LimeWire versus the RIAA: Part II
p2pnet.net News Special:- An astounding court document details the on-going infamies of Warner Music, Vivendi Universal, EMI and Sony BMG, the members of the Big Four Organized Music cartel, in their stop-at-nothing attempts to to gain complete and total control of how, and by whom, music is distributed online.
Behind the document is p2p company LimeWire which, in the process of filing it, not only determinedly takes up the fight against Big Music on its own behalf and that of the surviving independent p2p companies, but also provides priceless ammunition for lawyers defending cartel sue ‘em all victims.
Among other things, LimeWire accuses the Big Four of violating US state and federal personal privacy laws and the Digital Millennium Copyright Act (DMCA) by, “hacking and exploring the files of LimeWire users in order to frighten legitimate users of the LimeWire”.
And interestingly Altnet, the company marketing a DRM application once described by Freetnet’s Ian Clarke as a ‘lame duck‘, and deeply associated with Australia’s Sharman Networks and Brilliant Digital Entertainment, features strongly in the claims.
Kazaa p2p application owner Sharman recently joined the ranks of the corporate music industry after ‘settling’ with it.
Calling for trial by jury in what’s certain to be a landmark case, p2p company LimeWire has amended and expanded counterclaims in its lawsuit against the RIAA, says Recording Industry vs The People, stating:
“The counterclaims allege that the record companies and their co-conspirators ‘conspired to delay and disrupt the entry and emergence of [P2P], and to extend their oligopoly in the distribution of recorded music over the new market for the electronic distibution of music via the Internet.” (Paragraph 28).
“They further allege that the RIAA “sought to preserve the market power they possessed by conspiring to refuse to license their catalogs for competitive digital distribution, and instead acting together to delay and inhibit digital distribution both of the recorded music they controlled and what little recorded music they did not control.”
Rather than offer excerpts, we’ve broken the relevant sections out of the court document. It’s long, but fascinating.
Go here for the full document.
For now, thank you, Mark Gorton (left) and Greg Bildson.
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LimeWire versus Big Music
The recorded music industry involves several distinct layers of businesses that have evolved significantly in the latter part of the 20th century and early part of the 21st century.
Artists, including performers and composers, create music that is recorded. To reach a large audience of potential buyers of the recorded music, artists traditionally needed radio and/or television broadcasts of their recordings which, along with concert performances and advertising, could inform consumers of the availability of an artist`s music and stimulate purchases of recorded music. Thousands of artists create recorded music that is sold or licensed to consumers.
Until recently, the most economical forms in which recorded music could be disseminated to consumers was through tangible recordings (media) such as piano rolls, later wax cylinders, then vinyl records, eight track and cassette tapes, and finally compact disks.
Recorded music was played by consumers almost entirely on electronic devices made exclusively for that purpose, most recently record players, tape players, and compact disk players.
The music distribution industry, of which all of Counter-Defendants are a part, contracted with artists to record their music in these media, promote the music to broadcasters, and distribute the media to consumers. Until recently, the recording of music was expensive, and the duplication of recorded music even more expensive, requiring vast sums to be invested in recording and duplication equipment. Likewise, the physical distribution of recorded music to retail vendors was quite expensive. Few if any individual artists had the resources to record music, duplicate it on media, promote it, and physically distribute the recorded media to vendors without the assistance of specialized companies in the music distribution industry.
While there are thousands of artists of recorded music, and hundreds of millions of consumers of recorded music, only four record labels UMG, Warner Bros., Sony/BMG and EMI (the Major Labels) sell and distribute over 85% of all recorded music in the United States.
The emergence of the personal computer, the Internet, and modern compression technology changed significantly the economics and practices of artists, music distribution, and consumers of recorded music. Artists, at relatively low cost, could digitally record their own music using their own equipment and personal computers. Physical records and CDs are no longer essential for consumers to own or play copyrighted audio content and likewise, the traditional roles of manufacturing, selling and distributing physical products at retail locations or through the mail, are no longer necessary for consumers to receive copyrighted audio content. Recorded music could be distributed digitally at very low cost over the Internet to consumers unburdened by any tangible media such as a CD. Consumers could learn of new music not only through traditional broadcasters, but also through websites via the Internet.
