Kazaa Settles with Record Industry and Goes Legitimate

Ruled liable for copyright theft in Australia and following a seminal Supreme Court decision in the US, the biggest brand name in music piracy settles and plans to go legitimate

LONDON, WASHINGTON, LOS ANGELES, SYDNEY - July 27, 2006 - The major record companies have reached a global out-of-court settlement of international litigation against the operators of the Kazaa peer-to-peer network.

The settlement, announced today by the trade organizations representing the international and U.S. recording industries (IFPI and RIAA), applies to Kazaa’s operations worldwide and concludes the ongoing legal proceedings brought by the record companies against the service’s operators in Australia and the United States.

Under the terms of the settlement, Kazaa has agreed to pay a substantial sum in compensation to the record companies that took the legal action to stop copyright infringement on the Kazaa network. Kazaa will also introduce filtering technologies ensuring that its users can no longer distribute copyright-infringing files.

Recording Industry Association of America (RIAA) Chairman and CEO, Mitch Bainwol said: “This is welcome news for the music community and the legal online music marketplace. Steadily but surely, we are passing another important marker on the remarkable journey that is the continuing transformation and development of the digital marketplace. The winners are fans, artists and labels and everyone else involved in making music, and our partners in the technology community.

“A little more than a year ago, the U.S. Supreme Court struck a wise balance between protecting innovation and the rights of creators,” added Bainwol. “This meaningful decision has helped bring legal and moral clarity to the marketplace. Services based on theft are going legit or going under, and a legal marketplace is showing real promise. That’s encouraging news for the industry’s ability to invest in new music.”

John Kennedy, chairman and CEO of IFPI said: “Kazaa was an international engine of copyright theft which damaged the whole music sector and hampered our industry’s efforts to grow a legitimate digital business. It has paid a heavy price for its past activities. At the same time Kazaa will now be making a transition to a legal model and converting a powerful distribution technology to legitimate use.

“This is the best possible outcome for the music industry and consumers. Our industry will have a new business partner and consumers will experience new ways of enjoying music online, with more choice. This is a win-win scenario.”

The settlement follows a landmark ruling in the Federal Court of Australia last year which found the Kazaa operators guilty of authorizing widespread copyright infringement and litigation in the United States by record companies, music publishers and motion picture studios against Kazaa, Grokster and Streamcast for copyright infringement.

The case against Grokster and Streamcast ultimately reached the U.S. Supreme Court, which in June 2005 unanimously ruled that individuals or companies that promote copyright theft by users of their service can be held responsible. Grokster settled the case with the record labels and motion picture studios in November last year.

Kazaa is one of the world’s most popular peer-to-peer networks for the illegal trading of music and movies, and at its peak had 4.2 million simultaneous users worldwide. In May 2003 Sharman Networks declared Kazaa the most downloaded software ever, at 239 million downloads.

Illegal file-sharing on the Kazaa network and other peer-to-peer networks has caused significant damage to the legitimate music industry internationally, with numerous independent studies showing the close link between unauthorized file-sharing and declining record sales.

The settlement coincides with a new report from IFPI showing the global scale of Internet piracy. The report, entitled ‘Protecting Creativity in Music’, chronicles a year of sea-change in the digital music market, during which unauthorized services around the world have migrated to legitimacy or stopped their infringing operations – including Grokster, iMesh and Bearshare in the United States, Ezpeer in Taiwan, Soribada in Korea, and now Kazaa.

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The Recording Industry Association of America (RIAA) is the trade organization that supports and promotes the creative and financial vitality of the major music companies. Its members are the music labels that comprise the most vibrant record industry in the world. RIAA® members create, manufacture and/or distribute approximately 85% of all legitimate recorded music produced and sold in the United States.

In support of this mission, the RIAA works to protect the intellectual property and First Amendment rights of artists and music labels; conduct consumer, industry and technical research; and monitor and review state and federal laws, regulations and policies. The RIAA® also certifies Gold®, Platinum®, Multi- Platinum™ and Diamond sales awards as well as Los Premios De Oro y Platino™, an award celebrating Latin music sales.