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Legal Pressure Shutters Grokster

The news is worse when compared against rising sales of iPods and other music-playing devices over the same period, Garland said.

"Per capita, there's been a decline in song sales," he said.

Grokster's capitulation comes four months after it lost a critical case in the U.S. Supreme Court, which ruled that such services could be held responsible for the actions of their users if they encourage them to swap files illegally.

Grokster and Morpheus had argued that they were simply enablers of sharing, whether the files were legal or illegal, in the same way that telephone companies provide the conduit for communication that occasionally might be illegal.

In the wake of the court ruling, the music industry sent letters to the seven major services ordering them to halt operations or face continued litigation.

Mitch Bainwol, chief executive of the RIAA, acknowledged in an interview that piracy of digital entertainment will never end. "We can't jam the genie entirely back in the bottle," he said. "But we can get to a point where the legal services will dominate." He added that a new generation of teenagers is growing up respecting copyrights more.

Garland said the Grokster settlement is equivalent to benching "a ball boy," rather than a sports team's superstar, because Grokster is a last-generation P2P service with a fraction of the users of newcomers such as eDonkey and BitTorrent.

"The headlines really are the win here: 'Here's another rogue P2P player that's found its judgment day,' " he said. "Practically speaking, I don't expect it to have an impact on the larger P2P phenomenon."

Fred von Lohmann, senior staff counsel for the Electronic Frontier Foundation, a digital rights advocacy group, said the music industry cannot win by seeking to lock down its offerings through lawsuits or technology.

"There's no way you can protect music in a way that is going to stop the free trading of it," said von Lohmann, who represented StreamCast in the Supreme Court case. "All of the mechanisms so far have been almost laughably weak."

Instead, he said, the industry needs to compete with free services by lowering prices, expanding the availability of titles, and easing restrictions on the ability to transfer files among various devices and locations.

Marty Lafferty, head of the Distributed Computing Industry Association, a trade group that represents some file-sharing services and related technology companies, said the industry already is moving toward making itself legal.

EDonkey, for example, told a Senate hearing in September that later this year it would begin charging for songs and would distribute royalties to songwriters, entertainers or others who hold rights.

The settlement by Grokster is "part of the conversion from open peer-to-peers to industry-acceptable, sanctioned business models," Lafferty said. "It would be great if this could all move along more quickly."

Lafferty said that with content-protection technology and aggressive filtering, illegal sharing could be significantly reduced. "It's complicated," he said, "and it's going to take time."

In the meantime, entertainment industry executives vowed to keep up the pressure.

"It's like the drug war," said David Israelite, head of the music publishers association. "Your goal is not to get to zero, but to keep fighting for more and more reductions. . . . You go after everybody."

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