LimeWire and Labels Face Off Over Damages

MANHATTAN (CN) - Attorneys offered competing explanations of how major record labels view file-sharing software as opening arguments kicked off the damages trial against former LimeWire CEO Mark Gorton on Wednesday.

Industry insiders paint the phenomenon in biblical terms of "Thou shalt not steal." An attorney for the labels said LimeWire's operations invited "the biggest theft of music in the history of the world."

But Gorton's defense attorney Joseph Baio claims that, behind closed doors, label execs spoke candidly about how peer-to-peer downloading could benefit their businesses, if they only adapted to changing times and technologies.

As early as May 11, 2000, Warner Music's former chairman Edgar Bronfman wrote in an internal memo, "I want a legal Napster," Baio said. That same year, major labels sued Napster, the original file-sharing software created by a college student, shutting it down by 2001.

Grokster, another peer-to-peer software company, lost a Supreme Court cast on June 27, 2005, in a decision that also shuttered Morpheus, Kazaa, WinMx, eDonkey, Bearshare and i2hub.

Though now defunct, LimeWire outlasted all of these companies. Its supporters insist that file-sharing will outlive all the record labels' present and future litigation.

But the eight-person jury listening to opening arguments on Wednesday afternoon will not determine whether LimeWire's peer-to-peer file-sharing is illegal; a judge already determined that it was in May 2010.

Instead, jurors will decide how much Gorton owes the labels in damages.

Thirteen labels that have joined the suit against Gorton are clamoring for more than $1 billion, but Gorton believes that he owes less than $10,000.

Glenn D. Pomerantz, who represents Sony, Universal, Warner and EMI, said the case boiled down to a simple illustration: a music store with an awning marked "Music for Sale" beside another with a sign "Music for Free!," competing in a timeless urban setting with cast iron lampposts, brownstone apartments and catwalk fire escapes.

To transfer the image into the digital sphere, he showed the same illustrations transposed on a computer monitor.

With digital competitors like LimeWire peddling their goods for free, the labels lost 52 percent of their revenues over a decade, from 2000 to 2010, Pomerantz said.

Gorton's attorney countered that the record companies intentionally portrayed a distorted landscape of the impact of file-sharing software.

"It's not true, and the plaintiff's don't believe it's true," Baio said.

Court documents reveal that the defense built much of its case during discovery by obtaining the label's internal documents, which allegedly show that labels may have profited from file-sharing.

Baio seemed eager Wednesday to reveal what he found.

According to one future defense exhibit, Victory Records CEO Tony Brummel told Universal Music CEO Zach Horowitz, "You can't compete with free." Horowitz replied, "We can. We have to. It's just that we have to be creative and add value."

Bronfman, the Warner exec who wanted a "legal Napster," said in another internal document, "[W]e inadvertently went to war with consumers ... [and] consumers won."

CD sales may be dropping, but Baio said live concerts are flourishing, in part because file-sharing has introduced consumers to new artists and songs.

"The real nightmare of a writer is to be unknown," Biao said. "For the musician, it's to be unheard."

He added that music industry executives have also acknowledged that software like LimeWire has not been uniquely responsible for illegal file-sharing.

Baio promised that Recording Industry Association of America chairman Mitch Bainwol allegedly said as much in a memo - "Burning and Ripping [CDs] are Becoming a Greater Threat Than P2P [Peer-to-Peer]."

While P2P "gets most headlines," it is not a unique threat, Baio said, quoting Thomas Hesse, president of Sony Music Entertainment's Global Digital Business.

Other execs allegedly complained about consumers sharing whole records on instant messages, or through legal channels like Google and YouTube.

Meanwhile, attorneys for the record labels say LimeWire's internal documents paint a different picture.

One such file, strategizing the company's outreach, divided users into such categories as "Hardcore Pirates" and "Morally Persuadable," Pomerantz said.

Baio argued that file-sharing will continue despite the labels' and courts' efforts to quash it because of morality or legality.

He held up an iPod that holds up to 40,000 songs and suggested it was not made for the legal downloader.

To fill it with songs at $1 apiece, or even 50 cents each, would cost consumers tens of thousands of dollars.

"Music that is free is here to stay. The world has changed. The consumer is king," Baio concluded.

Witness testimony began with Zach Horowitz, the Universal Music CEO who - according to the defense - wrote that labels "can" and "have to" compete with free.

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