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Creator of Morpheus Is Found Liable

The entertainment industry cheers a judge's ruling that the file-sharing software encourages piracy.

September 28, 2006|Charles Duhigg, Chris Gaither and Dawn C. Chmielewski | Times Staff Writers

The last of the file-sharing chips have fallen.

A federal judge in Los Angeles ruled Wednesday against the creators of the Morpheus file-swapping software, saying that Woodland Hills-based StreamCast Networks Inc. encouraged millions of users to improperly exchange songs, films and other copyrighted material without permission.

In the ruling, U.S. District Judge Stephen V. Wilson cited e-mails sent by StreamCast executives, including one that stated that the "goal is to get in trouble with the law and get sued. It's the best way to get in the news."

The ruling is an unmitigated victory for the music and movie studios that sued StreamCast and other companies in 2001, arguing that so-called peer-to-peer computer networks encouraged piracy. Last year, the Supreme Court issued a landmark decision in the case, declaring that some technology companies can be held liable for distributing software that is used to violate copyrights, and returning the lawsuit to district court.

StreamCast was the only file-sharing company that continued fighting after the Supreme Court ruling. Grokster, another file-sharing network, settled a similar lawsuit for $50 million in November. Australia's Sharman Networks Ltd., which operates peer-to-peer network Kazaa, agreed in July to pay more than $115 million to settle global copyright infringement suits.

Wednesday's decision resolved the litigation and clarified the court's standard, declaring that StreamCast contributed to massive copyright infringement because the company developed a business model that relied on users who violated the law and it did not attempt to block the trading of copyrighted materials.

"Evidence of StreamCast's unlawful intent is overwhelming," Wilson wrote in his 60-page decision granting the entertainment companies' motion for summary judgment.

The court did not rule on what damages StreamCast must pay. The company could be liable for as much as $150,000 for each copyrighted work shared illegally through Morpheus. A StreamCast spokesperson said the company was disappointed by Wednesday's ruling and might appeal.

"The company maintains that StreamCast did not encourage users to infringe on copyrighted works and never intended to do so," the spokesperson said in a statement. "Morpheus will continue to discourage users from infringing upon copyrighted works."

Like most file-sharing software, Morpheus allows millions of users to scan one another's hard drives for songs, video clips and games that they can transfer to their own computers. Proponents of peer-to-peer technology say it has many legitimate uses. But Wednesday's decision made clear that when companies intentionally attract infringing users and fail to prevent the trading of copyrighted material, they can be held liable.

Wilson specifically cited e-mails sent by StreamCast executives. In one case, when a user complained about having trouble finding copyrighted songs by Elvis, a StreamCast employee encouraged the person to load unauthorized tunes onto the network. Observers said Wednesday's decision was unlikely to curb Internet piracy but would affect the corporate landscape.

"No longer are these types of operations going to be bankrolled by venture capital companies, by legitimate companies," said Aaron Moss, an attorney with Greenberg Glusker in Century City. "The days of trying to make money through peer-to-peer file-sharing networks are over."

StreamCast Chief Executive Michael Weiss was engaged in settlement talks until last week, according to sources close to the negotiations. But StreamCast's position was damaged, sources said, when Weiss told reporters that entertainment-industry lawyers were out for "revenge, retaliation and retribution."

Entertainment industry representatives said Wednesday's decision would strengthen their anti-piracy campaigns.

"This court has spoken clearly, powerfully and persuasively to the principle that businesses based on theft will be held accountable," said Mitch Bainwol, chairman of the Recording Industry Assn. of America.

"No single court ruling solves piracy or can make up for several challenging years for the music community, but there's no doubt that this particularly important decision means that the rules of the road for online music are better today than they were yesterday."


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