Eagle vs. shark 

Grooveshark gets hooked by a $17 billion lawsuit — and brings the national debate over copyright infringement to Central Florida

There’s a price on Paul Geller’s head – $17 billion, to be exact.

That’s the amount that UMG Recordings, an arm of multimedia giant Universal, is suing Geller and his employer for in a federal court in New York. The 29-year-old Geller has been personally named, along with the other senior executives of the Gainesville-based Escape Media Group, as a defendant in a copyright infringement suit targeting the company’s magnum opus: the online-streaming music site Grooveshark. The site, one of the largest and most well-known free music sites on the Internet, allows its users to upload songs directly to its servers. The songs are then made available to anyone who wants to listen to them for free with no strings attached – there’s no obligation, no need to download software, no need to sign up for the service.

The suit accuses Geller, senior vice president of external affairs for Grooveshark, company co-founders Sam Tarantino and Joshua Greenberg, vice president of public relations Benjamin Westermann-Clark, creative director Josh Ashenden, software developer Chanel Munezero and quality assurance employee Nikola Arabadjiev of intentionally uploading thousands of songs that the company didn’t own the license to. If the court rules against Grooveshark, the company could be through, and Geller and his colleagues could be forced to pay some serious restitution.

But right now, Geller is pretty upbeat. And he has good reason to be. For the time being, public opinion and the law are on his side.

In addition to the UMG lawsuit, Grooveshark has been fighting two measures that would have a more immediate and dramatic impact on its well-being: the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA), both of which were designed to put sites like Grooveshark out of business without the messy, costly and time-consuming trappings of a federal lawsuit.

On Jan. 18, more than 7,000 websites participated in a massive protest of the federal government’s attempt to pass the two bills. If implemented, they would have forced sites that allow users to upload their own content (including Grooveshark, YouTube, Flickr, SoundCloud, Wikipedia, Facebook and too many others to even count) to make sure that nothing posted by users – songs, videos, images, clips from TV shows – infringed on someone else’s copyright. If the sites failed to comply, the bills would have given the owners of the copyrighted material broad recourse: They could have sought injunctions to prevent payment processors, like Visa or PayPal, from doing business with the offenders, or force Internet service providers to pull the plug on the sites altogether. If Grooveshark, for instance, allowed a user to upload a Lady Gaga album the site didn’t own a license for, the bill could have taken Grooveshark down; likewise, if Google allowed sites containing potentially infringing content – like Grooveshark – to come up in search results, the U.S. Department of Justice would have been able to seek court injunctions requiring Google to block or censor those sites from searches completely, not unlike how China requires search engines to block objectionable content.

The bills’ sponsors and supporters insisted that the goal was not to destroy the open exchange of information on the web, but to target foreign sites that traffic in copyright infringement. Opponents – which included Craigslist, Google, Wikipedia, Tumblr and Facebook, among many others – say it could easily have put many of the most popular websites out of business for good.

SOPA was supposed to be voted on as soon as this month, but the overwhelmingly negative response created a panic in Congress. In a matter of 24 hours, supporters of SOPA and PIPA backed down, and according to current information available on the web, 205 of 260 members of Congress who’ve expressed opinions on the bills say they would likely vote no on them as they are currently written.

The sudden about-face was good news for Grooveshark. Though the site’s terms of service state that users should not post material they don’t own the copyright for, people upload whatever they want. The site boasts a vast catalog of more than 15 million songs (a tagline at the bottom of its homepage tells visitors they can “find any song in the world and listen to it instantly”), many of which are major-label releases that Grooveshark may or may not have license to share.

Geller says that the site complies with the Digital Millennium Copyright Act, which requires sites like Grooveshark to remove content posted by users that violates copyright; as long as the sites abide by the DMCA, they exist in a “safe harbor” territory – as long as they take down content as requested, they can legally continue to operate. Grooveshark relies on that safe harbor to exist, and it has a DMCA takedown-request form on its website, which it urges artists and labels to use to get their songs off the system. After all, it would be unwieldy, if not impossible, for a company to sift through millions of songs or videos or cute cat photos to find the ones that were uploaded without consent from a copyright owner.

“DMCA puts the onus on content holders to notify YouTube, or whomever, that a copyright violation exists,” Geller says. “SOPA would have done the opposite, making YouTube responsible for policing their users.”