Consumers could also record and play recorded music on their personal computers and arrange and burn their own CD`s or place the digitally recorded music on iPod`s, other personal music players, and even cell phones.
The Development of Digital Technology Disrupts the Plaintiffs` Traditional Distribution Models
Over the years, the music industry has largely profited, not directly from the ownership of copyrights, but by controlling the sale and distribution of the physical products (i.e., records, audio cassettes and CDs).
The ability of a consumer to search the Internet and copy a digital audio file on his or her hard drive had powerful, commercial consequences when the general public began to utilize the Internet in the mid 1990s.
The Internet is a network built out of millions of hosts/users all over the world. Once limited to the domain of the scientific community, the Internet is now used by millions of people around the world in a multitude of different ways including information gathering, communication and the exchange of goods and services. Internet search engines such as Google provide all Internet users the means to locate and download digital files of all types, including MP3, video and executable files, from millions of websites around the world. Millions of Internet users have also begun using their computers to connect to each other directly, forming powerful user-friendly networks that allow these users to search for, locate and distribute digital files and data. This technology is known as peer-to-peer or simply, P2P.
As a result of the proliferation of the Internet and the ease to exchange MP3 and similar files, consumers were no longer restricted in choice and not dependent exclusively on the physical media products and distribution channels that historically had been controlled by the Counter-Defendants, and on which the business and profits of the music industry have historically been based.
These changes threatened the oligopoly that Counter-Defendants maintained in the distribution of recorded music, because they created significant alternative means for electronically distributing music at lower cost and outside the control of the Counter-Defendants.
Counter-Defendants and their co-conspirators conspired to delay and disrupt the entry and emergence of these alternative means for distribution, and to extend their oligopoly in the distribution of recorded music over the new market for the electronic distribution of music via the Internet.
Counter-Defendants and their co-conspirators had a powerful incentive to preserve their oligopoly in the distribution of recorded music. They did not confine themselves to competing on the merits with the new means of distribution, which would have required them to improve their services or lower their charges to consumers, or raise their compensation to artists. Instead, they sought to inhibit their new competitors and raise their competitors` costs.
Counter-Defendants individually possessed significant leverage through the licenses they held in their existing catalogs of recorded music and the exclusive contracts they held with popular artists. Consumers by and large are interested in the works of artists already under contract to Counter-Defendants in addition to new works by those artists and new works of emerging artists that do not yet have established reputations. Accordingly, consumers seek out recorded music, both new and old, from multiple artists, both established and emerging.
However, whatever market power any single one of Counter-Defendants had by reason of its catalog of recorded music paled in comparison to the collective market power they had in their combined catalogs. Thus, Counter-Defendants sought to preserve the market power they possessed by conspiring to refuse to license their catalogs for competitive digital distribution, and instead acting together to delay and inhibit digital distribution both of the recorded music they controlled and what little recorded music they did not control. The Major Labels` initial response was a concerted refusal to license their copyrights and to litigate their online competitors out of the marketplace.
Plaintiffs` Illegal and Anticompetitive Activities In The Market of Online Distribution of Music
Counter-Defendants` latest attack on such disruptive technology is not new, for history shows that when new technology is invented that potentially disrupts the exclusive distribution channels content owners are accustomed to and profit from, they usually attack such technology with vengeance. Piano rolls, radios, cassette recorders, VCR`s, digital audio tape, and MP3 players, just to name a few, were each met with protestations of gloom and doom and attempts to stop them. But the technologies the Counter-Defendants and their predecessors wanted to ban – jukeboxes, record players, radio stations and VCR`s – have introduced competition and services that have served artists and consumers very well.
