The Music Industry Wants to Kill LimeWire

It was a fall day in 2005, and Mark Gorton was feeling chilled. He was sitting in a conference room high above the streets of New York City. Around a table sat six executives from major recording labels. The suits eyeballed Gorton, a clean-cut 37-year-old with short dark hair and bushy eyebrows. With electrical engineering degrees from Yale and Stanford and an MBA from Harvard, Gorton hardly fit the stereotype of the renegade hacker.

By day, Gorton works as a Wall Street player, running his Tower Research Capital and its affiliate Lime Brokerage, with a combined staff of 30 employees, out of a sprawling office in lower Manhattan. But in one corner of the place he has a team of coders working on his more controversial operation, LimeWire, the peer-to-peer software that has turned this mild-mannered engineer into the music industry’s most-wanted geek. According to the NPD Group, in Port Washington, N.Y., LimeWire is the leading peer-to-peer (P2P) program—with 62 percent of the transaction share, ahead of programs such as BitTorrent and Kazaa.

On this day in 2005, the labels were making him an offer they urged him not to refuse: sell LimeWire, allow its users to be converted to paid purchasers of licensed music, and let the dream of open-source file-sharing fade away.

”I remember thinking ’these people are all on drugs,’ ” recalls Gordon, who declines to identify the specific executives in the meeting, because he is still trying to work with the labels. ”There was such profound state of denial,” he says, ”and they wanted the whole Internet to go away.” Gorton turned down the deal. Today, after being sued by the Recording Industry Association of America (RIAA) and filing an antitrust countersuit back, he’s the most prominent holdout in the record labels’ eight-year battle against online piracy. And now, with a settlement possibly coming in the next months, he’s making a call to arms. ”A lot of people in the industry know they haven’t done a good job dealing with the Internet,” he says, ”their policy has been such an abysmal failure for so long. People are ready for a change.”

Gorton never planned on taking on the multibillion-dollar industry. After college, he worked as an engineer for Martin Marietta, then went back to school to earn his MBA. Following a stint as a trader for Credit Suisse First Boston, he ventured off on his own in 1998 to found Tower Research Capital, a group that conducts trades based on a statistical analysis of past trading patterns. By 2000, he had achieved every entrepreneur’s dream: a dedicated staff of a couple dozen employees, a comfortable space on lower Broadway, and what he calls a ”nicely profitable” business.

But when Gorton caught wind of the nascent culture and industry of online file sharing, his entrepreneurial radar kicked in. What if someone could harvest the queries traveling over the networks and feed them to businesses that might want to respond. His solution: LimeWire, a free software client that could be used over the Gnutella file-sharing network. Gorton figured he had nothing to fear. ”I thought, ’this is just generic file-transfer technology,” he says, ”it’s an easy-to-install Web server that cannot possibly be illegal.” Though his original model didn’t take, he turned LimeWire into a profitable business by selling a premium ad-free version of the software called LimeWire Pro.

Then the lawyers came calling. On 27 June 2005, the Supreme Court ruled, in the momentous MGM v. Grokster decision that a maker of P2P software, such as Grokster and Streamcast, could be held liable for the copyright infringement of its users. Emboldened by the decision, the RIAA moved in for the kill. ”We basically went after all the major P2Ps after the Grokster decision and said ’we want to work things out and don’t want to have to litigate unnecessarily,’ ” recalls RIAA president Cary Sherman, adding, ”we said ’if you want to get into legitimate business, now is the time.’”

iMesh, a prominent Israel-based P2P service launched in 1999, was among those to heed the call. Cofounder Talmon Marco saw an opportunity to create a legit file-sharing business, not unlike Napster before it, for ”a company that sells to users who previously were not buying that music,” he says. With iMesh converting to legit, the pressure was on other companies, including LimeWire, to change their tune.

Gorton’s beef is that file sharers wouldn’t take to being converted as easily as the industry hoped. So he declined the offer and resolved to come up with his own plan. But after much back and forth, the labels lost patience. Last August, the RIAA sued LimeWire for facilitating and profiting from copyright infringement. At US $150 000 per illegally traded file, the damages are tantamount to tens of millions. But Gorton, a flag-waving proponent of open-source software and innovation, refused to unplug.

Gorton says that a lot people don’t realize how the war on piracy was being waged. ”The litigators at the RIAA drive the process,” he says. ”It’s almost like a political turf battle. Litigators, by suing, make themselves more important�We’ve talked to midlevel execs at the label, and it turns out they don’t have power to set policy.”

In September, Gorton countersued, alleging an antitrust violation and asserting in his complaint that the labels’ goal is ”to destroy any online music distribution service they did not own or control, or force such services to do business with them on exclusive and/or other anticompetitive terms so as to limit and ultimately control the distribution and pricing of digital music, all to the detriment of consumers.” Today he has an even brasher plan for what’s next: building an even more profitable business for LimeWire. ”Instead of looking at people using LimeWire and saying ’we hate you,’ ” he says, his tack is ”you are our customer, and we’re going to engage you in a productive way.”

With the lawsuits in the discovery process, it could be several months before resolution. Fred von Lohmann, senior intellectual property attorney for the Electronic Frontier Foundation, in San Francisco, says there’s plenty at stake. ”It’s a bet-the-company kind of litigation,” he says.

In the meantime, Gorton hopes to negotiate a settlement that will lead to a more robust business plan—from building in a payment mechanism for consumers who wish to purchase music, or—in a nod to his original plan for LimeWire—in creating a system that feeds sales leads from consumer queries to interested parties. Ultimately, he says, there’s no turning back the tide. ”The core focus of the music industry has been shutting down individual file-sharing programs, and that has proven to be a failure,” he says, ”it just takes one high school kid in Eastern Europe to undermine their entire industry.”