The peer-to-peer network has also agreed to pay $100m (53m) in damages to the record industry.

The announcement follows the release of a music industry report that says more than 20 billion music tracks have been downloaded illegally in the last year.

File sharing and music piracy are key factors in the recent decline in record sales, according to the music business.

International Federation of the Phonographic Industries (IFPI) estimates that 20 billion music tracks have been downloadedThe annual study also estimates that 1.2 billion fake CDs were sold in 2005. IFPI calculates that the global traffic in illegal CDs is worth $4.5 billion (2.4 billion), down $100m from 2004. The IFPI say the legitimate download market now consists of over 360 sites offering three million tracks for download. The legal download market last year was worth $1.1 billion globally.

One in three music discs sold worldwide is an illegal copy, creating a US$4.6 billion music pirate market that destroys jobs, kills investment and funds organized crime. A total of 1.2 billion pirate music discs were sold in 2004 – 34% of all discs sold worldwide

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A Reuters article on the subject contained a quote from John Kennedy, the chairman and chief executive of the International Federation of the Phonographic Industry. “There are very substantial damages being paid – in excess of $100 million – and Kazaa will go legal immediately,” he said. “They’ve had time to prepare for this.”

Although the music industry is celebrating, others don’t see the Kazaa defeat as such a big deal. Reuters also interviewed Jonathan Arber, an Ovum analyst, who spoke about the file-sharing network. “It’s nowhere near as popular as it used to be,” he observed. “Very few people are thought to be using it anymore because better services came out.”

“It is a big legal victory, a good symbol for them to put out,” Arber admitted, “but in terms of actually reducing piracy, people migrated to other file-sharing networks a long time ago.” There has also been a considerable shift towards legal means of obtaining music. Everyone from Apple to National Geographic has gotten in on that game.

Mitch Bainwol, the head of the Recording Industry Association of America (RIAA), gave a comment to the Associated Press on that topic. “Services based on theft are going legit or going under, and a legal marketplace is showing real promise,” he said.

Kazaa was something of a dinosaur, and its surrender may not have huge repercussions in a practical sense. But this is definitely a symbolic victory for the music industry; depending on your point of view, that’s either reassuring or very troubling.

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A publication of Interserver, Inc., run by John Newton, p2pnet was named in the suit alongside “John Doe, Jane Roe, Richard Roe, and Jane Roe,” all anonymous and still unknown commentators on Newton’s blog. The comments were directed toward Kazaa’s CEO Nikki Hemming in reference to a posting entitled “Nikki Hemming’s Money Mansion.”

The article relayed an Associated Press story about Hemming’s alleged sale of a multimillion-dollar Sydney, Australia mansion and funneling the funds to a tax haven in the islands of Vanuatu. The comments, listed in the suit by URL, are not currently viewable on the website.

Newton, who claims his website as a labor of love, says p2p.net brings in a very small amount of income. The costs of answering the lawsuit in court (to begin with), he says, are upwards of $30,000 Canadian. As such Newton will be setting up a way for fans to make donations for his legal defense while soliciting Canadian lawyers to take his case “pro bono”

Questions still remain in Canada and the United States about whether a blog publisher can be held responsible for libelous commentators. So-called “John Doe lawsuits” are becoming more prevalent from entities like the Recording Industry Association of America (RIAA), fishing ISPs for copyright violators, and SEO company Traffic Power, who sued Aaron Wall of SEO Book for similar reasons to Kazaa. The Traffic Power case was dismissed on jurisdictional grounds and the company did not pursue an appeal.

Some legal experts say the distinction may be made about whether publisher moderate the comments. If so, then that can be considered a form of editing, thereby becoming a choice of messages to convey. For others, the issue is about freedom of speech and not indulging companies in so-called “slap suits” filed to silence public detraction.

Critics applaud or assail the anonymous condition the Internet offers. While some think it is essential for free expression, others believe it opens up third parties to legal liability and shields criminals participating in unlawful or immoral conduct.

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"Have you ever had a dream, Neo, that you were so sure was real? What if you were unable to wake from that dream? How would you know the difference between the dream world and the real world?"
-- Morpheus, The Matrix

Twenty-two defendants including online auctioneer eBay have been named in StreamCast’s action against the original Kazaa co-founders, Niklas Zennstrom and Janus Friis. The duo also founded Skype, which they sold to eBay in 2005. Now they have been accused of a plot to steal away StreamCast’s right to match offers for the technology by selling it to companies they secretly controlled.

StreamCast described the actions of Skype’s/Kazaa’s founders and the other defendants (but not eBay) as an “elaborate over-seas shell game” focused on stealing and profiting from StreamCast’s FastTrack technology. FastTrack had been the component in Morpheus that enabled peer-to-peer connections to take place.

FastTrack allegedly made its way into the Skype VoIP software, according to the complaint. StreamCast claims it had the first right to acquire FastTrack and other assets, but through the transfer of the technology to various holding companies set up by Skype’s founders, they were able to take the technology and the Morpheus userbase away from StreamCast.

“We are taking action because we believe the rights to the Skype and FastTrack technologies were swept out from under our feet, and our 28 million Morpheus users were stolen from us,” said Michael Weiss, CEO for StreamCast Networks. “The real story needs to be told.”

