Digital Media

A federal judge ruled late Thursday that Joel Tenenbaum, a 25-year-old Boston University graduate student, has violated copyright infringement laws by illegally downloading and sharing music on the Internet.

Tenenbaum could end up owing the recording industry millions of dollars in damages for swapping music online. The jury is considering monetary damages on Friday. The question the jury must consider in assessing the damages is whether his infringement was willful. This will help determine how much in damages should be awarded to the four recording labels that sued him over the illegal file sharing.

The music studios are entitled to $750 to $30,000 per infringement according to federal law. But the law also gives the jury discretion to raise that to as much as $150,000 per track if it finds the infringements were willful. This means that if the jury gives him the maximum punishment, Tenenbaum could owe as much as $4.5 million.

Tenenbaum admitted on the witness stand Thursday that he downloaded and shared hundreds of songs. The studios suing Tenenbaum have only focused their case on 30 songs. Tenenbaum's lawyers said after he testified that he did not understand the implications of his admission, according to a story on the Boston Globe's Web site.

But the judge didn't buy it. U.S. District Court Judge Nancy Gertner said in her ruling that "Tenenbaum's statement plainly admits liability on both downloading and distributing, does so in the very language of the statute...and does so with respect to each and every sound recording at issue here."

While the music industry has taken legal action against file-sharing Web sites and other file sharers, only two cases involving individual file-sharers have gone to trial.

Jammie Thomas-Rasset from Minnesota also fought her case in court. Last month, a federal jury in Minneapolis ruled she must pay nearly $2 million for copyright infringement.

Most complaints against people sharing music illegally have been settled out of court, with defendants paying a total of about $3,000 to $5,000.

Updated at 4:10 p.m. PDT: The Boston Globe later updated its story to say the jury ordered Tenenbaum to pay the RIAA $675,000, or $22,500 for each song.

Pirate Bay spokesperson Peter Sunde jokes: "I owe u 30,000,000 SEK" (30 million Swedish kronor, or $3.6 million) during the Pirate Bay web press conference.

(Credit: Mats Lewan/CNET)

The verdict has been handed down in the Pirate Bay file-sharing case, but the legal actions are far from done.

"The prosecutor leads 1-0 after the first round, but this will of course be appealed," said Per E. Samuelsson, defense lawyer for Carl Lundström, one of the four individuals sentenced in the Pirate Bay trial, according to the Swedish newspaper Dagens Nyheter.

Samuelsson calls the verdict a scandal. He also claims that his client will have to pay the damages ruled by the court--a total of $3.6 million--because the other three sentenced lack economic resources.

Lundström has been financing a great part of Pirate Bay's operations.

In the verdict, the court regards Lundström as one member of a team. Peter Sunde, spokesman for the Pirate Bay and another of the four sentenced, found this odd.

"We barely know Lundström," he said in an interview broadcast live on the Internet shortly after the verdict on Friday morning. (The interview starts in Swedish but continues in English at about 5:00 minutes in.)

"We cannot pay and we wouldn't pay," Sunde said, then wrote on a piece of paper and showed it to the camera: "I owe u 31,000,000 SEK -- just kidding." That's 30 million Swedish kronor, or $3.6 million.

Sunde continued: "Even if I had the money, I would rather burn everything I own."

Defense lawyer Jonas Nilsson, who represents Pirate Bay's Fredrik Neij, expressed surprised over the verdict--which he, like Samuelsson, called "just the first round."

"I had expected them to be cleared. $30 million Swedish kronor is an enormous amount. It's obvious that the court has followed the policy of the prosecutor. I think this is a clear case for the Supreme Court."

Another critic of the verdict is Christian Engström, vice president in the Pirate Party political group that has a close connection to Pirate Bay.

"I recall what copyright organizations such as IFPI have said. That in case of a conviction, the verdict would be used as an argument to claim blocking of websites that deal with file sharing. That would correspond to banning books and newspapers," he said, according to the Swedish newspaper SvD.

The International Federation of the Phonographic Industry and other film and music industry groups saw the verdict as a victory for copyright holders.

Sunde seems to be the one who worries least about the court's ruling.

"You can look upon it as a movie, at the point when the heroes just have had the first real setback. But thanks Hollywood! You have taught us that in the end the good will win. And it will be a really big victory", he said.

