Kazaa Owner Cleared to Sue Record Labels, Movie Studios

The company behind the Kazaa file-sharing network has the green light to pursue its own copyright infringement case against the record labels and Hollywood studios that accuse it of promoting piracy.

Sharman Networks Ltd. alleges that in their effort to catch people sharing files illegally, the labels and studios used unauthorized and unlicensed versions of Kazaa to monitor users of the network.

The company also claims that the labels breached the license agreement on Kazaa software by sending instant-message warnings and bogus files through the network.

U.S. District Judge Stephen V. Wilson in Los Angeles ruled last week that Sharman can pursue those claims.

“What’s sauce for the goose is sauce for the gander,” said attorney Michael Friedman, head of the entertainment practice at Jenkens & Gilchrist in New York, which is not involved in the case.

Legal experts following the case said they weren’t surprised by the ruling because judges are often reluctant to dismiss claims before the parties have a chance to gather evidence. But, Friedman said, “there is a very interesting interplay” in the Sharman case “because both sides are asserting copyright infringement claims.”

Evan R. Cox, a copyright law expert at Covington & Burling in San Francisco, said the ruling could be viewed as a bit of a warning to copyright holders trying to combat piracy online. But Sharman is going to have a considerably harder time actually winning the counterclaims, he said, “given how fraught with irony” they are.

Sharman, which is based in the South Pacific tax haven of Vanuatu, also accused the entertainment companies of violating antitrust laws by refusing to do business with its partner, Woodland Hills-based Altnet Inc. Rather than dismissing that claim or allowing it to go forward, Wilson suggested that it be placed on hold until the U.S. 9th Circuit Court of Appeals weighs in again on the legality of file sharing.

The labels and studios started the legal row in 2002, when they sued Sharman for distributing software that enabled people to make free, unauthorized copies of movies and songs online. It also sued the companies behind two other popular file- sharing networks, Morpheus and Grokster.

Wilson ruled in April that the Morpheus and Grokster programs were legal, prompting the entertainment companies to appeal. But he has not rendered any decisions on Sharman or the Kazaa software, which is similar to Grokster.

Sharman countersued early in 2003, only to have Wilson dismiss most of the claims in July. The company amended its antitrust, copyright-infringement and breach-of-contract claims, but the movie and music companies asked Wilson to dismiss them as legally deficient.

Wilson disagreed, but noted that Sharman may have a tough time proving its breach-of-contract claims because it made previous statements that the license agreement was “unenforceable” and “intended to operate as an honor code.”