GROKSTER POST-MORTEM:
THE PUNDITS WEIGH IN

The Grokster settlement announced Monday was front-page news on Tuesday morning, somewhat surprising considering that the service had already signaled its intention to transition into a legal P2P through a sale to legal service Mashboxx. Further, the sale couldn’t be completed until a settlement had been made.

To recap, Grokster agreed to pay $50 million to the RIAA and to a permanent injunction prohibiting infringement of the plaintiffs’ copyrights (the MPAA was the other plaintiff in the suit). It will no longer distribute the application or engage in any type of profit-generating activity. None of this affects those millions who have already downloaded the Grokster software, apart from possibly making them a bit more aware of the illegality of their activities.

So was Grokster’s decision to shut down a milestone, as “entertainment industry executives” are reported to have proclaimed, or irrelevant in that the toothpaste has long been out of the tube, as skeptics disdainfully note?

"We can't jam the genie entirely back in the bottle," RIAA chief Mitch Bainwol admitted to the Washington Post, "But we can get to a point where the legal services will dominate." In the same report, BigChampagne’s Eric Garland said the Grokster settlement is equivalent to benching "a ball boy," because the four-year-old operation has been outstripped by newer, more technologically sophisticated services like eDonkey and BitTorrent. Said Garland, "The headlines really are the win here: 'Here's another rogue P2P player that's found its judgment day. Practically speaking, I don't expect it to have an impact on the larger P2P phenomenon."

Attorney Fred von Lohmann, who repped co-defendant StreamCast in the Supreme Court case, agreed. "There's no way you can protect music in a way that is going to stop the free trading of it," he asserted. "All of the mechanisms so far have been almost laughably weak."

As Garland pointed out in the WaPo story, music legally purchased over the Internet still makes up less than 10% of all songs downloaded. Apple has sold more than 600 million songs in two-and-a-half years (or about 20 million per month), while RealNetworks/Rhapsody claims 1.3 million subscribers, Napster is said to have 448,000. Compare those numbers to the approximately 1 billion per month acquired via P2P networks, according to Garland said, or 3 billion according to the RIAA. In September 2003 the monthly average was 4.3 million. So file sharing continues to increase, even as the online music stores gain customers.

Others feel the sale of Grokster to Mashboxx for $1 (that is not a typo) sends a clear message to other P2Ps about the value of their assets. "It's very clear that the main effect of the court's Grokster ruling has been to force these businesses to accept that they don't have a viable business model," intellectual-property specialist Justin Hughes told The Wall Street Journal. "You can't go to the venture-capital markets and say 'Please fund my totally illegal business plan.'"

"Their liability was more than they could realistically afford," consultant John Rose told Phyllis Furman in the N.Y. Daily News. "The bill has come due on distributing content without paying for it."

In The N.Y. Times, Jeff Leeds pointed out that Mashboxx just happens to be the brainchild of ex-Grokster President Wayne Rosso. The "safe and legal" service now in the planning stages under Rosso’s supervision will eventually make its appearance at www.grokster3g.com.