Update, 8:44 a.m. PDT: Added comments from U.S. copyright owners.

Both copyright holders and some Pirate Bay supporters see opportunities to promote their causes as a result of the verdict handed down Friday in the Pirate Bay file-sharing case.

The large penalty--$3.6 million in damages to be paid to the copyright holders--will likely discourage illegal file sharers, according to those in the music business. In addition, each of the four defendants, Peter Sunde, Fredrik Neij, Gottfrid Svartholm Warg and Carl Lundstrom, were sentenced to a year in jail.

Reaction in the United States from those in the music and movie industries was tempered by the fact that the legal process has a long way to go. Still, Rick Carnes, president of the Songwriters' Guild of America, said he and everybody else "put out of business by cyber-looting" was smiling after the verdict.

"I would like to tell the Pirate Bay the same thing everybody has told us for the past 10 years," Carnes said. "They should go out and find a new business model, one that doesn't involve profiting from stolen property...What everybody who steals music should realize is that e-looting is not a victimless crime. Everyone who does it is hurting themselves. They are killing the music.

"They are turning the Internet into a cyber Somalia," Carnes continued, "and that doesn't do any good for anybody."

Mitch Bainwol, CEO of the Recording Industry Association of America (RIAA), said the Swedish court's decision should serve as a reminder to those who illegally share files. "Piracy can sound romantic and glamorous, but as this decision reminds the world--digital theft is illegal, damaging and for those convicted, consequential," Bainwol said.

The Motion Picture Association of America, the lobbying group for the film industry, called the decision a victory for copyright owners.

"We welcome the court's decision today because The Pirate Bay is a source of immense damage to the creative industries in Sweden and internationally," the MPAA said in a statement. "This is an important decision for rights-holders, underlining their right to have their creative works protected against illegal exploitation."

The International Federation of the Phonographic Industry expressed hope for new music downloading services to replace Pirate Bay.

"This is a very interesting signal to the entrepreneurs who are about to launch better services that are legal so the consumers can get even better alternative," Ludvig Werner, chairman of IPFI Sweden, told Swedish Public Radio SR.

The Pirate Party political group--which has been supporting Pirate Bay and thus has gained popularity among the large number of file sharers in Sweden--also sees the verdict as an opportunity. The verdict is the "ticket to get elected to European parliament" in June, the Pirate Party said in a press release.

An estimated one in 10 people in the Nordic country engaged in file sharing last year.

The Antipiracy Agency, an organization based in Sweden that's supported by a consortium of film and game organizations to fight Internet piracy, welcomed the verdict and wants the authorities to finally act on the Pirate Bay site, which for the moment is still up and running.

"Now it is an urgent matter for the authorities to act on Pirate Bay's illegal activities," Henrik Pontén, a lawyer at the Antipiracy Agency, said in a press statement after the verdict. "Today's verdict clarifies the legal position."

CNET writer Greg Sandoval contributed to this report

Yesterday, New York Times columnist Thomas Friedman wrote a post suggesting that president-elect Obama needs to do more than throw money at ailing industries, but actually needs to "reboot" America by investing in infrastructure and education. In Newsweek, law professor and intellectual property thinker Lawrence Lessig argued for a more narrowly focused reboot of the FCC, which should be encouraging technical innovation but instead tends to favor big incumbents.

But what about the music industry? Yes, the big labels have earned a lot of scorn for their technophobia and suing their customers--a practice which finally ended last week--but music is a multibillion-dollar industry, responsible for employing hundreds of thousands of people, and in the midst of several years of steep sales declines. If we can bail out the U.S. auto industry, and spend at least a trillion dollars saving the global financial system and reinvesting in infrastructure, surely we could spare a dime for the music biz.

Serious economic thinkers might scoff at the comparisons--finance touches everybody, and our entire infrastructure has been designed around the automobile--but music's more than a lark or a luxury. It's a core part of the entertainment industry, which is one of the few areas in which the United States is still an exporter and world leader rather than an importer. Even The Economist has acknowledged the deep biological importance of music, leading off its annual double Christmas issue with an investigation of why we love music.

