eDonkey to Throw in the Towel

By Richard Menta 9/27/05

One of the goals of existing businesses is to raise the barriers of entry to stifle competition in whatever form it may come in. For example, a standard practice of the major airlines is to buy up all the gates at airports to block access to newcomers.

Another way to raise barriers is through expensive litigation. The cost of going to court is so high that it easily can sap away the assets a young company. This is why it is such an effective tool for large corporations with deep pockets. Suits, even under the most frivolous conditions, can foist debilitating legal expenses on any potential contender without a hundred million dollars in venture backing (and even then as the original MP3.com - who had $300 million in backing - found out before it went out of business).

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MetaMachine, the parent of eDonkey, is NOT one of those richly-back entities the company's president, Sam Yagan, told a Senate Judiciary committee. Yagan was a witness at the committees hearing, "Protecting Copyright and Innovation in a Post-Grokster World", a fact finding mission for Capitol Hill to see if Congress wants to jump into the post-Grokster decision fray or sit it out and give the market an opportunity to settle it first.

During his testimony Yagan dropped the bombshell. “…I am not here as an active participant in the future of P2P, but rather as one who has thrown in his towel and with no interest in replaying past issues…" Yagan had decided to give up the fight, with prejudice.

As Yagan continued, “The Grokster standard requires divining a company's "intent," the decision was essentially a call to litigate. This is critical because most startup companies just don't have very much money. Whereas I could have managed to pay for a summary judgment hearing under Betamax, I simply couldn't afford the protracted litigation needed to prove my case in court under Grokster. Without that financial ability, exiting the business was our only option despite my confidence that we never induced infringement and that we would have prevailed under the Grokster standard.”

Yagen made his statement. He feels eDonkey did nothing wrong, but the burden to prove it is too expensive. The "call to litigate" raised the barriers of entry to a level beyond the company's means.

The courts ruling has made capitulation to the RIAA Yagan's lead strategy. Not a strategy to grow a company, but one that tries save some of what exists. As the most popular P2P network right now, eDonkey's huge audience is its biggest column of strength. Unfortunately for Yagen the court's ruling severely weakens MetaMachine's ability to leverage it.

Even though eDonkey's eventual goal was to work some kind of arrangement with content holders to sell content the record industry is a particularly rough partner to deal with. The animosity brewing between the industry and Apple, the company that supposedly saved them online, is an example of that. Apple has the upper hand in its case and is not so easily bullied. Negotiations for eDonkey will be far more one-sided.

This is a problem as the record industry still doesn't know how it wants to leverage the Internet and digital media in general. It has become smarter about it, but the desire to make their efforts mirror existing business models conflicts with the need to create new ones. In the end the eDonkey network will probably become irrelavant if not dissapear altogether, just like AudioGalaxy did when it agreed to terms with the record industry.

So is this the end of file sharing as we know it? As I pointed out in back in 2001 when the RIAA lawsuits silenced the original Napster, file sharing will not go away it will just go overseas. This is the ultimate weakness of the RIAA's use of the Grokster decision as a club. The decision only applies on US soil and so winning legal battles does not nessessarily translate into global control.

Destroy all of the P2P applications that strive to go commercial and you will only drive file traders to non-commercial services. Open source projects developed multi-nationally with no central ownership and no one to shut down.

If eDonkey and Kazaa and WinMX and Limewire die the record industry will have less control not more. As people proved with Napster they will simply just switch. I wonder if anyone at the RIAA truly realizes that? The trick is not to close these entities, but change them in a way that allows them to retain their audiences while drawing revenue for content holders.

There is more here at stake. I further wonder if anyone in Congress realizes that the biggest issue here is not the record industry's control of copyright, but the fact that America is no longer the only great hub of innovation? The truth is that this country's greatest competitive advantage in the world market today is fading and that favoring the record industry with legislation only creates laws that speed this country's fall from technology leadership. If the rule in a country is "Innovation Followed by Litigation" that only discorages domestic innovation. That is a heck of an admission for any senator to make publicly.

We are already putting out fewer engineers. We are already defeating ourselves. The sad part is that American industry may deserve what it gets. New Jersey bars are filled with former technology people tending bar. That is an ominous symptom right there.

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Other MP3 stories:
eDonkey is Alive and Well Living in NJ
Three Moms Fight Record Industry Lawsuits
The Net is the Independent Artist's Radio


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