SOPA and PIPA would have most certainly put Grooveshark out of business. YouTube, Tumblr, Reddit and others would have most likely gone with it. Geller says he thinks that was by design. The motion-picture and the recording industries, which made a massive push for the bills, say piracy is a $58 billion loss for the U.S. economy annually; proponents of file-sharing sites, though, say the way people consume information and entertainment is changing. Sites that provide access to content the recording and film industries rely on to make a profit threaten the industries. They don’t want Grooveshark, YouTube, Vimeo and other such sites to offer for free the same products and services they are trying to find new ways to monetize. Rather than work with the competition on innovative new products, Geller says, Hollywood and the recording industry would rather do away with it.

“The question is,” Geller says, “is YouTube supposed to know when violations on their site exist, or is YouTube just supposed to not exist?”

Geller says he was pleased withthe swift response to the potential havoc these bills would have played with the Internet as we know it, particularly since some of the web’s heavy hitters weighed in. “Google was a surprise,” he says. “They never use their homepage to make [political] statements. … I was really happy to see them throw their weight around on this.”

But even though the battle against SOPA and PIPA seems to have been won in the court of public opinion, the war between sites like Grooveshark and the industries that own the licenses to the intellectual property is far from over. It’s still being waged in a more subdued way in courtrooms, state legislatures and in the U.S. Department of Justice, which is beginning to crack down on Internet entrepreneurs who aren’t abiding by the law.

In 2010, the DOJ announced the creation of the Intellectual Property Task Force, which was established to combat domestic and international activities that violate copyright laws and to help shape U.S. policy regarding copyright violations.

On Sept. 9, 2011, the agency announced one of its first big takedowns: It indicted five individuals who ran a website called NinjaVideo, which allowed users to upload movies and TV shows to its servers, on charges of copyright infringement and conspiracy. On Jan. 20, a federal judge sentenced the 24-year-old co-founder of the site, Matthew David Howard Smith of Raleigh, N.C., to 14 months in prison, with two years supervision following his release and restitution fines of $172,387 for his role in founding the site.

Likewise on Jan. 19, as SOPA’s supporters were backing away from the controversial measure, the DOJ announced an even bigger trophy. It took down Megaupload, a massive cyberlocker that allowed users to store and share files, including videos, TV shows and music, on servers it maintained in the United States and abroad. The feds announced that they were charging seven individuals and two corporations in what it called the “Mega Conspiracy,” which it says is one of the largest criminal copyright cases ever brought by the United States. Each of the seven individuals charged in the case, one of whom is still being held in a New Zealand jail while awaiting extradition to the United States, faces up to 20 years in prison for their involvement in Megaupload.

“The conspirators … deliberately misrepresented to copyright holders that they had removed infringing content,” the DOJ announced when it shut Megaupload down. “For example, when notified by a rights holder that a file contained infringing content, the indictment alleges that the conspirators would disable only a single link to the file, deliberately and deceptively leaving the infringing content in place to make it seamlessly available to millions of users to access through any one of the many duplicate links available for that file.”

A month before the feds pounced on it, Megaupload founder Kim “Dotcom” Schmitz had announced that the company would soon be releasing a new cloud-based music service called MegaBox.

“UMG knows that we are going to compete with them via our own music venture called MegaBox.com, a site that will soon allow artists to sell their creations directly to consumers while allowing artists to keep 90 percent of earnings,” Schmitz told the website Torrentfreak late last year. Now the Internet is abuzz with speculation about whether the Recording Industry Association of America and Motion Picture Association of America – both of which have close ties in Congress – were able to assert pressure on Congress to be aggressive with intellectual property theft in general, and Megaupload in particular.

This marks a new era in the enforcement of intellectual property laws – one that veers away from the unpopular and heavy-handed efforts in the early 2000s to punish teenagers and their parents by bringing cases against those who used services (like the now-defunct Napster) to download copyrighted music and videos, in favor of cracking down more aggressively on the sites that host such content.

SOPA and PIPA would have made it far easier for copyright holders to prevent sites from hosting that content in the first place, but they failed to take into account the fact that so many consumers these days patronize these sites that many don’t even think of downloading as theft anymore.

“I’ve got 70 days worth of music on my computer and if I had to pay 99 cents for every track I have, there would be several million dollars out of my pocket,” says Paul Rapp, a copyright attorney based in western Massachusetts. “I have an 18-year-old daughter who hasn’t paid for a piece of music in years and wouldn’t think of doing it. The labels have to look at a different model, something like a Grooveshark or a Spotify or the Rhapsody streaming service, where you are providing a service rather than a good. Where people can listen to whatever they want, wherever they are.”

Rapp says it would make more sense for those with copyright interests to look at how (and whether) current copyright laws function in the Internet age.