As with Friedman's proposal to save America, my proposal to save music would start at the bottom--it's not enough to give the big labels and radio stations a few hundred million dollars to stem their losses and encourage re-investment. Instead, we need to create a culture of music appreciation and nurture the talent that will lead to the next generation of musicians. Here's my dream list:

Music education and training. In the U.S. education system, music and art are the last classes to be funded and the first to face cuts. Yet, we always seem to be able to spend another few million on sports fields and equipment. The U.S. government should mandate funding for music education beginning in fourth grade, when most kids develop the attention span and coordination necessary to learn an instrument, all the way through high school. This will not only contribute to a strong base of musical performers, but the kids who lack the talent or drive to pursue music as a lifelong hobby will at least learn to appreciate the skill it takes for others to pursue it--just like youth sports creates lifelong sports fans. And professional musicians should be able to take classes in new areas--theory, audio production--without having to pay the entire tuition out of their own pockets.

Tax breaks. Bars, restaurants, and nightclubs under a certain capacity should be given tax incentives to hire musicians. (I'm not so sure about big promoters like Live Nation or stadium-type venues.) Same with radio stations that play a certain percentage of music from local or unsigned musicians. (Big corporate radio with its narrow audience-tested playlists has done far more to devalue music--and harm sales--than the Internet.) Cities should be encouraged to create music-nightlife zones with less-stringent noise restrictions and the appropriate level of police protection.

Stipends for musicians. As romantic as punk-squatters might seem, being a musician doesn't have to mean a life of poverty. Canada offers grants to non-classical musicians, including emerging artists with "self-training" (read: rock musicians). Yes, they must have shown a viable career for at least two years, but a one-year grant could be the perfect bridge between promising local band and national club tour. If we can give the U.S. auto industry $17 billion, surely we can spare a few hundred thousand a year to give promising musicians a chance to postpone their day jobs while they try and find a bigger audience.

Infrastructure. It doesn't have to be all about roads, bridges, and high-speed data networks. Cities with decrepit or nonexistent classical venues should be given federal dollars for construction. National Public Radio should receive increased federal budget--with a requirement to devote a certain number of hours a day to music, particularly types of music and artists who don't get played on commercial radio.

I'm sure you can think of other examples. My point: we've treated music as a luxury--almost as a joke--for too long. I'm not asking for a national Minister of Rock (although Jack Black might be good), but as long as we're opening the federal floodgates to revitalize the economy, why not invest in something that people naturally love and that does no harm to anybody?

Happy holidays.

The budget for the music industry's trade group, the Recording Industry Association of America, will soon shrink as the major labels reduce costs and their dependence on file-sharing lawsuits, industry insiders said Friday.

Friday's startling news that the trade group representing the four largest music labels has declared an end to a long-running legal campaign against file sharing will mean a reduced role for the RIAA, which is coming up on its yearly budget review, according to a source close to the group.

But in a climate where digital music sales are growing, though not fast enough to make up for the losses from shrinking CD sales, the trade organization was already headed toward likely cutbacks. One source said that one of the top four labels has already begun making noise about lowering its contribution to the organization.

An RIAA representative declined to comment.

The RIAA has seen budget cuts for the past several years, and both sources said the organization isn't going anywhere. The group still lobbies Congress on behalf of the music industry and artist rights.

Now, with a less litigious agenda, perhaps the RIAA will need one or two fewer lawyers.

See also:
• RIAA drops lawsuits; ISPs to battle file sharing
• Copy of RIAA's new enforcement notice to ISPs
• Lawsuits or not, the RIAA still doesn't understand us
• RIAA president: 'No talk of blacklisting'

The music industry's highly controversial strategy of suing customers for file sharing has mostly ended.

The Recording Industry Association of America said Friday that it no longer plans to wage a legal assault against people who it suspects of pirating digital music files. What the RIAA should have said, though, is that it won't go after most people who illegally file share. My music industry sources say that the RIAA will continue to file lawsuits against the most egregious offenders--the person who "downloads 5,000 or 6,000 songs a month is still going to get sued," a source at a major record company told me.

The strategy of suing music fans has long been criticized by artists, consumers, and even some record-label executives. Critics have said it alienates music buyers and more importantly has been ineffectual. Now, the music industry has a new form of protection: Internet service providers.

