P2P Future Darkens as eDonkey Closes

eDonkey has become the latest victim of the recording industry's wrath following the Supreme Court's ruling against Grokster. In testimony at a U.S. Senate Judiciary Hearing on the future of P2P Wednesday, MetaMachine president Sam Yagan said his company was throwing in the towel.

The announcement follows news of the shut down of WinMX and the disappearance its Web site. On September 15, the RIAA sent out sent out letters to seven popular file sharing networks demanding they block copyrighted content or face legal action. eDonkey -- owned by MetaMachine -- was one of those recipients.

"Before I get to the core of my opening statement, I'd like to make it clear to the Committee that we have replied to the RIAA's cease-and-desist letter and I have personally committed to Mr. Sherman -- which I reiterate today -- that we are in the process of complying with their request," Yagan said.

In written remarks, Yagan detailed that MetaMachine will "convert eDonkey's user base to an online content retailer operating in a closed P2P environment," and said he expects "such a transaction to take place as soon as we can reach a settlement with the RIAA."

Yagan's testimony also provided insight into the content of the letters being sent to P2P networks.

"These letters threaten imminent litigation -- not only against the companies, but also against their executives and directors -- based on the music industry's interpretation of the MGM v. Grokster ruling unless the firms immediately take steps to eliminate infringement."

Yagan went on to tell the Committee that the Grokster decision means the end of all small P2P companies - not because they are liable for inducing copyright infringement, but because they simply cannot afford to prove otherwise in court.

"Because the Grokster standard requires defining a company's intent, the decision was essentially a call to litigate. This is critical because most startup companies just don't have very much money," explained Yagan. "Whereas I could have managed to pay for a summary judgment hearing under Betamax, I simply couldn't afford the protracted litigation needed to prove my case in court under Grokster."

The real winner of Grokster, Yagan warned, may not be the record labels and movie studios, but rather rouge P2P developers who move offshore and go underground. "The next generation of open P2P applications will travel even further down the road of anonymity and secrecy," he said.

"With many P2P applications offshore or simply open sourced, the entities that will end up being most devastated by Grokster will be those -- like us -- that set up shop in the US, abided by American laws, paid taxes, and, at least in eDonkey's case, tried to license content from the entertainment industry."

Lastly, Yagan asked the Committee to clarify the Supreme Court's decision on Grokster, noting that many new companies cannot be sure where they stand with respect to the law.

"As you know, eBay recently acquired the P2P company Skype for more than two billion dollars," Yagan said. "Note that Skype was founded offshore; it would be a real tragedy and a blow to our economy should all technology entrepreneurs take their innovations offshore."