“Suddenly everyone has in their homes the most powerful duplication and communication devices ever known, and they simply render an awful lot of copyright irrelevant, because people just don’t care,” he says. “They are going to share stuff with other people and they are going to create works based on pre-existing works. I saw one speaker at a music conference say that the Internet is an infringement machine, that’s what it does, and there’s no getting around it. It’s evolutionary. And any attempt to stop it is going to fail. It’s just that the entertainment industry has been playing this ridiculous losing game of whack-a-mole for 10 years, and they haven’t stopped infringement and they haven’t slowed it down.”

Rapp says that it’s likely only a matter of time before SOPA and PIPA are re-introduced in Congress.

Geller is probably best known aroundtown not as the Grooveshark guy but as DJ Pauly Crush. For years, he’s been promoting parties and hosting a local club night at Back Booth called Crush.

He’s also a serial entrepreneur who has founded a handful of web-based businesses, including an SEO firm called National Metrics, which he sold in 2009. He’s CEO (“just technically, though,” according to his website) of guerrilla marketing agency Bigger Markets and president of Republic Promotion, an umbrella company that, according to his profile on LinkedIn, is “a holding company for all of my unincorporated projects.”

Geller got involved with Grooveshark about a year and a half ago, he says, after meeting the company’s founders at a party he was promoting at Club Firestone. Geller knows a promising startup when he sees one, and he was impressed with the platform Grooveshark had put together.

The company’s founders are two former University of Florida students: Sam Tarantino, 24, and Joshua Greenberg, 25. The founding lore is that Tarantino, an aspiring musician and broke economics major, got the idea for Grooveshark when he was on his way to donate plasma. He passed a record store with a sign in the window that said “buy/sell/trade CDs.” He thought it would be a good idea to apply that mantra to online music sharing and founded Escape Media Group, according to the company’s corporate profile, “with the goal of changing the music industry for the better.” In 2006, he met Greenberg, then a freshman studying business administration at UF, at an entrepreneurs club meeting.

“He pitched me on this idea of revolutionizing the music business and competing with piracy by offering a better product,” Greenberg said in an interview for an e-book called Startups Open Sourced. “I found it fascinating and he and I hit it off from day one. We were both kind of interviewing each other at the same time without calling it an interview.”

Greenberg already had some experience with file-sharing websites. Shortly after he started college, he and a group of classmates created a site called Campus Open Course, which allowed students to share class notes. In a story written about the site in Gainesville’s Independent Alligator newspaper, the founders of Campus Open Course said that it allowed students to upload their notes to a central server and sell textbooks via built-in message boards. In the story, the founders acknowledged that Campus Open Course could be used as a springboard for cheating, but said they’d built in a function that would allow users to flag “inappropriate” content.

In 2007, Greenberg and Tarantino launched the first iteration of Grooveshark, then redesigned it in 2008, making it a completely browser-based platform. Unlike other online-music services, there was no need to download software or files to use Grooveshark, and songs could be played straight from a user’s web-browser. Geller says the company does not discuss its funding sources, but a profile on Venture Beat Profiles, which offers information on startup companies, says that by 2007, Grooveshark had raised $900,000 in seed money to get it off the ground.

In 2009, Grooveshark redesigned again, celebrated the sign-up of its one millionth user and signed its first major licensing deal with EMI Records. In 2010, it was sued for the first time by Universal Music Group, which claimed the company had no right to have a number of “pre-1972 recordings” by artists like Buddy Holly, Cat Stevens and the Jackson Five on its site because Universal owned the sole licensing rights to those songs. In 2011, Grooveshark counted among its partners Barnes & Noble, Sun Records and Crush Management and boasted 35 million users. It was also named the defendant in yet another suit by Universal Music Group, this time alleging that Grooveshark employees intentionally uploaded more than 100,000 songs to its servers, even though they knew Grooveshark didn’t have the license to all of them. The suit says that Geller uploaded 3,453 songs to the site himself, Tarantino uploaded 1,791 songs and Nikola Arabadjiev uploaded more than 40,000. The suit says it arrived at these numbers using records of user uploads maintained by Escape Media Group.

“The recordings uploaded by Escape’s own officers and employees include thousands of recordings owned by UMG, including popular sound recordings featuring UMG artists such as Bob Marley, Eminem, Guns ‘N Roses, Jay-Z and the Black Eyed Peas,” the suit states. “The employee defendants have engaged in this activity at the direction, for the benefit, and under the control of Escape and the executive defendants.”

The suit says the songs were intentionally uploaded to “attract millions of visitors each month, thereby allowing the defendants to profit directly from their unlawful activities.” Since Grooveshark relies on advertising to earn a profit (advertisers include Mercedes, for instance), the more eyes it has on the site, the more money it stands to bring in.

