MMW-19 -- A Tough Week For Kazaa and StreamCast

J@pan Inc Magazine Presents:
Commentary on the Week's Music Technology News

Issue No. 19
Tuesday, May 28, 2002



++ FEATURE: A Tough Week For Kazaa and StreamCast

- Benjamin Worm Hits Kazaa Network
- Audiogalaxy Next on RIAA Hit List
- NY Times Report on HyperScore


++ FEATURE: A Tough Week For Kazaa and StreamCast

In a battle which has see-sawed back-and-forth several times since the
beginning of the year, second-generation file-sharing services Kazaa
and StreamCast were dealt a severe blow last week as they found
themselves unable to pay their mounting legal bills. Currently under
suit by the RIAA and MPAA, Kazaa B.V. announced it would cease
operations while StreamCast was forced to search for new legal

Just last month, a Dutch appeals court ruled in favor of Kazaa, saying
the company was not responsible for copyright infringement by its
users. This victory was short-lived, as attorneys for the
deep-pocketed US record companies have used various legal maneuvers to
prolong the court case and drain the financial resources of the
defendants. Kazaa B.V. currently has just two employees, including
Niklas Zennstrom, the creator of its FastTrack P2P network technology.
A judgment against the company would likely call for damages in the
millions of dollars and effectively run the pair out of business.

Together with Kazaa and West Indies-based Grokster, StreamCast
Networks, which owns the Morpheus file-sharing service, is also a
co-defendant in the US court case. Last week, the company's lead
attorney, Andrew Bridges, announced he was leaving the case, saying
that StreamCast would be searching for new counsel. "I've been
informed by my client that they cannot sustain the burn rate for legal
fees," he said.

While the record industry has no doubt used strong-arm legal tactics
to force the file-sharing startups into submission, squabbling between
Kazaa and StreamCast in recent months certainly has not helped the
defendants' legal position. As we reported in our March 12 issue,
Kazaa recently terminated StreamCast's license to use its FastTrack
network, claiming the company had not paid its licensing fees. Kazaa
then proceeded to shut out Morpheus users from the file-sharing
network, effectively proving that the service was (contrary to its
claims) quite capable of being shut down, should the court so decide.

Does does the collapse of their legal case mean that the Kazaa and
Morpheus services will be going the way of Napster? Probably not, or
at least not any time soon. Morpheus switched in March from FastTrack
to the open Gnutella protocol, which may indeed be invulnerable to a
shutdown order, as it does not seem to rely on any central server.
Meanwhile, Kazaa B.V. sold the file-sharing portion of its business to
Australia-based Sharman Networks back in February, and Sharman
continues to operate the service from an island in the South Pacific
called Vanuatu, which falls well outside US legal jurisdiction.

Of course, none of this bodes well for ailing MMO Japan, which has
been the subject of two newsletter features earlier this year. Recall
that MMO has vowed to fight a recent Tokyo District Court order to
suspend its File Rogue service, and appears headed for an uphill legal
battle with a JASRAC-led group of 19 Japanese record companies. A
Kazaa/StreamCast victory in the US would have been a huge boost to
MMO in its quest to stay alive in Japan. As this appears unlikely now,
it will be interesting to see whether or not the company continues to
operate here. Indeed, the best move for MMO Japan may well be to
follow the lead of Kazaa B.V. and sell its service to an organization
based outside the grip of Japanese law.

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NOTEWORTHY NEWS: Benjamin Worm Hits Kazaa Network

It has indeed been a hard week for Kazaa. At the same time the company
was announcing it was running out of money to continue its court
battle, a new report surfaced that a computer worm called Benjamin was
infecting users of the Kazaa network, posing as music and movie
files. When a user downloads and opens an infected file, a dialog box
appears saying that an error has occurred as a result of file

J@PAN INC magazine -- the premier journal of business, technology and
people in Japan -- invites you to participate in a special ISP/ASP/
DATA CENTERS advertising section scheduled for the August 2002 issue.

The August 2002 special section will feature companies that are
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NOTEWORTHY NEWS: Audiogalaxy Next on RIAA Hit List

In a move that should come as a surprise to absolutely nobody, the
RIAA announced last Friday that it was suing file-sharing service
Audiogalaxy for (what else?) copyright infringement. The RIAA claims
that Audiogalaxy has not been able to effectively filter access to
copyrighted songs. The RIAA is joined in the lawsuit by the National
Music Publishers Association (NMPA) and the Harry Fox Agency, which
represents songwriters.


The latest issue of J@pan Inc magazine is now available online!
Click here for the lowdown:

Subscribers can access our hot-off-the-press features, including:

-- Doctor in the House
As ever greater numbers of non-Japanese investors move in to take over
more and more distressed assets, we take a look at exactly who's got
money to spend and why they're directing their efforts eastward.
Are they in for a quick buck or looking to heal an ailing economy?

-- Walls Come Tumbling Down in Japanese Banking
Kansai Sawayaka Bank was the first acquisition target for all-American
takeover guru Wilbur Ross when its predecessor foundered in the
aftermath of Japan's 1999 financial Big Bang. KSB's fate has been
seen as anything from foreign interference to an intriguing experiment.
Alex Stewart surveys the lie of the land.

-- Ross to the Rescue
The deal-making prowess of Wilbur Ross is known far and wide, but how
has he slashed his way through the notorious Japanese red-tape jungles?
And more importantly, why?

-- Open Source Free for All
Why are Japan's mainframe makers, brokerages and other big guns so
interested in open source solutions these days? Sam Joseph takes us
into a geeky world that is getting more attention from moneyed interests.

J@pan Inc:

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NOTEWORTHY NEWS: NY Times Report on HyperScore

Matthew Mirapaul wrote an interesting report in the NY Times last week
about HyperScore, one of an increasing number of music software
packages that allow people to compose music using tools more commonly
associated with drawing software. Instead of traditional sequencer or
music notation interfaces, HyperScore utilizes colors, curves and
shapes to form musical motifs.


SUBSCRIBERS: 789 as of May 28, 2002

STAFF Written by Steve Myers:
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 editors: (


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