Grokster Shuts DownGrokster Shuts Down

Grokster, which lost in the Supreme Court a lawsuit filed by Hollywood to stop illegal file sharing on peer-to-peer networks, shut down Monday, as part of a settlement it reached with movie studios and the recording industry.

The agreement settles the 3-year-old case that led to the high court in the summer ruling that file-sharing services were responsible for copyright violations, if they intended customers to use their software primarily to swap songs and movies illegally. The ruling stemmed from a lawsuit filed by MGM Studios against Grokster.

On its Web site, the file-sharing service said that the high court had unanimously confirmed that using Grokster to trade copyrighted material is illegal, and Hollywood studios would take legal action to protect their property.

"There are legal services for downloading music and movies," the posting said. "This service is not one of them."

The company said it hoped to have a legal service, called Grokster 3G, available soon, and offered an email address to anyone who wanted to participate in the upcoming beta.

The Recording Industry Association of America said the settlement was reached with the nation's major record companies, motion picture studios and music publishers. The agreement would be submitted to the court Monday for its approval.

“This settlement brings to a close an incredibly significant chapter in the story of digital music,” Mitch Bainwol, chairman and chief executive of the RIAA, said in a statement. “This is a chapter that ends on a high note for the recording industry, the tech community and music fans and consumers everywhere." Grokster agreed to immediately halt the distribution of its client application and to cease operating its network, the RIAA said. In addition, the settlement included a permanent injunction prohibiting infringement, either directly or indirectly, of any of the studios' copyrighted works.

Grokster's upcoming reincarnation was not a surprise to some industry analysts, given that it had exhausted all legal options.

"They're falling one by one," Joe Wilcox, analyst for JupiterResearch, said of sites targeted by Hollywood. "It's not a surprise that Grokster is gone.

Unlike a few years ago when companies like Napster pioneered file sharing on the Web, there are now plenty of sites that offer music legally, Wilcox said. In addition, subscription services that offer unlimited music for a monthly fee are growing in popularity among young adults, 18 to 24 years old, who are the biggest music swappers on P2P networks.

Movies, however, are not as widely distributed legally because studios are still struggling to find a protective system, and download times are too long for most consumers. As a result, many people are still using illegal downloading.

Following the Supreme Court decision, the RIAA sent letters in September to seven prominent P2P networks, demanding that either they use copyright-protection technology acceptable to the RIAA or shut down.

At least two of the file-sharing networks shut down as a result of the letters, WinMX and eDonkey, which is owned by MetaMachine Inc. The latter company converted its site to a closed P2P network. Other sites that received letters included LimeWire and BearShare, which are still operating.

Opponents of the court decision have said it would halt file-sharing innovation in the United States, with advancements coming from countries where U.S. law doesn't apply. Hollywood studios, on the other hand, believe the decision added teeth to their battle to stop the theft of their movies and music.

Since the high-court decision, a "nascent legal P2P network marketplace is emerging," the RIAA said. Legal P2P companies include Wurld Media, PassAlong, Intent Media, iMesh, Mashboxx and Snocap.