DIARY

February 21, 2003

Bingo!

The WSJ article is out. Our file-sharing web site www.thehonestthief.com is open for business. Steven gets our first press release about our company launch out on Newswire and the ball is in play.

The front page teaser on the Wall Street Journal
“Can Music-Swap Police Put Finger in Dutch Dike? A Dutch businessman plans to exploit a local court ruling apparently protecting online 'peer-to-peer' exchanges. People like him may pose a real threat to entertainment firms.”


The Wall Street Journal article (market section)
Friday February 21, 2003
Music Industry Faces New Threats On Web
By Anna Wilde Mathews in Los Angeles and Charles Goldsmith in London

No one in the music industry has ever heard of Pieter Plass, the chief executive of a construction-management company in the Dutch city [of] Arnhem. But he and others like him may pose a serious threat to big record labels and other entertainment companies.

Based in the city, best known for the World War II battle that spawned "A Bridge Too Far," Mr. Plass is about to go into business as an enabler of Internet peer-to-peer services. He wants to provide software, legal advice and other help to anyone who wants to start up the next Morpheus or KazAa, the renegade online bazaars where users can swap copyrighted songs and movies for free. The twist is that his clients would launch their companies in the Netherlands, where a court ruling last March appears to provide legal protection for such operations.

The Dutch decision is being appealed, and it isn't clear how far Mr. Plass will get with his venture, which he's calling "The Honest Thief." But the effort illustrates the breadth of the challenge facing music companies and other owners of copyrighted works as more peer-to-peer providers base their operations overseas.

Record-label officials maintain that the Netherlands ruling was an aberration that will be reversed. Courts in South Korea and Japan have already ruled against peer-to-peer services in copyright cases. "We intend to enforce our rights not just in the United States, but world-wide," says Cary Sherman, president of the Recording Industry Association of America.

He also argues that under U.S. law, record labels should be able to get American Internet service providers to block customers' access to overseas Internet destinations that offer pirated music. In addition, record labels have taken steps lately to go after individual peer-to-peer users. A U.S. court recently found that American Internet service providers must disclose the names of customers who share copyrighted music online. The record labels got a big win last month. A U.S. federal court said that Sharman Networks Ltd., which now offers the KazAa software, could be sued in California even though it is based on the Pacific island nation of Vanuatu and operates out of Australia. But a U.S. ruling may not be enough to shut down services based in countries where courts have said that peer-to-peer software is legal. Peer-to-peer operators based overseas say they believe they have a legal shield. "How are they going to enforce" a judgment? asks Rod Dorman, one of the lawyers representing Sharman Networks.

In the Netherlands, Mr. Plass says he's prepared to take a "calculated risk" and test the issue. In addition to the construction-management company he heads, he owns a nine-employee software firm, PGR BV, that has developed tools related to building and real estate. Its programmers created an application that works much like current popular services like KazAa, enabling users to exchange files between individual computers rather than downloading them from centralized servers.

With his new venture, he plans to license the software - which isn't yet finalized - to clients who will create Netherlands-based file-sharing operations. His goal is to grab a chance to "make some honest money," he says.

Mr. Plass and his future clients may not be the only ones to try to exploit the Dutch ruling. Transparency Software LLC, a company based in Memphis, Tenn., makes software that blocks computers from exchanging copyrighted material on peer-to-peer networks, and it is considering launching its own Netherlands-based peer-to-peer service. The company would aim to have the operation contain no unauthorized works, says Pierce Ledbetter, chief executive of Transparency Software. But the Netherlands may provide "an extra layer of legal protection," he says.

The ruling in favor of file-sharing services came last March from a Dutch appeals court. The case pitted KazAa BV, which then controlled the application by the same name, against two Dutch performing-rights organizations, generally known as Buma and Stemra.

The appeals court found that KazAa wasn't responsible for users' copyright infringements because it had no control over how its software was used. Its ruling canceled a lower-court injunction that had shut down Kazaa.

Buma and Stemra have appealed to the Dutch supreme court. Because the case was limited in scope, focusing mainly on the injunction, the ruling doesn't delve deeply into the copyright issues. The high court is expected to disclose its decision in the fourth quarter, and Buma and Stemra have suggested they wouldn't pursue a broader claim if they lose. But Brein, a Dutch foundation that deals with copyright enforcement, has said it will seek its members' consent to file such a suit should Buma and Stemra lose. Major music companies not involved in the case play down the appeals-court ruling. In a "full-blown proceeding," Dutch courts would reach "a different result," says Allen Dixon, general counsel of the International Federation of the Phonographic Industry. U.S. court decisions would also likely have force in the Netherlands, he says. But it's "difficult to predict" which way the supreme court will go, says Bernt Hugenholtz, professor of law at the University of Amsterdam. As for the prospects of abiding by U.S. court decisions, Tim Kuik, director of Brein, says a U.S. judgment isn't automatically enforced in the Netherlands. It would probably have to go through a separate Dutch court proceeding, he says.


We received a lot of mail from people supporting our efforts. We had two people offer us the latest P2P software. There were a couple of people offering their services, they wanted to go to work for the Honest Thief. One “fellow” CEO from a P2P file haring company congratulated us and wanted to have a talk with us to see what we were up to.

Our press release got picked up by various news outlets. Without too much effort we found about 23 articles about us on the Internet that day. Unlike the Wall Street Journal the second round of news was more provocative. A couple of days later our story was on some 110 Internet sites.

A few lines from various articles:
“Honest Thief waves pirate flag”
“Netherlands will become for P2P what the Swiss are to banking”
“Honest Thief confronts music industry”
“RIAA may not catch The Honest Thief”
“Honest Thief compares sharing MP3 with shoplifting”
“Can Music-Swap Police Put Finger in Dutch Dike?”
“The Honest Thief: New File-sharing Service in Holland; Behind the Windmill Curtain “World’s First Legal Haven for File-sharing”
“Music Industry Faces New Threats On Web”
“An excellent triumph against record producers… lets all move to Holland”

For the Recording Industry Association of America (RIAA), February 21, 2003 was probably not a good day.


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Email from Pieter to Steven
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You are a busy man so I won't keep you ...
A little update on the hits and users. At 8:30 PM Saturday (my time) we had about 705.000 hits and some 35.000 unique users on www.thehonestthief.com . With some 12 hours left for Saturday (U.S. user time) + tomorrow, we probably get more than 1 million hits and some 50.000 unique users before Monday.

Pieter