According to a story in The Wall Street Journal (subscription required), which broke the news about the RIAA's new strategy, unidentified Internet service providers have agreed to "reduce the service," to chronic file-sharers. Exactly what a reduction of service may include isn't specified, but a source close to the situation said that none of the ISPs have agreed to limit a user's bandwidth, a practice known as throttling.

The way the new enforcement system will work is that the RIAA will alert an ISP that a customer appears to be file sharing. The ISP will then notify the person that he or she appears to be file sharing. If the behavior by the customer doesn't change, then more e-mails will be sent. If the customer ignores these e-mails, then the ISP may choose to suspend the person's service. If all else fails, they can choose to discontinue service.

Under the plan, which was brokered by New York State Attorney General Andrew Cuomo, the music industry will not know the customer's identity. What this means is that ISPs have now gone into the enforcement business, and this has always been one of the greatest fears of those who have wanted ISPs to remain neutral.

"This is very troubling," said Cindy Cohn, legal director for the Electronic Frontier Foundation, a group that advocates for Internet rights. "Creating lists of people who can't get Internet access based on allegations of breaking a law that hasn't been evaluated in a court of law. It's good that that the (RIAA) wants to stop suing individuals but they should haven't done it in the first place. I'd be especially concerned if the music labels can get you kicked off one ISP and then arrange to get you kicked off others, or the creation of blacklists. That's certainly what our fears have been about private legal enforcement regimen."

Was litigating against file sharers an effective deterrent? That depends on who you ask. To many music fans, the practice was a loathsome and heavy-handed approach that only served to inspire people to resist efforts to keep them from obtaining music. To those in the music industry, it helped alert the public following the Napster era--when many consumers believed there was nothing wrong with sharing music files--that pirating music harmed artists and record stores, and was also against the law.

But according to most of the data, the lawsuits didn't prevent illegal file sharing from growing. At the same time, the strategy also alienated scores of potential music buyers.

The truth is that the music industry no longer needs the RIAA to chase after large numbers of file sharers. Sure, music piracy still thrives but is less and less about the mainstream. The industry has learned that the answer to piracy isn't to intimidate people into obtaining music legally. The recording companies have made music available in ways that actually appeal to consumers.

If people don't want to pay for music, they can go to MySpace Music, YouTube or iMeem and listen to all the ad-supported streaming songs they want. And a huge number of digital music fans are willing to pay for songs at iTunes.

You can bet the ISP deal is going to be controversial one, but before going on to the next fight, I think music fans should celebrate the end of a dark period in the industry's history.

See also:
• Copy of RIAA's new enforcement notice to ISPs
• Sources: RIAA budget will shrink soon
• Lawsuits or not, the RIAA still doesn't understand us
• RIAA president: 'No talk of blacklisting'

A new digital music service is getting lots of attention for proposing to help consumers sell their used MP3s in much the same way people once unloaded second-hand albums.

Bopaboo has generated splashy headlines recently for coming up with what on the surface seems like a good idea. Music fans have always exercised their first-sale rights, which under copyright law, allows them to sell their unwanted CDs, tapes, and albums without permission from the copyright owner. Why can't they do the same with digital music?

But there are dramatic differences between physical and digital music. For this reason, Washington, D.C.-based Bopaboo appears to be careening toward a head-on collision with the recording industry. According to Bopaboo CEO Alex Meshkin, he will soon meet with executives from the major labels and execs there will no doubt ask why they shouldn't set their attorneys loose on the service. They may also inquire about the controversy that dogged a then 23-year-old Meshkin when he was owner of Toyota's NASCAR team.

As for the legal questions involved with MP3 resales, Meshkin, 28, argues that the law allows consumers to sell digital media files in the same way they do physical media. That's not all together accurate. Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation, an advocacy group that supports Internet-user rights, says to the best of his knowledge, the issue has never been addressed in court.

Even von Lohmann, a well-known champion of the technology sector, sees potential problems with Bopaboo's legal argument. He says while its true that under the first-sale law people are allowed to sell CDs and other physical goods, it hasn't been established whether the law covers digital media. The good news says von Lohmann is that Bopaboo could raise the public's awareness about what may one day be an important issue for digital music.

