Executives in the recording industry weren't the only ones cheering last Friday's raid on the headquarters of Sharman Networks Ltd., which makes and distributes Kazaa peer-to-peer software. At least one chief executive officer of a peer-to-peer (P-to-P) software company welcomed the news as well.
"I think this may answer a lot of questions about what kind of control Kazaa has over their network and what kinds of information Kazaa has been storing about its users," said Michael Weiss, chief executive officer (CEO) of StreamCast Networks Inc., maker of Morpheus P-to-P software.
The afternoon raid by investigators working for the Australian Recording Industry Association (ARIA) combined with a new software release by Los Angeles-based StreamCast, has the P-to-P world roiling with controversy and intrigue as Sharman scrambles to protect sensitive documents taken in the raid and to defend a rear-guard action from competitors who covet its large network of users.
Speaking on Friday, Weiss said that the raid on Sharman's offices may pull back the covers on what his company has long contended is a centralized file-sharing network, with Sharman wielding control over individual P-to-P software users.
"It's been one hell of a week," Weiss said, lumping the Sharman raid in with other good news for his company, including the release of a new version of Morpheus software, Morpheus 4, and a court hearing in the 9th U.S. Circuit Court of Appeals that many viewed as favorable to StreamCast and other defendants in a suit brought by entertainment industry groups.
If true, the discovery of such a control structure would be harmful to Sharman which, like other P-to-P vendors, has argued in court that it can't be held liable for illegal file-trading activity on its network, in part because it does not have direct knowledge of or control over illegal file-trading activity.
Speaking Monday, an attorney for Sharman dismissed Weiss' allegations as "fantasy."
"Kazaa Media Desktop is a decentralized software application. Kazaa has no central servers that have anything to do with searching, indexing or downloading functionality," said Lawrence Hadley, an attorney at Hennigan, Bennett & Dorman LLP, a Los Angeles law firm representing Sharman.
The bad blood between Morpheus and Sharman goes back to the early days of Kazaa, when StreamCast along with Grokster Inc. licensed the FastTrack P-to-P technology from Kazaa BV, an independent company. At that time, StreamCast had one of the largest P-to-P networks, with more than one million Morpheus users online at any time.
In January 2002, Sharman acquired the technology assets of Kazaa BV and weeks later Morpheus users were abruptly denied access to the FastTrack network by a change in the network protocol that was not extended to StreamCast customers.
Sharman claims that the decision to eject Morpheus users from the FastTrack network was not theirs and had to do with StreamCast's failure to pay licensing fees to Kazaa BV, a Dutch company that licenses FastTrack P-to-P technology.
Weiss is skeptical of that claim and said the move always smacked of a centralized network, in which Sharman knew about and monitored activity of millions of P-to-P users.
"All I can say is that they were able to just switch off 28 million Morpheus users in February 2002, and you can't do that without having control over the network," Weiss said.
StreamCast executives always suspected that Sharman had "backdoor hooks" into the P-to-P software client that they weren't disclosing. Even though StreamCast licensed FastTrack, they were not allowed to view the source code and "see what was under the hood," Weiss said.
Two years has done little to lessen Weiss' anger over the incident.
"Sharman stole our 28 million users. At the time Morpheus dwarfed the number of Kazaa users, they were able to get users to switch to Kazaa because Morpheus no longer operated and that's how Kazaa became number one. They stole it," he said.
Weiss hopes that the investigation by ARIA uncovers evidence of the centralized control he has long suspected, but says that at the very least it will reflect positively on StreamCast.
"We're here in the U.S. courts, cooperating with the legal process. We know that our network is 100 percent decentralized and we're working within the letter of the law," he said.
Sharman is also being sued by entertainment industry groups in a separate but related case to the one facing StreamCast and Grokster Inc.
Documents gathered in Australia contain information about the workings of the Kazaa Media Dekstop, Sharman's P-to-P client, Hadley said. That information had already been disclosed to the plaintiff's attorneys in the U.S. case, he said.
The ARIA search would not yield any new information and is just a way for U.S.-based music labels and entertainment companies to retaliate for courtroom losses by harassing and financially burdening Sharman, he said.
"Lawyers for the major labels have had this information for more than eight or nine months and have been analyzing it with the help of the best computer experts in the country. So far as we can tell, they have no more basis for continuing to persecute Sharman than Grokster or (StreamCast)," Hadley said.
A spokeswoman for the Recording Industry Association of America referred all questions to ARIA, but issued a statement saying that the Sharman raid should "come as little surprise given the global nature of music piracy."
Adding fuel to the fire between StreamCast and Sharman is a recent software release from StreamCast, Morpheus 4.0, which promises to allow users to search all the major file-sharing networks, including Kazaa and Grokster, which use the FastTrack network.
StreamCast is planning to use the new release to rebuild its user base and unseat Kazaa as the number one P-to-P network, Weiss said.
Sharman considers the new version of Morpheus an "illegal, hacked version of a FastTrack application" and is looking into options to address the problem, including legal and technical options, Hadley said.
The courtroom battles with the entertainment industry and internecine struggles between P-to-P software companies makes for interesting drama, but also distracts attention from what many agree is a promising and legitimate content distribution technology, said Mike McGuire, an analyst at Gartner Inc.
Regardless of the outcome of court battles in the U.S. and elsewhere, companies that want to launch legitimate P-to-P networks will have to find ways to make money from customers who are accustomed to receiving content for free, he said.
While P-to-P networks that offer illegal wares will probably persist in loosely regulated parts of the world, companies in developed markets that want to tap the potential of P-to-P networks, for example with online music stores, will have to retain the main attractions of the current networks -- their huge stores of data and wide distribution. However, they will have to find reasons for customers to pay for what they can get free elsewhere, McGuire said.
Files that are certified to be of a certain quality and free of adware, Trojan horse programs and other malicious code may be enough to convince users to pry open their wallet and pay for P-to-P content, he said.