Much of the information in the suit relies on a series of comments made on a post on a website called Digital Music News, in which an anonymous commenter claiming to be an employee of Grooveshark claimed that employees were “assigned a predetermined number of weekly uploads to the system, and get a small extra bonus if we manage to go above that (not easy). The assignments are assumed as direct orders from the top to the bottom, we don’t just volunteer to ‘enhance’ the Grooveshark database. All search lists are monitored, and when something is tagged as ‘not available,’ it gets queued up to our lists for upload.”

In a statement released shortly after the suit was filed, Grooveshark’s attorney, Marshall Custer, called the blog comment “blatantly false” and claims in the suit a “gross mischaracterization of information that Grooveshark itself provided to Universal.”

On Jan. 9, 2012, Grooveshark filed a subpoena demanding that Digital Music News, which has covered Grooveshark’s growth and legal entanglements at length, release “any and all correspondence” between Universal and the media outlet concerning Grooveshark, as well as any documents that could reveal the identity of the anonymous commenter.

Paul Resnikoff, publisher and founder of Digital Music News, objected to the subpoena, calling it “burdensome and unfair” and posted a lengthy response on his site that accuses Grooveshark of intimidation. Resnikoff declined to comment for this story due to the pending litigation.

When asked for his take on the suit, Geller reiterated what Custer had said, adding: “Grooveshark welcomes the opportunity to present the facts to the Court and has full confidence that it will prevail in the litigation.”

Repeated calls to attorneys representing UMG were not returned at all.

Just six years after its founding, Grooveshark employs about 130 people, Geller says (120 in Florida, with others in Nashville, New York City, Washington, D.C., and Los Angeles), and as the company grows, he says, it’s likely to foster spinoffs and more entrepreneurial endeavors – a point that Geller is sure to point out to Florida legislators when he’s in Washington, D.C., or Tallahassee lobbying on behalf of the company.

He’s also trying to change the way Grooveshark is perceived in the media. For a long time, he says, the company didn’t do a very good job responding to allegations, mostly by record labels, that the company intentionally steals music and refuses to pay artists.

Though it does have a licensing deal with EMI Entertainment World, that company is also suing Grooveshark. EMI insists that Grooveshark breached its 2009 contract. “Defendant has, to date, made not a single royalty payment to EMI,” the suit claims.

Geller says the suit is just a “contract dispute” that he hopes will settle. Exhibits contained in the suit indicate that the crux of the suit is disagreement over how much Grooveshark should pay for the songs its users have streamed – EMI wants $300,000, but Grooveshark says it only owes about $150,000.

Despite negative press these suits have brought, Geller says the goal of Grooveshark has always been to run a legit business that pays musicians. However, record labels are the gatekeepers and they haven’t always been eager to work out reasonable licensing agreements. Geller says Grooveshark does have licensing with “some of the biggest indie aggregators” in the business, as well as EMI, and it hopes to contract with all of the major labels eventually. But for now, a spokeswoman for the Recording Industry Association of America says that “four out of four” big record labels in the United States are in some kind of litigation with Grooveshark. (Geller says this is misleading – on Dec. 15, 2011, according to court documents, Sony and Warner joined UMG’s suit but did not file suits of their own against the company.)

Then there’s the nasty business of the U.S. DOJ’s recent interest in busting copyright infringers. SOPA and PIPA may be dead (for now), but the federal government’s recent enforcement actions have created a chilling effect that has sent some of the most well-known sharing sites scrambling to change their policies. Filesonic.com has disabled its sharing features, for instance, while 4shared.com has stopped offering incentives to users who store files on its site.

DOJ spokeswoman Laura Sweeney refuses to discuss specifics about the agency’s plans to move forward on copyright-infringement crackdowns or about pending cases. When asked what criteria would cause a case to rise to the level of DOJ intervention, or whether a site like Grooveshark would be on its radar, she says only that the department “will consider investigating any matter where there is sufficient evidence that willful criminal infringement is occurring.”

Geller, however, says he’s still not worried – well, not too worried, at least.

“I think every Internet-based business is concerned now,” he says. “I don’t think we are more concerned than anyone, but there certainly is a new air of unease in the startup sector.”

But he reiterates that Grooveshark is a “DMCA compliant service that is aggressive about pursing licenses from all necessary parties.”

There is no piracy, he says. The company just wants to do what he says it set out to do from the very beginning.

“You can dub us whatever you want, but we are paying artists and creating jobs,” Geller says.

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