Kazaa settles music industry lawsuit

NYT
July 27, 2006
Music Industry Announces Settlement With Kazaa
By ERIC PFANNER, International Herald Tribune

LONDON, July 27 — The music industry said today that it had settled its lawsuit against Kazaa, the digital file-sharing service that it accused of encouraging illegal copying and distribution of copyrighted music over the Internet by its users.

Kazaa’s Australian owner, Sharman Networks, agreed to pay more than $100 million to the major record companies and to transform itself into a legitimate, royalty-paying online music seller, according to the announcement from a record-industry trade group.

Kazaa also said today that it had agreed to settle a separate but similar lawsuit filed by Hollywood studios, which accused the service of aiding the illegal copying and distribution of movies. Details of that agreement were not immediately available, but Kazaa said the two settlements clear the way “to enable distribution of the broadest range of licensed content over Kazaa.”

“All the parties involved now recognize the time is right to work together, and we are looking forward to collaborating with the music and motion picture companies to make P2P an integral part of the future of online digital entertainment,” said Nikki Hemming, chief executive of Sharman Networks, in a statement.

P2P is shorthand for “peer to peer” network technology, which allows users to share computer files with one another over the Internet, including things like music and movies stored in digital form. Kazaa was a pioneer of peer-to-peer network software.

Record companies, film studios and others who sell copyrighted material say peer-to-peer services promote widespread piracy, which they say costs them billions of dollars in lost sales, and they have sued companies that build peer-to-peer services over the issue. An Australian court ruled against Kazaa last year in such a suit.

Under the agreement announced today, Sharman Networks will pay the major record companies — Sony BMG, Universal Music Group, EMI Group and Warner Music — “in excess of $100 million,” according to John Kennedy, chief executive of the International Federation of the Phonographic Industry, the London-based association representing the record companies.

“We are under no illusion that this solves everything,” Mr. Kennedy said, noting that other file-sharing services continue to thrive. “But this is very encouraging.”

The federation said that Kazaa agreed to license music from the record industry “majors,” which control most music copyrights. In making the switch to a licensed, royalty-paying business, Kazaa would follow Napster, one of the original file-swapping services, which was reborn as a music seller after an adverse court ruling in 2001.

Mr. Kennedy said that Kazaa executives had not said whether the company would now sell digital music through a flat-rate subscription arrangement or song by song, as other sites typically do. Kazaa now offers users free music downloads and makes its living from advertising on its site; Mr. Kennedy said the recording industry would not object to Kazaa sticking with that business model, as long as it pays royalties and stops illegal sharing of music files among users.

“The model going forward will be for them to decide,” Mr. Kennedy said. “But they now have an obligation to keep their network clear of any unauthorized files.”

Though the settlement does not call for the major music companies to buy a stake in Kazaa, it does entitle them to receive 20 percent of the proceeds if Sharman Networks ever sells Kazaa, Mr. Kennedy said, a provision that gives record companies an incentive to help Kazaa succeed.

Mr. Kennedy said the industry would continue to go after digital piracy in the courts, where it has already won legal victories against other peer-to-peer sites like Grokster and Morpheus. Still, he said he hoped that the deal with Kazaa would serve as a model for deals with other file-sharing services.

Music company executives welcomed the settlement with Kazaa.

“While the award may seem like a vast pot of money, it will merely offset the millions we have invested — and will continue to invest — in fighting illegal pirate operations around the world and protecting the works that our artists create,” said David Munns, vice chairman of EMI Music, in a statement.