MMW-06 -- MMO Japan Responds to Lawsuit

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J@pan Inc Magazine Presents:
M U S I C M E D I A W A T C H
Commentary on the week's music technology news
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Issue No. 6
Wednesday, February 20, 2002
Tokyo

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CONTENTS

++ Feature: MMO Japan Responds to Lawsuit

++ Noteworthy News
- New MTV Interactive TV Service
- BOSE Announces New Headphone
- Morpheus Report Disputed

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++ FEATURE: MMO Japan Responds to Lawsuit

In this issue of Music Media Watch, we'll examine the MP3 file sharing
situation in Japan, and provide an update on the MMO Japan case, which
has captured the attention of P2P (Peer-to-Peer) music sharing
enthusiasts here.

As reported in our February 5 issue, MMO Japan, which operates the
Japanese version of the 'File Rogue' file sharing service, is
currently being sued by JASRAC and a group of 19 record companies. On
January 29, the group filed a provisional injunction with the Tokyo
District Court, seeking suspension of MP3 file exchange on the
service. Apparently, the group is only interested in stopping the
transfer of MP3 files, which MMO Japan says comprise only 15 percent
of all files transferred.

Last week, on February 12, MMO Japan filed its response to the
injunction and placed the document on the Japanese File Rogue web
site. The company takes the position that it cannot be held
responsible for users who transfer copyrighted MP3 files, and that
shutting the service down would deny a highly valuable service to
legitimate users. The company likens its software to FTP clients and
other file-transfer programs, pointing out that much illegal material
is also transferred using these applications

This argument has come to be known as the "Sony Betamax" defense,
named after the famous court case in which Sony successfully argued
to the U.S. Supreme Court that because there were legitimate uses for
video recorders, manufacture and sale of the devices could not be
prohibited. The same defense did not work nearly as well for Napster,
though, and the company was ordered to shut down in July 2000.

Like Napster, File Rogue uses a central server to store its database
of information about available files, and is therefore vulnerable to
a shut down order. KaZaA, another P2P software maker dependent on a
central server, was recently ordered by a Dutch court to suspend
download service. The company subsequently announced that it was being
acquired by Australia-based Sharman Networks, presumably to move the
service out of the Netherlands and away from the court's
jurisdiction.

Likewise, Morpheus, the software used on the Music City service, has
also been threatened recently with legal action, and appears to have
been the victim of false postings and bug reports (see news brief
below). Along with KaZaA and Grokster, Morpheus uses the FastTrack
protocol for file sharing, but does not use a central indexing server.
The company has spent much of the last week denying a report,
published initially by BBC Online, describing a security bug in the
software.

Considering that both U.S. and Dutch courts have ruled against the P2P
software makers, and given the money and political clout wielded by
JASRAC and the recording industry here, it seems unlikely that the
Tokyo District Court will rule in favor of MMO Japan. Despite the
company's determined stance to continue the File Rogue service, many
in the industry predict that the service will be forced to adopt some
kind of payment scheme, with a sizeable chunk going to JASRAC and the
record labels.

This, of course, begs the question of how JASRAC and the record labels
hope to respond to the proliferation of other P2P programs that do
not rely on a central server. The most commonly cited examples are
BearShare and LimeWire, which use the Gnutella protocol, and are
steadily gaining in popularity. While the makers of these programs
could be ordered to suspend distribution of their client
applications, those who already have the software should be able
(theoretically, anyway) to carry on sharing files as they always have.
And of course, new client programs will continue to appear.

So, regardless of how the Japanese courts rule on the MMO Japan case,
it seems only a matter of time before the 'non-centralized' services
spawn Japanese versions that will really take root here. A recent
study from Frost & Sullivan estimates that the number of users for P2P
services will grow to 6.2 million by 2007, with anticipated revenues
for such applications expected to exceed US $4.5 billion.

++ NOTEWORTHY NEWS: New MTV Interactive TV Service

MTV Neworks recently partnered with the NDS Group to launch a new
interactive music service called 'MTV Hits Interactive' in the UK. The
new service is offered Sky Television's digital service, and will
feature content such as daily interactive puzzles, news, and
musician's gossip.

http://news.com.com/2100-1023-834779.html

++ NOTEWORTHY NEWS: BOSE Announces New Headphone

BOSE has announced a new concept headphone, called 'Quiet Comfort',
which is designed to reduce the effect of distracting noise in and
around the user's environment. When the 'phone picks up incoming noise
from the outside (via a built-in mic), it releases a counter wave
which greatly reduces the noise signal. The new headphone will sell
for 39,800 yen.

http://k-tai.impress.co.jp/cda/article/stapa/0,,8266,00.html

++ NOTEWORTHY NEWS: Morpheus Report Disputed

Last week, we included a news brief and link to an article describing
a possible security hole in the popular Morpheus P2P file sharing
program. It has since become apparent that the report was at best
highly exaggerated. Streamcast Networks, the company behind Morpheus,
has categorically denied the existence of any security flaw in its
software, and BBC Online, which originated the report, appears to have
removed the story from its web site.

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SUBSCRIBERS: 258 as of February 20, 2002

STAFF
Written by Steve Myers (steve.myers@l8tech.com)
Steve Myers heads the Theta Group at Layer-8 Technologies, which
specializes in the development of music-related software applications.

Edited by J@pan Inc editorial team (editors@japaninc.com)

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