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Music industry sues swappers
RIAA says 261 cases pursued for illegal distribution of copyrighted music; amnesty program offered.
September 8, 2003: 6:35 PM EDT
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - The U.S. recording industry said Monday it filed 261 lawsuits against people it claims have illegally downloaded and distributed copyrighted music, stepping up its attack against online music piracy.

The Recording Industry Association of America said the civil suits were filed against individuals who had each distributed an average of more than 1,000 copyrighted files.

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Jim Urie, president of Universal Music and Video Distribution, talks to David Haffenreffer about Universal's decision to cut music prices.

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In addition, RIAA offered an olive branch for people who admit they illegally downloaded files but who pledge never to do it again. Both the lawsuit and announcement of the amnesty program were widely expected.

"Nobody likes playing the heavy and having to resort to litigation, but when your product is being regularly stolen there comes a time when you have to take appropriate action," RIAA President Cary Sherman said.

"For those who want to wipe the slate clean and to avoid a potential lawsuit, this is the way to go," said Mitch Bainwol, RIAA chairman and CEO, referring to the amnesty program.

RIAA said that individuals caught distributing copyrighted files on popular file sharing sites Kazaa, Grokster, and Gnutella, as well as Imesh and Blubster, were targeted in the first round of lawsuits, and that more suits would follow.

The five major record labels say they have lost billions of dollars in music sales in recent years due to illegal music downloading.

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For example, Universal Music, the world's largest music company and subsidiary of Vivendi Universal (V: Research, Estimates), reported a 19 percent drop in its first-quarter music sales. Sony Music, a division of the Japanese electronics company, said sales fell 8.8 percent in its most recent quarter from a year ago.

The industry has made other efforts to stem sales declines, such as partnering to set up sites that offer downloads of songs and albums for a fee, as well as making songs available on other sites such as Apple's iTunes. Most recently, Universal Music last week cut prices for CDs by up to 30 percent, staring Oct. 1.

Sony and the other major labels, EMI, BMG and Warner Music, which like CNN/Money is owned by AOL Time Warner (AOL: Research, Estimates), have not followed suit with their own price cuts.

Monday's announcement is the boldest step yet taken by the music industry to go after file swappers. The RIAA had previously been targeting the file swapping sites themselves as opposed to their users.

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Under U.S. copyright law defendants could face penalties of up to $150,000 per song, but few settlements are likely to involve such large sums. The trade group has already settled several cases for around $3,000 each, Sherman said.

The RIAA won a court battle in January against Baby Bell Verizon (VZ: down $0.51 to $35.79, Research, Estimates), which forced Verizon to identify a Kazaa user that was a Verizon Internet subscriber. Verizon appealed the decision but in June the company decided to turn over the names of four subscribers accused of file swapping.

In April, RIAA sued four college students for running music sharing sites on their schools' internal networks. RIAA called them "mini-Napsters," referring to the Web site that was the most prominent file-sharing site in the late 1990s. Napster has since been acquired by software firm Roxio (ROXI: Research, Estimates), which plans to relaunch Napster as a legal music subscription service later this year.

A report by research firm NPD Group last month showed that illegal music file-sharing over the Net has slowed, in part due to fear of litigation.

To that end, Josh Bernoff, analyst with Forrester Research, said that 68 percent of young music customers recently said they would stop file-swapping if there was a serious risk of a fine or jail time. "Can you scare people into stopping? The answer is: Yes," Bernoff said.

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The industry probably isn't risking alienating its customers with these lawsuits since many consumers already have such bitter feelings toward the major labels, he added, noting nearly 25 percent of the survey's participants cited high prices for CDs as a reason for their downloads.

"People hate the music labels so much now that I don't think this can make things any worse," said Bernoff. Even if the major labels shut down all the peer-to-peer file-swapping sites, he said, that wouldn't save the industry, since it appears many consumers are more interested in buying individual songs online rather than whole albums.

Another analyst, Michael Goodman of the Yankee Group, said the key is for the record labels to come up with a system that would allow music buyers to share files for a reasonable fee. But he's not optimistic the industry will consent to that soon.

For that reason, he thinks the record labels will continue to see declining sales. "Ultimately the system has to blow up from top to bottom," Goodman said. "The industry is going to get a lot worse and see a lot more pain before it gets better."

The RIAA's actions have also raised privacy concerns.

"Stepping into the spotlight to admit your guilt is probably not a sensible course for most people sharing music files online," Wendy Seltzer, staff attorney for Electronic Frontier Foundation, a digital privacy group, said in a statement.

The group cautioned that RIAA doesn't represent all music copyright owners and couldn't ensure that people admitting guilt through the amnesty program wouldn't be sued by others claiming copyright infringement.

But musicians' unions, songwriters and Texas Rep. Lamar Smith, who chairs an intellectual-property subcommittee, praised the RIAA's move.  Top of page

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