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09-23-2003, 06:40 PM
Last modified: September 23, 2003, 4:38 PM PDT
By John Borland
Staff Writer, CNET News.com

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File-swapping company Sharman Networks filed new antitrust charges against record labels and Hollywood studios, hoping to deflect copyright infringement claims still pending over the popular Kazaa software.

The suit, which claims record labels and movie studios have conspired to drive Sharman Networks out of business in order to monopolize digital distribution, is virtually identical to charges first raised by the file-swapping company in January. Those charges were largely dismissed by a federal judge in July. The new suit, filed late Monday, addresses the judge's concerns that Sharman was not directly harmed by the labels' and studios' actions.

The revised suit lists the precise "conspiratorial" behavior that Kazaa says took place, including names of record executives who expressed interest in peer-to-peer distribution, but who then backed out.

The "monopolistic purpose of this conspiratorial conduct is to drive distributors of content using peer-to-peer platforms out of business," Sharman's suit alleges. The copyright holders' "purpose is to limit the means for future digital distribution of either music or major theatrical works in a way that the (studios and record labels) can in the future more directly control the relevant markets."

The lawsuit is the latest twist in file-swapping companies' attempts to defend against copyright infringement charges by turning scrutiny on the business practices of the corporate record labels and movie studios.

Those companies have walked a fine line throughout the development of legal Internet distribution and antipiracy lawsuits, often acting together through trade associations and investing together in Internet businesses.

Complaints by a first generation of wounded Internet companies were enough to trigger a federal antitrust investigation into the big record labels' online activities in 2001, although no charges were ultimately filed. An independent broadband movie distributor also has sued the big studios on antitrust grounds related to their support of the Movielink on-demand Web site. The service is a joint project of MGM Studios, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. Studios.

In the course of the case against Napster, federal Judge Marilyn Hall Patel cast a critical eye on music labels' joint activities, saying they "look bad, sound bad, smell bad." However, Napster dissolved before the antitrust angle in that case could be pursued in full.

The new suit goes over considerable ground already covered in January but details why Sharman itself, instead of simply business partner Altnet, was harmed. Judge Steven Wilson dismissed much of Sharman's claim in July, saying that the file-swapping company was only indirectly affected by the copyright holders' business decisions.

To cement Sharman's claim, the suit details for the first time the creation in 2002 of a joint venture between Sharman and Brilliant Digital Entertainment subsidiary Altnet, which distributes copy-protected and other authorized files through Kazaa. The two companies agreed to share revenue and information and to conduct joint negotiations in seeking content for distribution through Kazaa, Sharman said. That joint venture meant that Sharman, not just Altnet, was directly harmed by the "conspiracy" to keep authorized content off Kazaa, according to the suit.

Plan to push out piracy
The suit claims that Sharman ultimately planned to push its tens of millions of users toward downloading authorized files, making pirated copyrighted work difficult to find or unattractive.

"By relegating non-(copy protected) files to a subordinate and comparatively unattractive access location...Sharman intended to promote and encourage only business appropriate file sharing and to share the net payments for (copy protected) works lawfully exchanged by users of the (Kazaa) software with Altnet," the suit says.

However, negotiations with record companies and movie studios fell through, the suit says. It names executives at Universal Music, Warner Brothers Records, Warner Music and Interscope Music as having been interested in testing the Altnet-Sharman technology. All backed out after being told by lawyers or other unnamed individuals to cut off conversations, the suit claims.

Representatives for Universal and Warner declined to comment. A representative for the Recording Industry Association of America (RIAA) declined to comment on the specifics of the allegations in the revised suit.

"Sharman Networks' newfound admiration for the importance of copyright law is ironic to say the least," an RIAA representative said. "Too bad this self-serving respect stops at its headquarters' door in Vanuatu, and doesn't extend to preventing the rampant piracy on their networks or lifting a finger to educate their users about the consequences of illegal file sharing."

The revised suit, filed in Los Angeles federal court, underlines Sharman's tenuous legal position at a time when some other file-swapping companies have found a reprieve--even if only temporary--from legal pressure.

In April, Wilson dismissed copyright charges against Sharman rivals Grokster and StreamCast Networks, saying distributing their peer-to-peer software packages did not make them liable for copyright infringement by people using the software. The judge compared the companies to Xerox or Sony, which are not held responsible for people making illegal copies of works using photocopiers or videocassette recorders.

Sharman, which is part of the same overall lawsuit, has not yet been dismissed, in part because of legal procedural delays specific to that company's case. The recording industry and movie studios are appealing Wilson's earlier ruling on Grokster, saying the judge misapplied copyright law. Last week, record labels sued iMesh, another file-swapping