FTC IS URGED TO GO AFTER P2P DISTRIBUTORS

Even though they were told the FTC doesn’t have authority over copyright law, 2 senators told an FTC witness that they were inclined to introduce legislation to empower the agency to crack down on P2P operators. Senate Commerce Competition Subcommittee Chmn. Smith (R-Ore.) and Sen. Boxer (D-Cal.) took issue with the FTC’s contention in a recent letter to the senators that P2P operators were properly disclosing on their sites and in their software the risks that could result from its use, and that they didn’t appear to be in violation of Sec. 5 of the FTC Act regarding “unfair and deceptive practices.”

That response was “inadequate,” Boxer said at the subcommittee hearing, which was truncated due to rolling votes on the Senate floor. “I really understand this peer to peer deal,” she said, “and I also understand that 3-5% of it is legal.” “I guess what’s troubling to me,” Boxer told FTC Dir.-Bureau of Consumer Protection Howard Beales, “is that the FTC, you call [P2P] in your statement a neutral technology. Now how many technologies have content that is 5% legal and 95% illegal?” “Well, e-mail,” Beales replied. “That was a rhetorical question,” Boxer said.

Both Boxer and Smith cited a desire to protect Smith’s 14- year-old son from pornographic images that Boxer said are “sickening beyond the pale.” Smith said some P2P use is legitimate, and had as a witness an administrator from Oregon State U. who cited some such uses. But he said P2P for the most part facilitated theft. Boxer, who is an original cosponsor of a new bill that would hold P2P providers legally responsible for unauthorized file sharing (see separate story, this issue), said “I'm going to stay on this, stay all over this, and we're going to have to fix this problem.” Boxer said if Beales couldn’t give the subcommittee proposed legislative language to empower the FTC to impose disclosure requirements on P2P, then she and Smith could write it themselves.

Beales said the FTC would fully implement any law Congress passed on this issue. But he said “we are not going to eliminate this problem.” “For better or worse, the Internet,” Beales said, “is a ready source for sex, drugs, and rock-and-roll.” He said sexual content was distributed in many ways beyond P2P, and as for rock-and-roll, “there’s no doubt P2P is a significant threat to the music industry [but] protecting copyright is not within the FTC’s jurisdiction.”

Smith wanted to know why P2P software distributors couldn’t filter for copyrighted content. StreamCast Networks CEO Michael Weiss, whose company distributes Morpheus, said “our technology is 100% decentralized. Once downloaded on a person’s computer, we have no way to control or even monitor what the customer is doing with it.” “A lot of rhetoric is being told to Congress that we can filter out content,” he said, noting Audible Magic has been promoting its technology that relies on a centralized server. But he said Audible Magic still hadn’t demonstrated its technology to any P2P companies or trade groups. After the hearing, Weiss was indignant on this point, insisting that any filtering would require “completely re-engineering our architecture.” P2P United Exec. Dir. Adam Eisgrau said after the hearing that the solution wasn’t filtering, but a compulsory license, something the content industry opposes fiercely. EMI Group Exec. Vp John Rose testified that both Audible Magic and another technology developed by the founder of Napster could effectively filter for copyrighted works.

Weiss introduced into the hearing record a CD recording of a voice mail he said a Real Networks executive left on his voice mail last Sept. in which Weiss was told that the record labels had blacklisted P2P companies from having access to label content. He urged the subcommittee to press for a Dept. of Justice investigation of the record industry for collusion. Rose said “we at EMI have no conversations with any companies in our industry regarding any action regarding P2P.” He said it was clear that “we will not license our content to companies that do business with P2P companies. It’s written into our contracts.” Rose said “Real Networks may not find that acceptable,” but that didn’t mean that EMI and other labels were colluding to blacklist P2P providers.