Music industry, Sharman face off in Australia

"Not only do the respondents know that their 100 million users are infringing the applicants' sound recording copyright, they proclaim it loudly to anyone who cares to listen... It is a badge of honor for the respondents. They paint themselves as the defenders of the interests of fans of music," declared the labels' lead barrister, Tony Bannon, during his opening address in the Federal Court in Sydney.

"It is a charade," he added. "[Their] motives are not altruistic. On the contrary, the respondents trade off the copyright infringing activities of its users. [They] promote themselves to advertisers as having access to a vast audience. The vast audience only exists because of the rampant copyright infringing activity. The respondents describe themselves as leveraging off their user base".

The labels hope to stop illegal P2P file sharing and to recover compensation for past infringements, says Michael Speck, general manager of the Music Industry Piracy Investigations unit of the Australian Record Industry Association.

The suit targets Sharman; LEF Interactive; Altnet, which delivers so-called "piggyback" technology with Kazaa; Altnet-affiliated Brilliant Digital Entertainment; Sharman chief executive officer Nicola Hemming; Altnet chief executive officer Kevin Bermeister; and two technology directors.

Bannon told the court that Brilliant -- the parent company of Altnet -- and Consumer Empowerment BV -- which later changed its name to Kazaa BV -- entered into a technology bundle license agreement in 2001. Kazaa BV and Sharman Networks Limited then entered into a license agreement in 2002, which stated that Kazaa BV had agreed to sell its business to Sharman.

Unlike the suit pending against Sharman and LEF in U.S. District Court in Los Angeles for secondary copyright infringement, this action widens the potential net around Kazaa-affiliated companies and individuals by asserting additional claims for misrepresentation to the public, unconscionable conduct and civil conspiracy to inflict harm.

The music and technology industries are watching this case closely, many to learn what will be revealed in the evidence seized during the February 6 surprise raids on the tech companies, their key executives, universities and several Internet service providers.

Of particular interest is the bundling of Altnet software with Kazaa and whether it shows that the tech companies can control file-sharing and, therefore, prevent users from infringing copyrights; whether the tech companies promote unlawful sharing to sell advertisements; the profits made by Sharman, Altnet and Brilliant; and the true owners of Sharman.

If not subject to a protective order in Australia, this evidence could be used by the labels, motion-picture studios, songwriters and publishers in their U.S. case against Sharman, says attorney Michael Elkin, national chair, commercial litigation for Thelen Reid & Priest in New York.

During his address, Bannon quoted extensively from documents discovered during the pre-trial process.

"There is a ready inference that Mr. Bermeister is in fact the ultimate controller of Sharman. In answers to [pre-trial requests], Ms. Hemming states that the controllers of the company are certain companies in Vanuatu. However, an examination of those companies reveals that they are nominee companies and a trust, the only named beneficiary of which is the International Red Cross. Although Ms. Hemming enjoys the title of CEO and is intimately involved in all decisions of Sharman, internal company documents record that she is CEO in name only without authority to bind the company as such. Ms. Hemming told the press that there were private individual investors behind Sharman. In answers to [discovery requests] ordered by this court, she said that in truth there were no investors and that she was only trying to make the company appear to be substantial," Bannon asserted.

"What we do know is that Sharman was established for the sole purpose of working with Altnet, a company controlled by Mr. Bermeister, he approached her about it and before that occurred Ms. Hemming was working for Mr. Bermeister in another of his ventures, Segaworld. The ready inference is that Mr. Bermeister is the controller of Sharman," he added.

Over 50 lawyers are involved in this case before Justice Murray Wilcox. Counsel for Sharman Networks will present its opening address tomorrow (Nov. 30). The trial is expected to last for three weeks.

Additional reporting by Kristyn Maslog-Levis, ZDNet Australia.