Hollywood Attacks File-Sharing Site

Nikki Hemming knew she'd be stepping into a legal dogfight last year when she formed an Australian venture to take over Kazaa, the Internet's leading bazaar for sharing music and video.

But Hemming, a key force behind the Kazaa file-sharing system, didn't quite bargain for the wrath unleashed by Hollywood and the music industry, which has treated her as a sinister sibling to Darth Vader.

The U.S. entertainment industry has fired lawsuit salvos aimed at pieces of the Kazaa network scattered around the globe: in Estonia, Australia, Vanuatu, Denmark, Sweden, the Netherlands and the West Indies.

So far, Hollywood seems to be winning.

Three weeks ago, a federal judge in Los Angeles ruled that Hemming's Sharman Networks Ltd., incorporated in the South Pacific island nation of Vanuatu with main offices in Sydney, Australia, is subject to U.S. copyright laws.

Many legal experts believe Kazaa's days are numbered, that it will soon be vanquished alongside its pioneering cousin, Napster.

Still, they give Hemming and her Sharman Networks credit for delaying a funeral through astute maneuvering and legal savvy.

"It's a tough environment to operate in when you need to be considering litigation as well as building the leading software program in the market," Hemming said by telephone from Sydney.

But Hemming, 36, whose past ventures include video games and an Australian theme park, said she's up to the challenge.

"I do consider myself a visionary," Hemming said. "I have considered this just a phase in the journey."

The technology she champions is known simply as Kazaa. One of its developers, Niklas Zennstrom, thought the name, pronounced Ka-ZAH, "had a nice ring to it, like Yahoo."

Through Kazaa, tens of millions of Internet users around the world trade files by sharing them as peers. Kazaa's owners won't explain exactly how it works but they deny it requires a central server as Napster did.

Entertainment companies believe it's not just the technology but also the maze of businesses behind Kazaa that are designed to avoid central control - and the law.

Zennstrom, 36, a Swedish telecommunications entrepreneur, said Kazaa's design is aimed at helping Internet service providers distribute multimedia files more efficiently.

"Peer-to-peer is not about users sharing pop artists' recordings," he said. "It is about a breakthrough technology that makes things more efficient."

Zennstrom and a Danish partner, 26-year-old Janus Friis, formed the Dutch company FastTrack to develop the technology. Three Estonian youths wrote the code.

By 2001, the pair began distributing the software through a new company, Kazaa BV. FastTrack also licensed versions as Grokster and Morpheus to companies in the West Indies and Tennessee.

Kazaa BV soon attracted, and fended off, a music industry lawsuit in the Netherlands.

When U.S. entertainment giants filed a more ominous suit in Los Angeles, Zennstrom and Friis sold the business to Hemming.

Hemming and an associate, Kevin Bermeister, figured they could use Kazaa to legitimize file-sharing by creating pay-as-you-go licensing for online music, video games and other files.

The idea, Hemming said, was to please Hollywood and consumers and "create a solution that everyone was crying out for."

At the same time, Hemming deepened Kazaa's obfuscation.

Hemming formed Sharman and hired all employees as contractors through another company called LEF Interactive, which she also heads. A third company, Joltid, owned by Zennstrom and Friis, gets 20 percent of Sharman revenues, court documents say.

She incorporated Sharman in far-flung Vanuatu for tax reasons, she says; for its penchant for secrecy, the entertainment industry retorts.

"You don't see GE setting up there for tax purposes," said Matt Oppenheim of the Recording Industry Association of America. "The only reason people go to Vanuatu is to avoid the reach of the court."

The arrangement leaves even Kazaa partners confused.

"To be honest with you, we're not 100 percent sure who, what, when, where and how," said Wayne Rosso, president of Grokster.

On Jan. 9, U.S. District Judge Stephen V. Wilson in Los Angeles dismissed Sharman's claim that it could not be sued in the United States, saying Kazaa has substantial usage among Californians.

Wilson also found LEF Interactive subject to jurisdiction, accepting Hollywood's contention that the two companies are essentially the same. That means Sharman cannot make key witnesses unavailable by declaring them LEF employees.

The outcome of the case will likely rest on how involved Sharman and its networks are in operating Kazaa.

In the Napster case, the courts found the company liable for copyright infringement because its servers kept track of everyone's files.

Sharman argues that once it distributes the software, Kazaa users establish their own directories and are ultimately at fault for any infringement.

Sharman says its central servers in Denmark are used solely to run its Web site and distribute the software.

Hollywood believes otherwise.

For one thing, Morpheus users got mysteriously knocked off the Kazaa network last year, an event the content industries say demonstrates central control.

Mark Ishikawa, who has researched Kazaa and may testify in the case, said Kazaa software also shows signs of "calling home" when it cannot find a supernode, or a regional directory running off users' computers.

"Home," Ishikawa said, acts as a default or backup supernode. Once, he traced it to a computing data center on the Caribbean island of Nevis. The legal system there prevented him from uncovering the computers' owner.

Sharman officials deny direct involvement but won't release system details, saying they are confidential.

Lawyers fighting Kazaa in court acknowledge frustration, but vow to keep up the pressure.

"It's a game of hide and seek," said David E. Kendall, lead attorney for those suing Sharman and related companies. "At the end of the day, there are not a lot of places you can hide and still run a business."

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