This case is but one part of a much larger modern conspiracy to delay or destroy innovation that the Major Labels and their co-conspirators cannot control that disrupts their historical business models, or that offers new competition in the distribution of recorded music. In recent years, the Major Labels and their co-conspirators have tried to prevent the exploitation of new technology by suing makers of software, makers of devices that play music (RIAA v. Diamond Multimedia Systems), ISP`s, Internet search engines, venture capitalists that invest in Internet companies (Hummer Winblad), software that allows one to share and download their music online (MP3.com) and even the lawyers who represent these companies (Universal, which acquired MP3.com after litigating it into a forced sale, sued MP3.com`s counsel in the underlying case.) Their goal is quite simple: to prevent or delay the development of any technologyâeven the Internetâthat undercuts their market power in the distribution of recorded music.
Ultimately Counter-Defendants and and their co-conspirators sought to extend their power over online digital distribution of recorded music. During 2000, each of the Major Labels, through their distribution companies, launched their own digital distribution websites.
But Counter-Defendants and their co-conspirators had larger desiresâthey joined together and embarked on a scheme to cartelize that market and its financial promise for themselves. Their goal was simple: to destroy any online music distribution service they did not own or control, or force such services to do business with them on exclusive and/or other anticompetitive terms so as to limit and ultimately control the distribution and pricing of digital music, all to the detriment of consumers, composers, and performers. And to do so, Counter-Defendants and their coconspirators had at their disposal a potent weapon – the exclusivity rights inherent in their existing copyrights – that they deployed with a vengeance, by unlawfully extending and pooling those rights to cartelize the network for the online distribution of music. They also pooled their huge monetary resources to combat and eventually defeat many of their online competitors.
Counter-Defendants and their co-conspirators pursued and effected their plan to dominate the market for online recorded music distribution by various means. Among these was the formation and use of two captive joint ventures – MusicNet and pressplay – that became the exclusive vehicles through which Counter-Defendants and their co-conspirators would license music content for online distribution. These joint ventures were formed in mid-2001, with the ostensible aim of providing platforms for the digital distribution of music. MusicNet was a joint venture among EMI, BMG and Warner Music. Pressplay was a joint venture between UMG and Sony Music.
Counter-Defendants and their co-conspirators persistently and concertedly refused to license any online distribution of their copyrighted works by any entity other than their own captive joint ventures. MusicNet and pressplay, and later companies such as iMesh, Mashboxx, Altnet and Audible Magic (described hereinafter), have served as the vehicles through which Counter-Defendants and their co-conspirators imposed anticompetitive contract terms in the form of unduly restrictive licensing agreements or other measures to restrict and eventually prevent competition in the marketplace. The formation of these captive joint ventures has led the Court overseeing the Napster Litigation to observe – even on an underdeveloped record – that MusicNet and pressplay look bad, sound bad and smell bad.
Counter-Defendants and their co-conspirators further conspired to use MusicNet and pressplay as a means to pool their copyrights for anticompetitive purposes.
Specifically, they intended to use their captive joint ventures to effect a price-fixing arrangement among horizontal competitors in the wholesale distribution of recorded music in digital form to retail digital distribution companies. Upon information and belief, MusicNet`s wholesale price was a share of a licensee`s revenues, subject to a minimum payment, to be shared among the Major Labels, rather than a price per copy or work. That pricing system, by design and effect, eliminated price competition among BMG, EMI and Warner Music in offering their recorded music in digital form through MusicNet to retail digital distribution companies. And since these agreements established MusicNet as the sole source for Sony and Universal content as well, MusicNet eliminated wholesale price competition among all the Counter-Defendants and their co-conspirators. Among other pernicious results, independent retailers faced excessive wholesale prices, and consumers faced higher than competitive prices. Composers and performers were deprived of competition from alternative means for the electronic distribution and marketing of their music.
Pressplay`s pricing system had a similarly anticompetitive purpose. At the time, Sony and Universal – the two distribution companies that formed the joint venture – accounted for nearly half of all sales of recorded music. Counterclaimant alleges on information and belief that pressplay set both wholesale and retail prices for other retail digital distributors.
As a result, all competition between Universal and Sony could be eliminated at both the wholesale and retail level.
