LimeWire provides software that allows users to share music -- most of it copyrighted -- with each other and that profits from ads it runs on its site. If this sounds familiar -- and illegal -- it should. The U.S. courts have long since declared that those who run peer-to-peer piracy networks are liable for the violations of intellectual property laws committed by their users.
That's why after the original music pirate Napster was shut down, most similar sites closed up shop. The U.S. Supreme Court's decision finding Grokster liable for the copyright infringement of its users seemed to signal the end of the illegal file-sharing era.
But LimeWire persisted, claiming that unlike Grokster, it didn't exist primarily to help its users pirate copyrighted works while profiting from the piracy.
U.S. District Court Judge Kimba Wood vehemently disagreed, citing evidence that 98.8% of music files downloaded with LimeWire either are or are highly likely to be copyrighted, which makes downloading them copyright infringement. Moreover, the plaintiffs -- 13 recording companies -- provided ample evidence that LimeWire knew its users routinely shared copyrighted works. The company even went so far as to design a conversion plan by which it could shift its users from illegal downloading to buying music from a LimeWire store.
In the documents of that conversion plan, LimeWire characterized its users as 25% "hardcore pirates," 25% "morally persuadable," 20% "legally aware" and 30% "samplers and convenience users." The plan also indicated how LimeWire could address the illegal downloading, since it described adding features over time to block illegal downloads and redirect users to the new LimeWire store.
In 2008, LimeWire did indeed acquire the licenses to some 500,000 songs and opened a music downloading store. However its transition from deriving its revenue from pirated content to selling music legally from legitimate sources was far from complete. By taking this meandering path, LimeWire might have hoped to mirror YouTube's journey from alleged pirate site to respectable content purveyor, but LimeWire never came close to completing that transformation. (For that matter, YouTube may yet face significant liability for its alleged past piracy.)
LimeWire Knew its Case Was Weak
In finding for the recording companies on every point on which she ruled, Judge Wood cited similarly clear evidence. Although not all the claims are resolved, the damages from those already decided could be enough to overwhelm LimeWire, if plaintiffs get anything like the $150,000 per violation they seek.
Indeed, after reading the opinion, I wonder why LimeWire thought it had a chance at success in this case. Its whole trial strategy seemed to rely on getting most of the plaintiffs' evidence thrown out: Once Judge Wood chose to keep the evidence in, the outcome was inevitable. Testimony relating to the culpability of Mark Gorton, the founder, director and former CEO of LimeWire, suggested he knew well that his case was weak. Allegedly, Gorton set up a family limited partnership in order to shield his assets in case the recording industry won a lawsuit against him.
Because of conflicting testimony about Gorton's intent when he set up the limited partnership, Judge Wood hasn't decided yet whether the assets in it will be available to the record companies. However, she did find Gorton liable for infringement, so the question of whether he has successfully stashed profits for his family will ultimately be decided. In short, based on Wednesday's decision, the biggest open question is: Did Gorton just lose his business, or did he just lose everything?
The Impact on Illegal Music Downloading
The consequences of Judge Wood's opinion, outside of its potentially devastating impact on LimeWire and Gorton, are not yet clear. The decision doesn't make the hundreds of millions of copies of LimeWire in use suddenly disappear, nor will it enable the recording industry to stop illegal downloading, which at a reported 12 billion songs a year, dwarfs legal music download by a factor of ten.
CNET reports that the next step is for the recording companies to get a preliminary injunction forcing LimeWire to disable its software, thus ending access to the current software of choice for 58% of peer-to-peer music sharing. Even if LimeWire is shuttered in that manner, however, that won't affect other means of illegally sharing music, such as BitTorrent.
So yes, a reduction in illegal downloading may happen. Or, perhaps there will be a redistribution of market share among the other peer-to-peer technologies, and the music industry's piracy problem will continue unabated.
Or perhaps, the people operating those other sites will look at Gorton's liability in this case, decide the risks just aren't worth it, and get out of business while the getting is good.
Bonds for Beginners
Learn about fixed income investments.View Course »