"We shouldn't lose our first-sale rights just because the second-hand stores involved are online," von Lohmann said. "Up to now, there hasn't been a huge opportunity for people to spend large amounts of money on digital music, but as time goes on some music fans will have thousands of dollars invested in their digital libraries or audio-book collections. It would be a big change if you weren't allowed to sell them."

For Bopaboo to survive, the company will likely have to avoid a legal fight with the top four recording companies. For other digital-music services that have devised new ways to exploit music, the choices have always come down to partnering with the labels or getting sued. Meshkin said he will soon meet with music-industry representatives in New York and has already met with other important players in the sector. "The talks so far have been positive," Meshkin told CNET News on Wednesday.

One label executive I spoke with disputed Meshkin's version of the negotiations. "There haven't been any talks," said the executive. "They have asked to meet and we responded. That's it." A spokesman for the Recording Industry Association of America (RIAA) declined to comment.

To say that Meshkin has a tough job selling his idea to label honchos is an understatement. Bopaboo's service works this way: sellers register and are given an MP3 store where they upload the music they wish to sell. Music protected by digital rights management software isn't allowed. Bopaboo makes money by taking a percentage of sales.

The main difference between selling physical goods, such as a CD and selling a download is that a seller of physical goods loses possession of the merchandise after it's sold. That is not the case with digital files.

Controversy followed Alex Meshkin, far left, as a 23-year-old NASCAR team owner and now as the owner of Bopaboo, a digital marketplace where users operate their own download stores.

(Credit: Alex Meshkin)

A person could transfer numerous copies of the same song file as long as it was free of DRM. But Meshkin says his company can prevent repeat sales of the same song. Bopaboo has developed song-identification technology that prevents individuals from uploading more than one copy of the same song to the site regardless of how the file might be altered, Meshkin said. A copy is always produced when MP3s are transferred and that is retained on a computer's hard drive.

Meshkin didn't have any technological solution for that. He said that in such harsh economic times the music industry must accept a few risks. After all it was they who allowed their music to be sold without DRM in the first place.

"Obviously, MP3s are very easy to duplicate," Meshkin said. "It's very difficult to tell the difference between a so-called new copy and a so-called old copy."

The label guys are unlikely to just shrug their shoulders at this kind of set up, said von Lohmann.

"If you buy a song from iTunes' (DRM-free) store you can immediately go and sell a copy of the song on Bopaboo," von Lohmann points out. "You would be assured of getting a discount on your iTunes purchase. There is no doubt that the first-sale law was drafted with physical objects in mind. There's no question that you are allowed to sell books or CDs. But when it comes to selling MP3s, it's an untested legal question."

Another problem for Bopaboo, says von Lohmann is that some digital music stores specifically forbid the resale of songs. At Amazon.com for example, the terms of use agreement says customers must agree to "copy, store, transfer and burn" digital music for personal-use only. Customers also agree that they won't "redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer" the music.

I spoke with two label representatives who declined to comment for the record but told me they thought the resale of DRM-free songs could be the music industry's next big legal battleground.

Patrick Ross, executive director of the Copyright Alliance, a watchdog group made up of artists, producers and other content creators, chuckled when I explained Bopaboo's business model.

"Clearly a first-sale defense won't apply here," Ross said. "In the case of a book or any other creative work, you no longer possess the work once you sell it...It's also hard for me to imagine the model succeeding because if somebody wants to pay for works they will pay for it at a legal site and see that creators are compensated. If they are willing to break the rules, they would just go on (P2P service) Lime Wire and get it for free. I hope (Bopaboo) crashes and burns before it gets sued. It seems like a flawed business model as well as an illegal business model."

If the business model isn't a hard enough pitch to make to the music industry, Meshkin has the added burden of trying to explain his past.

In a February 2005 story, BusinessWeek questioned some of the claims Meshkin has made about his background and highlighted the controversy surrounding his oversight of a NASCAR racing team for Toyota at the age of 23.

According to the story, Meshkin was sued by one former executive with Bang Racing, his NASCAR team, and accused by some investors of misleading them about his personal wealth and ability to operate a racing team. Meshkin is quoted in the magazine denying the accusations. Toyota eventually pulled its support.

Rumors coming out of Europe that claim Apple will begin offering unprotected music files from the three largest recording companies on Tuesday are bogus, according to my music-industry sources.