Counter-Defendants and their co-conspirators also used MusicNet and pressplay as a means to facilitate other unlawful collusive activity. As a condition of the license agreements, licensees were obligated not to negotiate with the Major Labels directly. The joint ventures were therefore part and parcel of Counter-Defendants` and their co-conspirators` concerted refusal to deal with others seeking to enter into and compete in the online recorded music distribution space, and a means by which the participating distribution companies sought to enhance their market power and stifle competition through combination and joint action. In addition, Counter-Defendants and their co-conspirators used MusicNet and pressplay as conduits for colluding to fix prices for licenses.
On information and belief, Counterclaimant alleges that the captive joint ventures provided a forum in which executives of the parent distribution companies met to discuss their own pricing and prices of competitors. Given the corporate affiliations of the joint ventures and the market power they wielded, Counterclaimant alleges on information and belief that those discussions allowed them to set prices both inside and outside the joint ventures in a coordinated and anticompetitive manner. Indeed, MusicNet and pressplay offered their basis service plans for $9.95 per month. Lime Wire further alleges on information and belief that since for each distribution company the price rules of their affiliated joint venture operated to reduce price competition, each distribution company had an incentive to accommodate the joint venture when setting its own prices.
Although the Counter-Defendants have for the most part divested themselves of these illegal joint ventures, the illegal effects from their anticompetitive conspiracy continue through today. The Attorney General of the State of New York, as well as the Department of Justice, have begun separate investigations into the pricing of online distribution of music by the music industry. And there are reportedly over fourteen (14) separate class action lawsuits recently filed against the Major Labels for online price-fixing. The Major Labels are no strangers to this sort of activity–they have pled guilty to price-fixing in the sale of CD`s, and recently admitted to doling-out payola to radio stations. Moreover, anticompetitive and collusive activities by the Counter-Defendants continue through today as described below.
In taking the above actions, Counter-Defendants` and their co-conspirators` purpose and effect was to delay, suppress and/or eliminate competition in the market for the online distribution of recorded music, to further concentrate their power over the market and to eventually set prices for online distribution to insure their continued profitability. Through their concerted and unlawful actions, Counter-Defendants and their co-conspirators have been successful in eliminating many actual and potential competitors in the distribution of recorded music, and continue to reap the profits of their collusive activities.
The Recording Industry`s Coordinated Attack of P2P Technology and Lime Wire`s Efforts to Compete
One means of distributing digital data, whether in the form of spreadsheets, word processing files, executable programs, or digitally recorded music, is through peer-to-peer personal computer file exchanges over the Internet. True P2P technology is totally decentralized, meaning there are no central servers that assist in the searching and downloading of files. There are many systems that are referred to as P2P but in fact are not, even though they appear to be totally decentralized on their face. For example, AOL Time Warner`s instant messaging application appears to be a peer-to-peer network because the user`s friend will receive the message. But AOL Time Warner`s system, like all major instant messaging systems, have some sort of central server on the back end that facilitates computers/users to communicate with one another.
Napster, a well-known application, did not qualify as a true P2P application. Although Napster users connected to one another to exchange MP3 files, the directory of the files that a user was searching for was located on servers run by Napster. These servers acted as brokers for users, they answered search queries and brokered client connections. It was these servers that eventually caused Napster to be held liable for vicarious and contributory copyright infringement (but not inducing copyright infringement).
In contrast, Lime Wire has developed and distributed a communication software program that is truly decentralized P2P technology. Unlike the Napster architecture, the Lime Wire application does not rely on any central server, database or other single point of authority to organize a network or to broker transactions, and there are no Lime Wire servers that maintain directories of file names to facilitate search requests or to broker client transactions.
Using the P2P networking functionality of the application, users may search for any share and kind of computer file, including text, images, audio, video and software files, with other users connected to the network. No Lime Wire server assists in the transfer and copying of files that may be shared by users of the Lime Wire application. Users who install Lime Wire on their computers do so by their own volition and are only able to install the Lime Wire application if they first agree not to use the application to infringe the copyrights of others. Thereafter, those persons make use of Lime Wire in the manner that they alone choose.In July, 2003, Lime Wire created a website known as MagnetMix that linked digital rights managed, licensed, and copyrighted content available over the Internet through the LimeWire software application. At the time the website was created, any content that was linked through this website was done so without charge but it was Lime Wire`s intention to utilize this application as a means to ultimately charge customers for downloading copyrighted content (via subscription-based, perdownload fee or ad-supported).
