Get Ready For The Legal Skirmishes Over LimeWire Damages

Now that a court injunction has shut down the LimeWire file-sharing service, the only thing left for LimeWire lawyers to do is argue for lower damages-and that’s looking like an uphill battle.

The injunction just signed by U.S. District Court Judge Kimba Wood, of the Southern District of New York, uses some tough language about the company’s actions. The record companies that sued LimeWire back in 2006 have made it clear they’re going to go all out, seeking damages not just from LimeWire but also from founder Mark Gorton and his other companies. If other companies related to Lime Group are roped into the case, it could deter investors in future file-sharing services.

The record companies’ damage demand could easily top $1 billion, since damages for willful copyright violations range from $750 to $150,000 per work and the plaintiffs are seeking to collect damages for more than 10,000 songs. While a damage total that high is unlikely, LimeWire could easily be held liable for tens of millions of dollars. Since LimeWire earned $20 million in 2006-a year when it was surely more popular than it is now-such a large judgment would be the service’s death blow.

The shutdown of LimeWire’s service is the most dramatic example since Grokster of the entertainment industry’s ability to lawyer up and go after services it argues enable piracy. LimeWire was closed down under the same “inducement” doctrine that snuffed out Grokster. After losing its case at the U.S. Supreme Court, Grokster agreed to close down and pay $50 million to the record companies that sued it. Even though LimeWire’s computers never actually held copyrighted music, Judge Wood held that by connecting its users and encouraging them to share files over a peer-to-peer network, it illegally induced copyright infringement.

Even as LimeWire executives continue to put on a brave face-CEO George Searle said in a statement that the company’s “team of technologists and music enthusiasts is creating a completely new music service”-the company’s website today sports a sort of legal “death notice”, albeit one less intimidating than the one that still adorns

Discovery is already underway for a trial on damages that will begin January 2011, and the language in Judge Wood’s injunction order suggests she has already taken a very dim view of the company’s behavior.

The company “almost certainly will be liable for statutory damages where the upward limit for each statutory award is $150,000,” she wrote. Quoting the decision that shut down the Grokster service, Judge Wood wrote that “the amount of statutory damages at issue here ‘is so staggering’ that it ‘would very probably be well beyond’ LimeWire’s ‘anticipated resources.'”

Judge Wood even suggests the company is responsible, in part, towards a generational change in attitude towards the value of music: “As a result of LimeWire’s inducement, generations of potential purchasers of plaintiffs’ products have instead grown up accustomed to downloading music for free… LimeWire cannot be heard to complain of injury, when its business is based on profiting from the copyright infringement that LimeWire intentionally induced.”

Now the struggle is just over how far the recording industry can reach in its quest for damages. LimeWire lawyers have already filed a motion asking to see recent music-licensing agreements struck by the record companies-evidence they hope could help them argue for lower damages. They’re also challenging the RIAA’s evidence about how many copyrighted works it can collect damages for. The RIAA asked for damages for more than 10,000 songs that were exchanged via LimeWire, but defense lawyers noted many of those songs were from the same albums, and filed a motion arguing that only one damage award should be allowed per album.

In May, RIAA lawyers noted that LimeWire founder Mark Gorton had moved 87.1 percent of the company to his family trust. The reason for the move was to “protect the assets in the event of a legal judgment against me personally,” Gorton said in a deposition.