sharing. It didn’t. Plenty of companies continued to challenge big music labels and film studios. Unlike most of the other services that tangled with the entertainment industry, Lime Wire had the financial resources to fight an extended legal battle. Sure, Lime Wire became the largest music-sharing service, but the company stands out mostly for its ability to stick around.

Lime Wire claims to have amassed more than 50 million unique monthly users since releasing the software in May 2000. LimeWire is free peer-to-peer software, but the company also sells a premium version called LimeWire PRO for fees of up to $35 a year. In her decision, Wood noted that Lime Wire grew annual revenue from $6 million in 2004 to $20 million two years later.

In August that year, the music industry filed its copyright suit against Lime Wire. The case dragged on, but in her finding Wood made it clear there was plenty of evidence to support her decision. She found that Lime Wire was aware of substantial infringement; made efforts to attract infringing users; enabled and assisted users to commit infringement; and depended on copyright infringement for the success of its business.

According to USC’s Lerner, Wood’s decision is just a continuation of a long-running trend.

“You had to see this coming,” Lerner said. “Courts are increasingly hostile to P2P services when a massive percentage of files on their networks are infringing.”

He noted that the absence of significant filtering technologies and legitimate notice-and-takedown policies (which enable a copyright owner to alert service operators of the existence of pirated content on their sites) can hurt file-sharing services in these kinds of copyright cases. Lerner said that YouTube, which is being sued by Viacom for copyright infringement, is an example of a “good actor,” a company that has set up filtering systems and takedown notices. It must be pointed out that Viacom thinks differently.

When it comes to Lime Wire’s case, most of the experts say that an appeal won’t likely prevent the RIAA from being granted an injunction.

One way out of the mess is for Lime Wire to cut a deal with the record companies. One scenario would be for is for Lime Wire to turn itself into a legal music retail store, said Chris Castle, an entertainment lawyer who represents artists and indie labels with a long history in technology. But based on Gorton’s record, Castle doubted the Gorton has any interest in creating a legitimate business. For that reason, Castle applauded Wood’s decision and said he hopes the RIAA goes for an injunction as soon as possible.

“I believe in injunctions in these cases,” Castle said. “When you are dealing with someone with a lot of money, you want to stop the behavior. You don’t want to put these people in a position where all they have to do is write a check or keep appealing. By letting (Gorton) continue you are allowing him to cause more harm. Get the injunction. Shut him down.”


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