Lime Wire created MagnetMix for the business purpose, among other things, of acquiring, distributing, and selling licensed, digitally rights managed, copyrighted content over the Internet. Lime Wire actively solicited licensed content from media and content owners that would then be distributed, first from independent labels and artists, as well as from independent retailers/distributors such as CDBaby, which provides a feed for all of their WeedShare content. Weedshare is an online music store and file-sharing system with an innovative payment structure that also includes digital rights management of the content. In addition, MagnetMix was created to foster Lime Wire`s vision of making free content available over the Internet.
In addition to using the MagnetMix website, it was Lime Wire`s intent to use a step-by-step plan to educate users that downloading copyrighted material was potentially illegal, and to instead encourage users to purchase music legally by re-directing them to licensed sites such a iTunes, or by using the DRM-wrapped technology in MagnetMix and have users purchase content through that site. As part and parcel of this plan, Lime Wire intended to use a robust hash-based filtering mechanism to inhibit users from downloading copyrighted material without a license, and educate them about lawful downloading of copyrighted works. By providing significant incentives to encourage users of Lime Wire to pay for or otherwise permissively use the DRM content which would result in remuneration (in such form and value as determined by the copyright owners) to the copyright owners, Lime Wire intended to promote and encourage only appropriate file sharing and to share the proceeds of works lawfully exchanged by users of the Lime Wire software with legal sites such as iTunes, or by purchasing such works through MagnetMix. Lime Wire planned to utilize a robust filtering mechanism to inhibit users from downloading copyrighted works and to allow competitive access to the Counter-Defendants` copyrighted works to make available for download and purchase by users of the LimeWire application. Lime Wire has, in fact, developed such a filter application, by deploying what is known as a hash-based filter. This filter operates to block files based on certain metadata (hash) unique to each work, acting as a unique identifier. In order for such a filter to work, content owners must provide those unique hashes to Lime Wire, and many content owners have agreed to do so free of charge.
However, for anticompetitive and wrongful purposes, the Counter-Defendants and their co-conspirators have concertedly declined to participate, refused to do business and have denied Lime Wire reasonable access to the hashes of their copyrighted works. In addition to refusing to allow access to these hashes, the Counter-Defendants have insisted that Lime Wire utilize their preferred methodology of filtering based on acoustic fingerprinting technology, such as Audible Magic, and have gone so far as to suggest that the only viable alternative is for Lime Wire to proceed to do a deal with its preferred (i.e., licensed) peer-to-peer company iMesh, so as to continue their control over digital distribution of their content over the Internet.
In addition, Counter-Defendants also insisted that they would not provide any hashes unless Lime Wire first obtained a license from a company called Altnet, which allegedly held the proprietary rights to hash-based filtering. Upon information and belief, Altnet and its related entity Sharman Networks have conspired with the Major Labels to force Lime Wire and other P2P companies to enter into a license with Altnet in order to obtain these necessary hashes. This boycott and collusive activity was directed at and intended to injure Lime Wire because it owned and operated a service for the digital distribution of copyrighted works, which it intended to use to forge a direct relationship with Lime Wire users so as to compete directly with the Counter-Defendants and their affiliates in their roles as distributors of copyrighted works.
iMesh is the Counter-Defendants` latest venture to funnel their efforts to control the distribution of their content over U.S.-based P2P companies. iMesh is allegedly the only authorized P2P file-sharing company in the U.S. It claims to have been granted a license by the Major Labels to allow distribution of their content, and also offers a one-stop shop for what iMesh promotes as the only RIAA-approved filtering mechanism. While from outward appearances iMesh is not controlled by the RIAA and the Counter-Defendants, dealings with iMesh by Lime Wire and other P2P companies demonstrate, in reality, that is not the case.
