Empire Strikes Back

The record industry counters piracy in the courts and on CDs. But has it gone too far?

But anti-terrorism legislation passed after September 11 substantially increased penalties for harming people's computers with online attacks. That led the RIAA to try to amend the bill to absolve its online hit squads of any legal liability. RIAA representatives claimed the amendment would restore powers they previously had. Yet the RIAA amendment's sweeping absolution led one Congressional aide to call it the "license to virus" bill. Eventually, the RIAA withdrew the proposal and said it would try a different approach.

The RIAA also has pushed a bill to force computer and consumer-electronics manufacturers to build copy protection into any device capable of "storing, retrieving, processing, performing, transmitting, receiving or copying information in digital form." That would cover a huge range of devices, including computers, TVs, VCRs, camcorders and personal-video recorders. The bill's breadth rankled even people whose companies make anti-copying software, such as Ron Koenen of InterTrust Technologies.

"I've been amazed by the Hollings bill," Koenen says. "It's like mandating a refrigerator in every home to save the fruit industry."

Mark Poutenis

Others have also become concerned, including the Electronic Frontier Foundation, which announced it will help defend KaZaA, Morpheus and Grokster in their music industry lawsuits.

The EFF, a prominent digital civil liberties organization, said the suits are trying to shut down technologies with "substantial non-infringing uses" beyond making piracy easier and should be protected from legal assault.

Jim Griffin, CEO of Cherry Lane Digital and a longtime online music guru, says record companies' suppression efforts are misguided and instead should be attacking "the motive, not the mechanism."

Just as movie companies sued to stop the VCR, but now make $18 billion a year in home-video revenues, Griffin says music companies would profit handsomely and kill off much piracy if they just made it easy and inexpensive to legally get songs online.

It doesn't appear as though they will anytime soon. The record companies' own services--MusicNet and pressplay--still haven't debuted and, so far, don't look as if they'll provide what consumers want. Neither service offers music from all five labels, and neither lets people use the music they get from the services on other computers--or even to copy to recordable CDs. And, of course, unlike the P2P networks, the services aren't free. Until record companies figure out how to compete better, Griffin argues, they'll stall for time with these technological and legal attacks.

"They'd rather be paid a lot of money than have control, but until they get paid a lot of money they'll use control as an excuse," says Griffin. "But isn't our history the opposite of control?"

During recent court hearings, Napster's attorneys said the record companies had committed "copyright abuse," refusing to license their music to would-be competitors of the online services they own. Napster CEO Konrad Hilbers subsequently said Congress may need to force the industry to fairly license its music to all comers, perhaps through the recently introduced Music Online Competition Act.

Within days of the court hearing, word trickled out that the U.S. Department of Justice was investigating whether the record labels' handling of online business violated antitrust and other laws. And in the weeks since then, the industry has announced a handful of new online licensing deals with companies the labels don't own. That could be a harbinger of the future, as the industry tries to figure out how to deal with piracy and a new medium, insiders say.

"I call it digital heroin," says one label executive who also has worked for online companies. "Heroin dealers make a lot of money. They'll figure out how to do it."

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