MashBoxx to Drive Grokster Legal

One day after the Grokster file-sharing service announced a settlement with the recording industry and pulled the plug on its illegal peer-to-peer computing network, sources close to the company confirmed that its assets have been purchased by MashBoxx.

Under the deal, the terms of which were not immediately clear, MashBoxx will buy out all the remaining holdings of Grokster, including its directory of registered users, and fold the file-sharing networks operations into its soon-to-be-launched P2P download service.

Sources said that the two companies actually reached the buyout agreement several months ago, and indicated that MashBoxx Chief Executive Wayne Rosso, a former president of Grokster, facilitated the deal with the recording industry in order to help move his firms launch plans forward.

On Monday, Grokster filed paperwork in a Los Angeles federal court reporting that it reached a $50 million settlement in its 3-year-old legal case with the nations largest record companies, motion picture studios and music publishers.

As part of the settlement, the firm shuttered its popular P2P service, through which individuals traded MP3 digital audio and video files for free, and said on its Web site that it planned to have a "safe and legal" replacement available soon.

The Grokster settlement came four months after the U.S. Supreme Court ruled that companies running P2P networks that allow consumers to trade files without regard for copyright laws could be held liable for piracy.

Click here to read more about Groksters legal woes.

MashBoxx, based in Virginia Beach, Va., plans to introduce a beta version of its content file-sharing software and network some time in the next several months.

Unlike Grokster, the new file-sharing service is partnering with Hollywood studios and recording companies to license content legally, and will charge customers to download files that bear so-called DRM (digital rights management) software to prevent the content from being illegally copied.

According to parties familiar with MashBoxxs dealings, the firm is also in talks to provide its P2P software to at least one other major file sharing network operator, and will maintain roughly 6 million user accounts by the time it launches, based on its planned acquisitions.

Reached by phone, MashBoxx CEO Rosso declined to comment on any pending deal for Grokster, but admitted that the two companies have been in talks to form a partnership.

Rosso also refused to speak about any other rumored deals, but said that his firm is actively seeking pacts with other file-sharing networks to license MashBoxx P2P client application for legal downloads.

Once taken legal, Grokster would become the second well-known file-sharing service to attempt the move into a paid download model.

Last month, Israel-based iMesh launched a beta version of its new copyright-friendly P2P software in an effort to transform its own operations.

In July 2004, iMesh promised to move to a legally approved file download model as part of a $4.1 million settlement it reached with the RIAA (Recording Industry Association of America) in a copyright infringement suit.

Next Page: Market readiness.