Officials of iMesh, including its CEO who used to be head of the RIAA, boast that because iMesh is the only RIAA-sanctioned business, it is the sole means by which P2P companies in the United States can survive. Upon information and belief, iMesh and the Counter-Defendants, through the RIAA, have conspired to deal exclusively with iMesh so as to limit competition among them and foreclose entry by other competitors in the distribution of recorded music.
They have implemented a plan in an attempt to coerce all P2P companies based in the United States to accept iMesh`s purchase offers or they will be sued, so as to unlawfully maintain Counter-Defendants` market power in the distribution of music. iMesh`s and the RIAA`s goal is to have these P2P companies concede, under the threat of expensive litigation, to sell their assets for essentially nothing, with the promise of a get out of jail free card from the RIAA. In return, the P2P company must simply turn-over its user base (which is the single largest asset typically) to iMesh so they can then force a conversion to the iMesh platform which, in turn, will lead to huge profits to iMesh and, of course, the Major Labels. Upon information and belief, the Counter-Defendants and their co-conspirators have also entered into illegal agreements with Altnet, Sharman Networks and others to force Lime Wire and others to take a license from Altnet (even thought the patents Altnet allegedly owns are invalid), if they wish to obtain the necessary hashes to filter copyrighted works.
Evidence of iMesh`s and Altnet`s close ties with the Counter-Defendants, and the control it exerts over iMesh and Altnet, is undeniable. When Lime Wire approached the RIAA to obtain appropriate licenses and to seek approval of its hash-based filtering system, officials at the RIAA, while very careful to not directly state that iMesh was the only approved mechanism to convert to a legal site, certainly implied it given the fact that they rejected any other alternatives proposed by Lime Wire and instead, demanded that Lime Wire (and others) convert their user base on a very short schedule, using only acoustic fingerprinting technology to filter, which inescapably points to only one solution: iMesh, who has both the approved filtering and the only RIAA-approved short-conversion plan. Further evidence of iMesh`s conspiracy with the RIAA and Counter-Defendants is the fact that iMesh disclosed to Lime Wire financial statements of Sharman Networks (who recently settled with the Major Labels), in an effort to leverage Lime Wire into accepting iMesh`s one-sided, take-it-or-leave-it proposal.
Counter-Defendants also demanded that Lime Wire obtain a license from Altnet before it would grant Lime Wire access to their library of hashes. Clearly, like MusicNet and pressplay, Counter-Defendants and their co-conspirators are using iMesh, Altnet and others as a means to facilitate their unlawful collusive activities. And like before, the Counter-Defendants have unlawfully coordinated their behavior so as to maintain their market power in music distribution by coordinating with whom they would do business and on what terms.
In furtherance of a conspiracy to monopolize and drive Lime Wire out of business, the Counter-Defendants and their co-conspirators have also implemented various strategies to control, stop, or delay the means by which others, including Lime Wire, offer digital technology useful for sharing digital files. Those strategies include
(a) targeting Lime Wire and other peer-to-peer companies in an effort to drive them out of business through boycott and concerted exclusionary practices;
(b) collusively refusing to license content to any digital distributor of content over the Internet on other than a restricted license basis aimed at preventing decentralized peer-to-peer file sharing software from distributing that licensed content;
(c) selectively and concertedly licensing content in a discriminatory and anticompetitive manner simultaneously to promote companies owned and affiliated with or approved by the Counter-Defendants that distribute digital files through decentralized peer-to-peer software such as iMesh; (d) concertedly pressuring advertisers and other vendors and customers of Lime Wire and other peer-to-peer companies to stop doing business with them; (e) by collusively employing certain anti-piracy methods that redirect or disrupt users of non-approved digital distribution technology (such as peer-to-peer); (f) by employing other unified anti-piracy protection methods, such as digital watermarking and other security technology, that prevent users from copying their own music for their own personal use, thereby improperly restricting consumer`s legitimate fair use rights; and (g) engaging in unfair business practices intending to drive Lime Wire and any peer-to-peer provider out of business.
Counter-Defendants` concerted anticompetitive scheme has been directed at Lime Wire because Lime Wire is a market participant and a competitor of the Counter-Defendants` affiliates in the market for the distribution within the United States of copyrighted commercially valuable music over the Internet. The means by which the Counter-Defendants sought to harm Lime Wire was through a concerted refusal to deal with Lime Wire to deprive it of hashes so it could filter their copyrighted works using hash-based filtering technology developed by Lime Wire, among other things.
