In their wide-ranging fight against online piracy, the music and movie industries have relied on a combination of carrots and sticks.
But on Friday, a federal ruling threatened to take away one of their sticks. And so far, fans have mostly turned up their noses at the carrots.
U.S. District Judge Stephen V. Wilson ruled that two of the largest file-sharing networks used by online pirates do not violate copyright laws. Wilson held that Grokster and Morpheus are not liable for copyright infringement because they have no control over their users' activity, even if much of it is illegal.
Friday's legal setback forces the entertainment industry to broaden its approach on three fronts: in the courts, in Congress and in the marketplace.
In addition to appealing Wilson's ruling, the movie studios and record labels may start suing individual users who trade songs. The industry is lobbying Congress to fortify anti-piracy laws. And at the same time, record labels are trying to enhance sanctioned online music services to win back fans.
Hours after Wilson's ruling, the trade associations for the record and movie industries vowed to appeal.
One of the industry's biggest legal sticks is a strategy of suing individuals, including college students who operate major file-sharing centers over their school's computer networks. The Recording Industry Assn. of America is suing Verizon Communications Inc. to force it to reveal names of customers accused of piracy.
One music label president, who spoke on condition of anonymity, said the industry has no choice but to sue young music fans. "It makes them angrier, but we have no other path right now," the executive said. "It's ridiculous what we're doing, but we have so few options."
As the case winds through the courts, the entertainment industry probably will turn to Congress for help. Wilson suggested in his ruling that "additional legislative guidance may be well-counseled."
On Capitol Hill, the industry could revive a bill from last year to let copyright owners search for pirated content on file-sharing services and delete it. Another step would be to tinker with existing copyright law by declaring illegal software programs whose primary purpose is to aid in copyright violation.
One of the most radical solutions, called compulsory licensing, would force entertainment companies to license their content to all comers. The government would collect a special tax on Internet service providers, file sharing services and computer manufacturers, and redistribute the money to artists.
Senior record executives said Friday that the ruling doesn't raise pressure on them to support the concept that is being backed by technology firms.
"It might be time to just forget about trying to channel the industry," said Jonathan Potter, executive director of the Digital Media Assn. in Washington. "Just get the content out there, anything to avoid a total loss of control."
Analysts say the case creates greater urgency for the industry to give consumers a compelling alternative to piracy. "The most effective way to combat unlicensed sites is to offer licensed services with reasonable consumer rules at attractive prices," said Phil Leigh, digital media analyst at Raymond James & Associates. "This attempt to enforce prohibition is a failure."
The fact that many of the most popular sites are polluted with pop-up ads, viruses, low-quality files and decoy files -- which seem like songs and movies but aren't -- creates an opportunity for the industry to offer a high-quality, hassle-free online option, Leigh said.