Victory against Grooveshark shows music industry has upper hand on sharing sites

The music industry has been waging a bitter campaign against song-sharing sites for years and now, for better or worse, the industry is clearly winning. The latest evidence of this came Monday when a New York court ruled that the executives behind Grooveshark, a user-driven streaming site, had violated copyright and destroyed evidence.

In a 57-page ruling (see below), U.S. District Judge Thomas Griesa found that Grooveshark’s founders had ordered employees to upload thousands of unlicensed songs in order to burnish the site’s popularity. He also concluded that the executives, over the course of litigation with the music industry, had deleted records of the uploads and some of Grooveshark’s source code in an apparent effort to cover up their activities.

The tone of the ruling is harsh and concludes with a so-called judgment as a matter of law in favor of nine record labels, including [company]UMG[/company] and [company]Sony[/company]. For practical purposes, it will likely lead to [company]Grooveshark[/company] being shuttered and a multimillion damage award against the executives.

If that occurs, Grooveshark will go the way of other upstart music sites, including MP3Tunes, ReDigi and Hotfile, which offered access to music outside of industry-authorized channels, but which eventually collapsed under adverse copyright rulings.

For the music industry, these rulings amount to tactical victories but, more broadly, they also reflect the end on an era for a certain type of digital media service.

In the past, many such services were based on an unspoken premise: that the upstart could use popular music to acquire a critical mass of users, and then sort out the copyright questions later on. Indeed, in the Grooveshark case, the trial evidence showed that the founders had hoped to end the copyright conflict with the record labels by offering up customer information in return for a retroactive license.

This “stream first, license later” model appeared to work for YouTube, which gained early traction with TV shows and sports highlights — some apparently uploaded by early YouTube employees — but then became a mainstream media site under Google.

So why is this freewheeling model no longer working out? The answer is two-fold.

First, the music industry has evolved to the point where there is a proliferation of “legal” music sites such as iTunes and Pandora, where users can easily get their hands on songs under a variety of advertising and subscription models. This makes it harder for sites like Grooveshark to defend their business model — in the past, they could point out that the industry was too slow to go digital, but that’s no longer the case (even though many of sites’ copyright sins occurred in the earlier era).

Second, courts have recently begun taking a more jaundiced view of the “red flag” and “safe harbor” rules that, under the law, shield sites from responsibility for the actions of their users. In the past, unless a site was blatantly based on piracy (such as Napster), judges were often reluctant to hold it responsible for copyright infringement — recent rulings, however, suggest they are now more likely to side with content owners instead.

The bottom line is that in the early days of digital music, when the music industry appeared determined to cling to a model of selling CD’s, music-sharing sites occupied a higher legal and moral ground. These days, though, courts are more inclined to simply toss the sites and their founders on the pyre of copyright enforcement.

Here’s the Grooveshark ruling (I’ve underlined some of the key bits):

Groove Shark

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