This concerted conduct was intended to further the Counter-Defendants` goal of restraining trade in, attempting to monopolize, and monopolizing the market for digital distribution of recorded music. Although exclusive distribution rights to a copyrighted work are within the bundle of rights received by a copyright owner, an anticompetitive agreement among multiple copyright owners not to distribute their content to targeted third parties, such as LimeWire, or to destroy the revenue streams and business of distribution competitors, is not within the limited grant of a copyright monopoly conferred by the government. The Counter-Defendants` goal was to concertedly extend their collective market power in the ownership of copyrighted content to preserve their market power and collective monopoly over the distribution of recorded music, and to obtain market power and a collective monopoly over the digital distribution of recorded music by destroying competitive technology and businesses, and to delay and suppress the digital distribution of copyrighted recorded music over the Internet so as to preserve as long as possible their effective control the pricing of that content across all avenues of digital distribution.
In addition, and as part of their scheme to control the marketplace, upon information and belief the Counter-Defendants by agreement are refusing to license their content to third parties except under so-called dead end licenses (hereinafter DEL) which are restrictive in their terms beyond restrictions reasonably required for pro-competitive, profit maximizing purposes, absent unlawful collusion. A DEL is a one-time license to retrieve a digital file from a server only. Even though digital rights managed technology exists to assure the copyright owner is remunerated each time a DRM file is downloaded from either a peer or a server, the collective decision by the Counter-Defendants to use only DELs precludes licensing at all to peer-to-peer platforms such as LimeWire.
This concerted business strategy by the Counter-Defendants is intended by them, over time, to exercise market power and monopolize the relevant market. The first anticompetitive purpose of this conspirational conduct is to drive distributors of content using peer-to-peer platforms out of business. The second anticompetitive purpose is to limit the means for future digital distribution of musical works in a way that the Counter-Defendants can in the future more directly control the relevant market, which they have done by inflating the price across the board of licensing their content.
The Counter-Defendants with anticompetitive intentions are conspiring to pursue a digital distribution world without peer-to-peer distribution in which the Counter-Defendants achieve market power over the means of digitally distributing content over the Internet. The exclusive use of DEL`s assures that the Counter-Defendants effectively license mere store fronts, such as Rhapsody and iTunes for a limited time on a one- license basis. In addition, Counter-Defendants have colluded to price their licenses so that most independent digital distributors cannot literally afford to stay afloat unless they have another product tied to the distribution of music. For example, it is a well-known fact that Major Labels charge at least 70-80 cents for each 99 cent iTunes download, and that the only way Apple can justify and profit from such an onerous licensing regime is by restricting the use of such downloads in portable players, iPods, that Apple alone sells. Recently, it was announced that Microsoft had to concede to even more onerous terms by agreeing to pay a royalty to at least one Major Label on the sale of its Zune portable player, in order to obtain a license for the distribution of music content.
The Counter-Defendants` collective decision to limit third party licenses to DELs to fix prices and licensing terms and refuse to license peer-to-peer providers, except upon unfair and unreasonable terms, and to unfairly require these companies to take a license from related entities and by refusing to provide the necessary hashes to compete in the marketplace, promotes the preservation of their market power. Competitive peer-to-peer distribution would not allow the Counter-Defendants to position themselves to control retail distribution in the future. Once content is distributed to a peer, it is distributable by a peer in the future. Although the content owner would be remunerated each time the file was distributed by a peer, the Counter-Defendants would lack the means to stop further distribution in order to acquire control of the entity directly providing digital copyrighted content to the user in the future.
The Counter-Defendants have concertedly promoted the distribution of licensed content through companies in which many of the Counter-Defendants and their corporate affiliates have or had direct equity interests, such as Musicnet, pressplay and Roxio or through entities that they have a business relationship with, such as iMesh, Altnet, Mashboxx and others, with the purpose and intent of restraining trade in the market for the digital distribution of copyrighted content over the Internet.
