[A2k] Kushner, The Music Industry Wants to Kill LimeWire

[Soenke Zehle]

The Music Industry Wants to Kill LimeWire
By: David Kushner
Photo: Limewire
<http://www.spectrum.ieee.org/may07/5102>

It was a fall day in 2005, and Mark Gorton was feeling chilled. He was
sitting in a conference room high above the streets of New York City.
Around a table sat six executives from major recording labels. The suits
eyeballed Gorton, a clean-cut 37-year-old with short dark hair and bushy
eyebrows. With electrical engineering degrees from Yale and Stanford and
an MBA from Harvard, Gorton hardly fit the stereotype of the renegade
hacker.

By day, Gorton works as a Wall Street player, running his Tower Research
Capital and its affiliate Lime Brokerage, with a combined staff of 30
employees, out of a sprawling office in lower Manhattan. But in one
corner of the place he has a team of coders working on his more
controversial operation, LimeWire, the peer-to-peer software that has
turned this mild-mannered engineer into the music industry=92s most-wanted
geek. According to the NPD Group, in Port Washington, N.Y., LimeWire is
the leading peer-to-peer (P2P) program=97with 62 percent of the
transaction share, ahead of programs such as BitTorrent and Kazaa.

On this day in 2005, the labels were making him an offer they urged him
not to refuse: sell LimeWire, allow its users to be converted to paid
purchasers of licensed music, and let the dream of open-source
file-sharing fade away.

=93I remember thinking =91these people are all on drugs,=92 =94 recalls Gor=
don,
who declines to identify the specific executives in the meeting, because
he is still trying to work with the labels. =93There was such profound
state of denial,=94 he says, =93and they wanted the whole Internet to go
away.=94 Gorton turned down the deal. Today, after being sued by the
Recording Industry Association of America (RIAA) and filing an antitrust
countersuit back, he=92s the most prominent holdout in the record labels=92
eight-year battle against online piracy. And now, with a settlement
possibly coming in the next months, he=92s making a call to arms. =93A lot
of people in the industry know they haven=92t done a good job dealing with
the Internet,=94 he says, =93their policy has been such an abysmal failure
for so long. People are ready for a change.=94

Gorton never planned on taking on the multibillion-dollar industry.
After college, he worked as an engineer for Martin Marietta, then went
back to school to earn his MBA. Following a stint as a trader for Credit
Suisse First Boston, he ventured off on his own in 1998 to found Tower
Research Capital, a group that conducts trades based on a statistical
analysis of past trading patterns. By 2000, he had achieved every
entrepreneur=92s dream: a dedicated staff of a couple dozen employees, a
comfortable space on lower Broadway, and what he calls a =93nicely
profitable=94 business.

But when Gorton caught wind of the nascent culture and industry of
online file sharing, his entrepreneurial radar kicked in. What if
someone could harvest the queries traveling over the networks and feed
them to businesses that might want to respond. His solution: LimeWire, a
free software client that could be used over the Gnutella file-sharing
network. Gorton figured he had nothing to fear. =93I thought, =91this is
just generic file-transfer technology,=94 he says, =93it=92s an
easy-to-install Web server that cannot possibly be illegal.=94 Though his
original model didn=92t take, he turned LimeWire into a profitable
business by selling a premium ad-free version of the software called
LimeWire Pro.

Then the lawyers came calling. On 27 June 2005, the Supreme Court ruled,
in the momentous MGM v. Grokster decision that a maker of P2P software,
such as Grokster and Streamcast, could be held liable for the copyright
infringement of its users. Emboldened by the decision, the RIAA moved in
for the kill. =93We basically went after all the major P2Ps after the
Grokster decision and said =91we want to work things out and don=92t want t=
o
have to litigate unnecessarily,=92 =94 recalls RIAA president Cary Sherman,
adding, =93we said =91if you want to get into legitimate business, now is
the time.=92=94

iMesh, a prominent Israel-based P2P service launched in 1999, was among
those to heed the call. Cofounder Talmon Marco saw an opportunity to
create a legit file-sharing business, not unlike Napster before it, for
=93a company that sells to users who previously were not buying that
music,=94 he says. With iMesh converting to legit, the pressure was on
other companies, including LimeWire, to change their tune.

Gorton=92s beef is that file sharers wouldn=92t take to being converted as
easily as the industry hoped. So he declined the offer and resolved to
come up with his own plan. But after much back and forth, the labels
lost patience. Last August, the RIAA sued LimeWire for facilitating and
profiting from copyright infringement. At US $150 000 per illegally
traded file, the damages are tantamount to tens of millions. But Gorton,
a flag-waving proponent of open-source software and innovation, refused
to unplug.

Gorton says that a lot people don=92t realize how the war on piracy was
being waged. =93The litigators at the RIAA drive the process,=94 he says.
=93It=92s almost like a political turf battle. Litigators, by suing, make
themselves more important=85We=92ve talked to midlevel execs at the label,
and it turns out they don=92t have power to set policy.=94

In September, Gorton countersued, alleging an antitrust violation and
asserting in his complaint that the labels=92 goal is =93to destroy any
online music distribution service they did not own or control, or force
such services to do business with them on exclusive and/or other
anticompetitive terms so as to limit and ultimately control the
distribution and pricing of digital music, all to the detriment of
consumers.=94 Today he has an even brasher plan for what=92s next: building
an even more profitable business for LimeWire. =93Instead of looking at
people using LimeWire and saying =91we hate you,=92 =94 he says, his tack i=
s
=93you are our customer, and we=92re going to engage you in a productive wa=
y.=94

With the lawsuits in the discovery process, it could be several months
before resolution. Fred von Lohmann, senior intellectual property
attorney for the Electronic Frontier Foundation, in San Francisco, says
there=92s plenty at stake. =93It=92s a bet-the-company kind of litigation,=
=94 he
says.

In the meantime, Gorton hopes to negotiate a settlement that will lead
to a more robust business plan=97from building in a payment mechanism for
consumers who wish to purchase music, or=97in a nod to his original plan
for LimeWire=97in creating a system that feeds sales leads from consumer
queries to interested parties. Ultimately, he says, there=92s no turning
back the tide. =93The core focus of the music industry has been shutting
down individual file-sharing programs, and that has proven to be a
failure,=94 he says, =93it just takes one high school kid in Eastern Europe
to undermine their entire industry.=94

About the Author

DAVID KUSHNER, a journalist in New Jersey, is the author of Masters of
Doom (Random House, 2003). His latest book is Johnny Magic and the Card
Shark Kids (Random House, 2005).