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Can Record Labels Really Quantify The Damage From Limewire Downloads?

The record labels’ lawsuit against the Limewire file-sharing service is nearing its final stage-a January trial has been set to calculate the damages. But as the lawyers prepare for that trial, the lawsuit has taken a surprising turn, with the judge asking the record labels for some new information. It isn’t a good omen for the labels, which have said they may ask for over $1 billion from Limewire and its founder Mark Gorton. Ultimately, the size of the punishment against Limewire will have a significant impact on how large a hammer record labels have to wield against the alleged copyright scofflaws of the future.

Limewire is essentially shuttered, and has stopped distributing its software, after a judge ruled last month that it had illegally encouraged copyright infringement. The company has even begun to sell off the still-legal elements of its business, such as its online music store.

The record labels may want a billion dollars, but that’s a lot of money to squeeze from a service that reportedly earned revenue of $20 million in 2006, a year when it was near the height of its popularity. They’re hoping to get some of that cash from founder Mark Gorton, who has moved on to other ventures. Gorton’s hedge fund, Tower Research Capital, was said to have had $117 million in assets in 2007.

We reached out to lawyers for the Recording Industry Association of America, which represents the labels, to ask them about their strategy for showing damages, and will update the story if and when we hear back.

To collect such a sum, the labels will need to use the provisions of copyright law that allow for large statutory damages-up to $150,000 per song in the case of willful copyright infringement. But the judge overseeing discovery in the damages case has already made an unusual ruling, asking the labels to prove how much actual damage they have suffered from piracy. It’s a surprising move, since copyright owners are usually exempt from showing they were actually hurt by illegal copying. Indeed, part of the idea behind statutory damages is to make it easy on plaintiffs who might have a hard time precisely measuring their harm.

The judge overseeing discovery ruled last week that Limewire’s lawyers should be given a chance to argue “that the statutory damages being sought by [the record labels] would be disproportionate to any actual damages.” How are they going to do that? They’re going to look at the actual royalty information for 300 copyrighted works-80 songs and 20 albums selected by Limewire’s lawyers, 80 songs and 20 albums picked by the record labels’ attorneys, and a similar number selected randomly.

It’s an early skirmish in this damages battle, but the focus on proving real harm in the nebulous area of internet piracy doesn’t bode well for the music-industry plaintiffs in this case.

7 Responses to “Can Record Labels Really Quantify The Damage From Limewire Downloads?”

  1. The Internet is a great equalizer. Artists do not need the recording companies any more. For those who know, the recording companies routinely strike deals that look great for the artists, sharing the profits equally. Sounds great, right? But what isn’t clear to the artists is that profit share is only after all the production, promotion and other costs are removed, essentially leaving the artists nothing. The companies manage to pad many many expenses to reduce the artists final take.

    It is time for people to like music to pay for it directly to the artist, cut out the middle-man. for all you “download it free” types, would you come and work for me free? Then why do you expect the artists to give you their work free? I download music”free”, but have purchased every CD or LP (remember those) that I have downloaded.

  2. Tough debate for the labels. Its clear that file sharing continues to plague and damage the industry with staff reductions year over year, but it could be difficult for labels to quantify their losses to a judge. There should be more focus on working with file sharing networks to monetize their platforms. Continuing to sue these platforms seems like a short term solution for cash, not a long term solution. The value of records decline as they are downloaded via torrent or p2p.

  3. Chris Bagley

    I’m glad leeches like Limewire are being shut down. That said, it does seem reasonable for a plaintiff to have to show actual damages because $150,000 per song is ridiculous.

    Also, these lawsuits aren’t the main reason illegal sharing software is losing traction. The main reason is the popularization of reasonably priced digital alternatives to the $18 CD, such as iTunes. Many of these offer added value that CDs and illegal downloads simply do not offer. The site http://www.fargotube.com, for example, is built like a social network so you buy music and videos directly from the artists while networking with the artists and other like-minded fans.

  4. Nick Samuels

    Mark Montgomery,

    You are also dancing on the graves of the artists whose music you are enjoying because you are too lazy and selfish to purchase it legally. Classy!

  5. Mark Montgomery

    The record companies are grasping at straws. They can’t accept the fact that since 1999 ALL music has been free and that their old business model of one CD for $18 is long dead. We will continue to share music for free and the record companies can’t stop us. LimeWire may be shut down but its software client continues to function perfectly on my computer and if it dies I still have FrostWire and a score of other P2P clients to use to copy music. We will dance on the graves of the record companies!!!! Mark Montgomery NYC, NY boboberg@nyc.rr.com

  6. I’m surprised the article didn’t mention the involvement of P2P monitoring group, Big Champagne, an expert in this analysis of music downloads and associated cost to legitimate businesses through the alleged loss of sales. The complicating factor in arriving at a ‘loss or revenue’ figure due to music piracy is the fact that ‘pirates’ also buy music, so the inverse correlation between piracy (going up) and sales (going down) isn’t automatic.