Yes, Apple is in negotiations with the three biggest music labels, Universal Music Group, Sony Music, and Warner Music Group about acquiring licenses to sell music free of digital rights management software.

No, none of the deals is final as of Monday afternoon and one source told me it's unlikely Apple will have anything to announce regarding DRM-free music from the top labels before the end of the year. According to AppleInsider, a French tech-news site, ElectronLibre claims Apple will remove DRM from tracks published by the top three labels on Tuesday.

An Apple representative could not be reached for comment.

It's important to note that Apple and the music industry have been in talks before. Only one label, EMI, the fourth largest of the majors, offers DRM-free tracks on iTunes.

Many iTunes' competitors offer music stripped of copy-protection software and some fans of Apple's digital music store want Apple to follow. DRM software prevents music owners from freely moving their music to different devices. Another risk DRM poses to music owners is if a music vendor should stop issuing server keys the music will be locked onto whatever device it resides on.

Update Sept. 25, 4:47 a.m. PDT: MySpace and the four record labels have officially unveiled MySpace Music.

NEW YORK--Media mogul Rupert Murdoch will officially take on Apple CEO Steve Jobs on Thursday.

That's when MySpace is expected to launch MySpace Music, the music service formed by the world's second largest social network and all four of the largest recording companies, executives from the News Corp.-owned social network said Wednesday.

MySpace executives said the EMI Group, which took much longer to join the venture than its three competitors, will make its entire music library available to the venture. MySpace has also partnered with Sony ATV, which partners with indie distributors like The Orchard, Alternative Distribution Alliance, Caroline, RED, and Fontana.

The service represents the most significant challenge to Apple--at least in terms of firepower--in some time. This is the first time the top labels have all joined in taking a stake in an iTunes competitor.

A MySpace Music playlist.

(Credit: MySpace)

Among the many challenges the service faces is that it offers no hardware solution. Apple can provide everything a music listener needs--hardware and software. MySpace hasn't attached itself to any popular music player, primarily because the iPod has such a huge market share. MySpace will sell songs, which will come from Amazon, in the MP3 format. This means they are not locked in digital rights management and will play on the iPod and most other devices.

MySpace has long been an Internet concert hall, where bands went to market their wares to the Web, and that's a big part of the reason why the Los Angeles-based site rose to fame in 2004. According to MySpace, 65 percent of its users already have streaming music on their profiles and six billion songs are played every month. On the flip side, neither MySpace nor News Corp., has much experience in music retail; consider that Apple has zoomed past Wal-Mart to music retail's top spot. Some critics have said that something like MySpace Music should have been in place on the site years ago.

But after reviewing the site with the help of Steve Pearman, MySpace's senior vice president of product strategy, it's clear the site has a few things going for it.

The coolest thing I saw was the site's streaming music player. A person can search for music from all four major labels, drag as many as 100 songs into a playlist area and then listen to complete songs without paying a dime. Of course, the music is restricted to PCs and can't be downloaded to mobile devices. Sites like Imeem and Last.fm (owned by CBS Interactive, which publishes CNET News) also have significant head starts in this area, and streaming playlists are integral to the distribution strategy at iLike, another music start-up that has a very close relationship with MySpace rival Facebook.

What MySpace doesn't do is send users to another site to buy. On MySpace Music, the music listed on an artist's profile page will have "Add" and "Buy" buttons. A user can either hit add to include a song to a playlist or hit buy to instantly purchase the music. Amazon users won't even need to create a new purchasing profile. They can use their existing accounts.

The inaugural advertisers on MySpace Music are McDonalds, State Farm, Toyota, and Sony Pictures Entertainment--which will, conveniently, be advertising on all MySpace Music playlists for a week with ads for its forthcoming teen flick, Nick and Norah's Infinite Playlist. That's just a little too perfect.

In addition to advertising support, marketing campaigns, (Toyota will be giving away free songs on Tuesdays, for example) and the Amazon MP3 partnership, MySpace Music will also sell ringtones through a partnership with Jamster. Some speculated that concert tickets and merchandise would also be sold somehow through the store, but that's not present at launch.

MySpace now has more than 120 million users worldwide, according to ComScore.

CNET News' Caroline McCarthy contributed to this report.