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Morpheus throws in the towel

Morpheus p2p file-sharing software StreamCast goes bankrupt StreamCast Networks, the company behind the Morpheus file-sharing software, filed for protection Wednesday under Chapter 7 of federal bankruptcy law. Now, perhaps, the when-will-it-ever-end legal battle known as MGM v Grokster will finally come to an end, more than six years after the major record companies and movie studios sought the federal courts' help against StreamCast, Kazaa and Grokster. At the time, those companies were the three heirs apparent to the original Napster. In fact, StreamCast -- backed by Timberline Venture Partners, a venture capital firm tied to legendary VC Tim Draper -- had begun life (under the name MusicCity Networks) piggybacking onto Napster's protocol and client software. It eventually switched to the FastTrack network it shared with Kazaa and Grokster, only to be booted unceremoniously from that network and forced onto Gnutella. Its bankruptcy doesn't come as a shock (except, perhaps, to the employees who were laid off as of April 22), yet it leaves a few intriguing legal questions unanswered.

In particular, U.S. District Judge Stephen V. Wilson was exploring what filtering requirements to impose on StreamCast that would protect copyright holders without interfering with legitimate uses of the network. He also was considering how much effort StreamCast had to make to convert users of previous, unfiltered versions of Morpheus to the new, court-approved version.

One thing Wilson had decided was that StreamCast, like the original Napster, was liable for its users' infringements. He granted a permanent injunction against StreamCast last October. Co-defendants Grokster and Sharman Networks, which operates Kazaa, had already agreed to settle with the labels, studios and music publishers, with Grokster getting out of the business and Sharman pursuing a licensed, royalty-paying version of Kazaa. Yet Wilson wanted to find a way to let StreamCast keep the Morpheus network going for legitimate, non-infringing uses That's why he appointed a special master, British forensic scientist Andy Johnson-Laird, to evaluate different technologies that might block only unauthorized transfers. Now, Johnson-Laird's work appears to be mooted.

MGM et al. may yet extract some cash and a pound or two of hardware out of StreamCast. But they'll have to wait in line with StreamCast's employees and creditors for the company's assets to be liquidated in Oregon, where the bankruptcy petition was filed. Meanwhile, thousands of people with earlier versions of Morpheus can continue to use them to download whatever they find on the network, legally or not.

There's a really great back-story to the bankruptcy, but it's too long-winded (and inside-baseball-ish) even for this notoriously windy space. I'll write an Opinion Daily column about it for Monday, and will provide a link as soon as it's posted.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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