The Counter-Defendants have unreasonably and concertedly refused to do business with Lime Wire in order to harm Lime Wire in its business or property and to prevent the use of decentralized peer-to-peer technology for the secure distribution of their licensed, copyrighted content.
Upon information and belief, the conspiratorial acts of the Counter-Defendants to coerce actual and potential advertisers, vendors, and customers of Lime Wire to stop doing business with Lime Wire include, among others, the Counter-Defendants have collectively required that contracts for the provision of content to other Internet Service Providers (ISPs) have a clause forbidding those ISPs from doing business with providers of peer-to-peer software, including Lime Wire.
Upon information and belief, in furtherance of the Counter-Defendants` anticompetitive scheme, the Counter-Defendants have engaged in, among other things, the following wrongful, unlawful and unfair conduct:
(a) Violating state and federal personal privacy laws and the Digital Millennium Copyright Act (DMCA) anti-hacking provisions by hacking and exploring the files of LimeWire users in order to frighten legitimate users of the LimeWire;
(b) Falsely claiming that Lime Wire promotes child pornography;
(c) Falsely claiming that Lime Wire is a pirate;
(d) Falsely claiming that Lime Wire is a smut peddler;
(e) Falsely claiming that their goal is to deter illegal file sharing, when their true motive is to deter all uses, legitimate and illegitimate, of peer-to-peer technology;
(f) Threatening users of peer-to-peer technology with potential litigation and liability, based upon information obtained by illegal means;
(g) Pressuring artists not to license their works to providers of peer-to-peer software, such as Lime Wire, that were not owned or controlled by the
Counter-Defendants;
(h) Refusals to deal with, and boycotts of, ISP`s around the world that had entered, or proposed to enter, into advertising arrangements with Lime Wire; and
(i) Refusals to give Lime Wire hashes of their copyrighted content so as to allow Lime Wire to effectively filter these works.
The Counter-Defendants, individually and collectively, through the Recording Industry of America (the RIAA) and other organizations and companies, have engaged in these unfair business practices, for the specific purpose of eliminating sources of decentralized peer-to-peer file sharing and acquiring a monopoly over digital distribution of commercially valuable copyrighted music and movie content. In fact, these same persons and entities have been both secretly and publicly engaged in promotion of their own digital distribution technologies which permitted exchanges of copyright infringing files, such as instant messengering, email and other similar technologies only, in each case engineering the technologies to use a central server thus retaining for themselves the same knowledge and control held by Napster. They have also utilized peer-to-peer technology to test the distribution of their works.
Lime Wire is informed and believes that each of the named parties in this action was, and is, the agent and co-conspirator of the other in connection with the concerted conduct alleged in these counterclaims and aided and assisted the named parties in doing the wrongful acts alleged herein, including but not limited to conspiring with the named parties to unreasonably restrain trade and making statements and performing acts in furtherance of the combination and conspiracy alleged herein, and that Lime Wire`s damages as alleged herein were proximately caused by them. Lime Wire is informed and believes that the parties and coconspirators have utilized, and continue to utilize, the RIAA, as well as their employees, attorneys, representatives, and agents, to plan, coordinate, and perpetrate the wrongful acts alleged herein. More specifically, Lime Wire alleges that the named Counter-Defendants have developed schemes to monopolize the relevant markets described herein, and to destroy Lime Wire principally through the RIAA, and that the co-conspirators have perpetrated the acts of conspiracy through attorneys of the RIAA and the named Counter-Defendants with the specific intention of using the attorney-client privilege to keep secret their acts in furtherance of conduct that constitutes criminal conspiracy under Title 15 of the United States Code.
Also See:
lame duck – Altnet ‘extortion’ attempt, January 12, 2005
deeply associated – Kazaa owner’s DRM plan, August 4, 2006
trial by jury – LimeWire versus the RIAA, September 26, 2006
Recording Industry vs The People – LimeWire Files Amended Counterclaims, November 17, 2006
First they ignore you. Then they laugh at you. Then they fight you. Then you win ~ Mahatma Ghandi
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