Why Grooveshark Has Slim Chance Of Fending Off Universal’s Streaming Suit

Streaming website Grooveshark this week became the latest flashpoint in the cat-and-mouse game between the music industry and music sharing services. But unlike their largely unsuccessful suit against cyber-locker site MP3Tunes earlier this year, the copyright owners this time around appear to be well poised to tear down the “safe harbors” that typically protect such websites.

Grooveshark, which claims to have millions of listeners, is popular as an online jukebox stuffed with popular songs added by users. Universal sued it last week because, unlike online similar services like Pandora (NYSE: P) and Spotify, the site didn’t obtain licenses to stream the songs.

Grooveshark appears to be on thin ice due to a series of damning emails submitted by Universal which suggest that the company’s executives were themselves stuffing the site with copyrighted songs. The emails are included with the complaint (embedded below) and include messages like “We bet the company on the fact that it is easier to ask for forgiveness than to ask for permission.” The complaint also includes a chart purporting to show that the executives uploaded hundreds of thousands of songs. The music industry has previously claimed that its take-down notices to Grooveshark have been ineffective because the site allows removed copyrighted material to simply reappear a short time later.

Universal is claiming the site and its owners have profited as a result of display advertising, the sale of of premium subscriptions and infusions of venture capital. The company is asking for damages under copyright law which provide for up to $150,000 per song.

Universal has a strong case if its allegations are true. Ordinarily, websites are protected by safe harbor laws which ensure they are not liable for copyright violations by their users. In order to preserve this legal shield, the site owners must respond to take-down notices by copyright owners and ensure they are not directly controlling and profiting from the infringement. In Grooveshark’s case, however, the facts provided by Universal suggest the company may have forfeited the safe harbors.

The music industry came up short earlier this year when it attempted to override safe harbors in the case of MP3Tunes, a site that provides music “lockers” into which users can transfer songs they discover on third party sites. A court found that the site was largely protected by the safe harbors except in the case of certain instances where it had not done enough to respond to take down notices. The key difference in the new Grooveshark case is that Universal may be poised to tear down the harbors altogether on the basis that its owners were directing the infringement.

The new lawsuit also borrows another tactic from the MP3Tunes case and earlier file-sharing litigation by personally naming the owners of the company. This tactic has in the past allowed the music industry to use the threat of personal judgments worth tens of millions of dollars to force website owners to close down their sites even in the case where the site itself has found to be legal.

The Grooveshark and MP3Tunes case are drawing renewed attention to safe harbors at a time when content owners have been pushing for new legislation to make the internet industry more responsible for policing copyright. The issue is also at the center of an appeals court decision, expected any day, in which Viacom (NYSE: VIA) claims that YouTube (NSDQ: GOOG) wrongfully benefited from safe harbors when it ignored “red flags.”

The new case is also likely to fan the vitriol that has defined recent debates over copyright law. Critics say that the music industry has relied on draconian lawsuits to protect a failing business model rather than create new digital services for consumers. The industry claims it is simply protecting music owners.

Grooveshark complaint
http://viewer.docstoc.com/var docstoc_docid=”104674976″;var docstoc_title=”Grooveshark complaint”;var docstoc_urltitle=”Grooveshark complaint”;