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Wednesday, January 29, 2003
Record companies face Web hack, Kazaa countersuit...

Big record companies, reeling from weak CD sales and the popularity of Internet song-swapping, on Tuesday faced a backlash in court and in cyberspace as they battled to collect royalties on the Web. The parent of the Kazaa song-swapping service counter-sued the industry late Monday in the same Los Angeles federal court that is hearing the industry's suit against Kazaa, whose users can download digital songs, movies, and other files for free.


Kazaa's parent, Sharman Networks Ltd., charged the industry with engaging in anti-competitive behavior because it sought to shut the site down rather than release songs in a format that would allow Kazaa users to make royalty payments.

The RIAA has spearheaded an aggressive legal battle against Kazaa and other Internet "peer-to-peer" networks since they emerged three years ago. The trade group shut down pioneer service Napster (news - web sites) Inc. only to see successors proliferate; Kazaa claims its software has been downloaded 179 million times.

The RIAA has more recently begun to target individual users of song-swap services, incurring the wrath of music fans who view big record labels as a bully. Sharman's counter-suit accused big record labels of violating antitrust laws, promoting their own online systems, MusicNet and pressplay, rather than cooperating with Kazaa.

An RIAA statement dismissed Kazaa's claim as "laughable." The RIAA and a motion-picture trade group won a recent legal round against Kazaa when a Los Angeles judge ruled that Sharman could be prosecuted in the United States even though it is registered in the Pacific island tax haven of Vanuatu.

In its counter-suit, Sharman said it has never knowingly allowed or promoted copyright infringement as it cannot control or monitor user behavior. The company said it purchased Kazaa from its founders to provide a distribution system that would pay royalties to artists and record companies.

Roughly 500,000 files daily are now downloaded with such rights protection, the company said in its lawsuit. The U.S. Justice Department (news - web sites) is investigating MusicNet and pressplay for possible antitrust violations, but has not taken action.

The RIAA said "Sharman's claims are akin to the thief who plunders Fort Knox and then claims she's not responsible because Fort Knox declined to buy her second-rate security system." A lawyer specializing in copyright and trademark law doubted Sharman's counter-suit would succeed, saying private antitrust cases are notoriously time-consuming and expensive.

"Once the defendants realize what's really involved in prosecuting an antitrust case, they're going to lose their enthusiasm really quickly," said William J. Heller, an attorney with McCarter and English in New Jersey.


Meanwhile, the RIAA's Web site at ( remained offline as FBI and Secret Service officials probed the source of the attack that has targeted the site since at least last Friday. "How pathetic that those who want free music don't believe in free speech," said the RIAA's Amy Weiss.

RIAA officials said they believe the attack is unrelated to the "SQL Slammer" virus that knocked out online databases and disabled wide swaths of the Internet over the weekend. Instead, one RIAA official compared it to the targeted "denial of service" data blitzes that have occasionally overwhelmed prominent government and industry Web pages.

Technicians would probably have the site up and running again soon, the official said. An FBI spokesman confirmed that investigators were probing the hacker attack. RIAA member companies include AOL Time Warner's Warner Music; Vivendi Universal, Sony Corp.'s Sony Music; Bertelsmann AG's BMG Music; and EMI Group Plc.

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