Grokster settles with studios

Agrees to cease operations and pay up to $50M

By Paul Sweeting -- Video Business, 11/7/2005

NOV. 7 | WASHINGTON—Grokster is no more.

The major studios on Monday announced a settlement in their 4-year-old lawsuit against the peer-to-peer network developer, under which Grokster will cease distributing its software and no longer support or maintain any part of its network. The company also is required to pay $50 million in damages, although that amount could be reduced depending on the outcome of related cases.

The settlement brings to a close one part of the long-running case, which reached as high as the U.S. Supreme Court.

In July, the court ruled 9-0 that Grokster could be held liable for inducing its millions of users to infringe the copyrights of the studios and music companies, even if the technology itself could not be banned. That ruling sent the case back to the trial court for further proceedings.

But that trial is now off, with the announced settlement.

By midday Monday, Grokster’s Web site carried this message: “The United States Supreme Court unanimously confirmed that using this service to trade copyrighted material is illegal. Copying copyrighted motion picture and music files using unauthorized peer-to-peer services is illegal and is prosecuted by copyright owners. There are legal services for downloading music and movies. This service is not one of them.”

The message also said Grokster hoped to return in the future as a licensed operation.

“The Supreme Court in its ruling sent a strong and clear message that businesses based on theft should not and will not be allowed to flourish,” Motion Picture Assn. of America president Dan Glickman said. “The clarity of the court’s decision combined with this settlement provides the content and technology sectors a window of opportunity which I think ultimately will greatly benefit consumers.”

The Grokster settlement does not end the case completely, however.

Grokster co-defendant Streamcast Networks is not a party to the MPAA’s agreement with Grokster and was still operating on Monday. An attorney for Streamcast, Fred von Lohmann of the Electronic Frontier Foundation, declined to comment on whether settlement discussions are under way with studios.

A third defendant, Kazaa-owners Sharman Networks, was sued separately by the studios. Sharman also is not covered by the Grokster agreement.

“The bottom line is this won’t make any difference in the real world,” von Lohmann said of the settlement. “People who have already downloaded Grokster’s software will go right on using it tomorrow, just as they always have. They can also go to any of the other places on the Internet that offer FastTrack and download it.”

Grokster’s peer-to-peer system is based on the same FastTrack technology that powers many other P2P systems.

Grokster principals Daniel Rung, Matthew Rung and Michael Rung also are named as defendants in a lawsuit brought by songwriter Jerry Lieber against FastTrack and its owner, Consumer Empowerment BV.

Under the settlement with the studios, the $50 million in damages Grokster has agreed to pay can be reduced by an amount equal to any monetary judgment against it in the FastTrack case.