File-Sharing Company Can’t Sue on Antitrust

The company that distributes Kazaa file-sharing software can’t sue the major record companies and Hollywood studios for antitrust violations, a federal judge ruled Thursday.

The labels and studios filed suit last year against Sharman Networks, alleging that it violated their copyrights by distributing and supporting Kazaa, which lets users copy files from one another’s computers. Sharman countersued in February, claiming that the firms conspired to keep authorized and copy-protected versions of their songs and movies off Kazaa.

Some defenders of online music sharing contend that the media companies encourage piracy by refusing to license their wares at low prices to online providers.

On Thursday, though, U.S. District Judge Stephen V. Wilson in Los Angeles dismissed Sharman’s antitrust claims. Even if its allegations were true, Wilson said, Sharman isn’t entitled to damages because its business is distributing file-sharing software, not entertainment. In effect, the judge said, Sharman is not entitled to bring an antitrust lawsuit because it doesn’t participate in the online entertainment market.

The ruling won’t prevent Sharman from trying to prove later that the labels and studios colluded to block its partner Altnet from obtaining licenses to their songs and movies. Sharman alleged the labels and studios feared Altnet could compete with their online efforts.

“Sharman Networks was grasping at straws to distract the court from their own improper behavior,” said Matthew Oppenheim of the Recording Industry Assn. of America. “We are pleased that the court recognized what we have said all along -- that these claims lacked any merit.”

Sharman attorney Rod Dorman could not be reached for comment.

Kazaa is the most popular of the many file-sharing networks, attracting at least 4 million users offering more than 800 million files at any given moment. Record companies blame file sharing for the slump in CD sales.

Wilson ruled in April, however, that two other popular file-sharing companies, StreamCast Networks Inc. and Grokster, did not violate the labels’ and studios’ copyrights by distributing file-sharing software. Although users of those programs frequently committed piracy, Wilson said, the companies weren’t liable because they didn’t monitor or control them.

The entertainment companies plan to appeal that ruling. Meanwhile, they’re trying to build their infringement case against Sharman.

In its antitrust claims, Sharman argued that its strategy always has been to work with Altnet -- a subsidiary of Woodland Hills-based Brilliant Digital Entertainment -- to distribute authorized copies of music and movies through Kazaa. Sharman’s role ostensibly was to provide the pipeline, and Altnet’s was to get licenses.

Sharman alleged that the major media companies conspired to withhold licenses. But Wilson said, “Sharman is neither a competitor nor a customer” in that market, and any injuries would be “incidental, not integral, to the alleged anti-competitive scheme.”