The company also suggested eBay did not do enough to determine that Zennstrom and Friis had been involved with Kazaa and Sharman Networks of Australia, Kazaa’s distributor. Also, they said eBay should have known that StreamCast had ownership rights to the technology, though Skype’s founder said otherwise.

StreamCast asked for actual and punitive damages of at least $16.4 billion, an injunction against Skype, and a jury trial.

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Justice Murray R. Wilcox, senior associate judge of the court, found Sharman and five of nine co-defendants guilty enticing and enabling Australians to make and distribute audio files without a license. Wilcox did not classify the offense as a conspiracy to entice and enable the infringements, however, as Universal Music Australia Pty. Ltd. and 29 other applicants would have preferred.

As a result, Kazaa is to be discontinued in Australia. The order goes into effect in two months if Kazaa hasn’t taken measures to update the network so that copyrighted files are protected. Sharman was also required to broadcast a message asking P2P members to update their current version of Kazaa to include these measures.

Sharman argued that Kazaa users were often warned about copyright infringement, an assertion the judge dismissed.

“The Kazaa website contained warnings about copyright infringement,” writes Justice Wilcox. “The EULA was clear. These steps were substantially ineffective. However, that was not because users were not warned; it was because they were unwilling to allow the warnings to affect their behaviour. The fact that this unwillingness was encouraged by other material on the Kazaa website does not mean there were no warnings.”

The defendants were also critical of the music industry’s lack of effort in using technology to protect copyrighted material on discs. This argument also lacked a landing pad in court.

“I understand the argument in favour of more widespread licensing of copyright works. No doubt that course would have commercial implications for sound recording distributors. Whether or not they should take it is a matter to be determined by them. Unless and until they do decide to take that course, they are entitled to invoke such protective rights as the law affords them,” wrote the judge.

The once-popular file sharing Kazaa platform encouraged people to infringe on music copyrights, numerous sources have reported. As a result, a federal court in Australia has directed Kazaa parent Sharman and its American partner AltNet to make changes to the P2P technology, according to Cnet.

To satisfy the court, Kazaa must either incorporate “non-optional” filtering technology within the software and force users of existing versions to upgrade to it; or, Kazaa’s partner on search technology, AltNet, must restrict its Top Search technology to only non-copyright infringing works.

The court also directed Sharman and its partners to pay 90 percent of the music industry’s court costs. Music executives probably won’t be completely happy with the decision, as the court brushed aside the industry’s contention of trade practice contravention and acts of criminal conspiracy by Sharman et al.

Damages have not yet been set. A future court date will determine if those claims are valid, and if so just how much Sharman will have to pay. Sharman and AltNet probably did not help themselves with their actions in response to the ongoing suit. Cnet quotes Justice Murray Wilcox:

Kazaa has been seen as a spyware delivery product, with a number of posts and complaints online about its practices. Networks like eDonkey, and to a lesser extent Gnutella, have superceded Kazaa’s place in the file sharing world.

David Utter is a staff writer for WebProNews covering technology and business. Email him here.

The most interesting part of the interview:

[...] He believes Skype will take away revenue from phone calls, which is the bulk of the revenue for phone companies. “That will go away in the future – all phone calls will be free. That’s obviously an issue for them. On the other hand, Skype, just like Kazaa and other software, are encouraging people to buy broadband connections. Today, less than half of the population has broadband. This enables the phone companies to sell broadband to the other half.”

As for the future, Zennstrm says Skype is a long-term project. “We have just started, and if you compare the number of people using Skype to the number using a telephone network around the world, we’re still just starting. And now we’re also very much focussing on moving away from the computer into mobile devices, so you can use Skype for free wirelessly.”

And there’s the continually-sounding alarm bell for the telcos – if they can’t move quickly and effectively with VOIP (and, clearly, they can’t), service providers like Skype will continue to disrupt their markets. Just look at some Skype numbers so far, including 10 billion minutes of phone calls. Then there’s video conferencing with tools like vSkype.

It looks as though most telcos still don’t see what’s happening around them. Can that really be true?

BBC News | How Skype and Kazaa changed the net

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According to E-Commerce Times, Judge Wilcox is “troubled” over whether or not Kazaa offers a legitimate reason for its existence. In a statement to court, Judge Wilcox indicated the makers of Kazaa introduced the product knowing its potential for misuse. Their report goes on to say:

The record companies claim Kazaa’s owners are liable for millions of dollars in lost revenue caused by the illegal downloading of up to 3 billion songs and music files each month by the network’s 100 million users worldwide.

Kazaa’s owners say they are merely allowing computer users to share information, and that they shouldn’t be held responsible for any illegal activity by people using the software.

So here’s what it comes down to: are the makers of Kazaa liable for introducing a product that can be used for what some would call illegal means? Or are they “innocent bystanders,” much like the makers of dual cassette recorders (Sony, JVC the list goes on) were considered to be in the 80s?

Chris Richardson is a search engine writer and editor for WebProNews. Visit WebProNews for the latest search news.

Legal experts are quoted as saying that this may be a preemptive by Sharman Networks, which owns Kazaa, to legitimize the software.

“The notion that we do something as major as that for any reason other than straightforward commercial reasons is no, absolutely not,” commented Alan Morris, executive vice president of Sharman Networks in Sydney, Australia. “There’s absolutely no way, you go ‘OK, this will be really good if they criticize us.’”

The phone service is expected to be included in a Kazaa upgrade release later this week.

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