LimeWire and the RIAA

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This is Celia Hirschman with On the Beat for KCRW.

At the behest of record labels, last October, US District Judge Kimba Wood ordered LimeWire, the popular file-sharing service to suspend its peer-to-peer site. The judge ruled that LimeWire had committed copyright infringement, was engaged in unfair competition and had induced others to also commit copyright infringement.

With the ruling set, the next question was how much money should LimeWire pay for these infringements? The record labels, under trade umbrella, the RIAA, clamed they had lost billions from LimeWire’s activities. The labels plan to argue for sizeable compensation when the trial continues in April.

But LimeWire is already fighting back. In December they got US Magistrate Judge Debra Freeman to define the focus of compensation. She compelled the RIAA to choose 100 recordings that best represented LimeWire's infringement. She also required the labels to provide the court with all associated costs for these recordings. That would include royalty payments, studio costs and marketing. LimeWire is betting that the labels are exaggerating the losses. The court documents would help challenge or validate an appropriate compensation. If labels didn't actually lose billions, the compensation from LimeWire might be reduced.

Meanwhile, LimeWire continues to push for greater transparency. In the last couple of weeks, LimeWire's attorneys have filed documents in Washington State Court, requesting that Amazon release all sales, accounting and internal correspondence related to the record labels. LimeWire argues they shouldn’t have to rely on record label documentation to determine the value of the losses. And if Amazon is taken to court to show evidence of sales, I imagine that iTunes is about to receive the same request.

I find the whole thing fascinating. No question in my mind that LimeWire was a bad actor in this case. But the defensive measures they’ve taken to reduce compensation to the RIAA underscores just how savvy these tech guys really are.

Record labels are notoriously silent about profits, and for good reason. If they sell a lot of records, they have to pay out a lot of royalties. While that may sound reasonable enough, the record business is more of a shell game than you’d think. Labels invest in hundreds of acts for thousands of dollars while only a tiny fraction of them return on investment. Profits are constantly rotated back into the label to pay for more recordings, executives, marketing and, yes, royalties. But despite any good intentions, a surprising number of artists are forced to audit their labels’ accounting statements to receive proper compensation.

LimeWire seems to understand all of this. The last thing the RIAA will want is another PR nightmare, especially one with LimeWire pulling the strings.

But hey, if you’re gonna claim a billion dollars in losses, you’d better be prepared to defend it. You know the saying – people in glass houses…

This is Celia Hirschman with On the Beat for KCRW.