Infamous File-Sharing Network Kazaa Settles Record Industry Suit

Sharman Networks agreed Thursday to pay $115 million to settle its legal troubles with the record industry, which sued the company for distributing illegal music files through its Kazaa file-sharing network.

Sharman, which is based in Sydney, Australia, reached the out-of-court settlement with the international IFPI, and the U.S.-based Record Industry Association of America, the two trade organizations said in a joint statement. The agreement settles legal proceedings in Australia and the United States.

The trade groups did not disclose how much Sharman agreed to pay to compensate record companies and put its legal troubles behind it, saying only that it was a "substantial sum." But people familiar with the settlement said Sharman agreed to $115 million.

In addition, Sharman would introduce filtering technologies on Kazaa to prevent music piracy.

"This is the best possible outcome for the music industry and consumers," John Kennedy, chairman and chief executive of the IFPI said in the statement. "Our industry will have a new business partner and consumers will experience new ways of enjoying music online, with more choice. This is a win-win scenario."Record companies for years have pursued a fierce legal strategy against file-sharing networks and individuals believed to be distributing music files without the permission of copyright holders. In June 2005, the U.S. Supreme Court ruled that Kazaa rivals Grokster and StreamCast were liable for music piracy conducted on their networks.

The Federal Court of Australia last year found that the operators of Kazaa were responsible for the widespread copyright infringement on the network.

Kazaa was one of the most popular peer-to-peer networks on the Web for the illegal trading of music and movies, the record industry claimed. At its peak, the network had 4.2 million simultaneous users worldwide. In May 2003, Sharman claimed Kazaa was the most downloaded software ever, at 239 million downloads.

Since then, however, the network's popularity has waned, as an increasing number of people have moved over to legal online music services, such as Apple Computer Inc.'s iTunes, and to networks that operate in Russia, Asia and other places where laws against copyright infringement are less stringent.

As a result, the settlement wasn't expected to have much impact on illegal trading of music and movies."I doubt file sharing will go away," David Card, analyst for JupiterResearch, said. "It's very difficult to shut down, and it'll always move somewhere else."

Going forward, Kazaa is expected to have difficulty building a legitimate business in the current market, where it would face tough competition against established legal services from Yahoo, Napster, Apple and others, Card said. Nevertheless, RIAA Chairman and Chief Executive Mitch Bainwol said the deal would help "bring legal and moral clarity to the marketplace.

"Services based on theft are going legit or going under, and a legal marketplace is showing real promise," he said in a statement.

The IFPI announced the settlement on the same day it released its global piracy report. The international group estimates that one in three CDs, or 1.2 billion, sold last year were fakes. The total value of the illegal trafficking was $4.5 billion.