My former employer, MetaMachine, is retiring from the P2P industry. I think Sam makes some very good points in his testimony to the Senate Judiciary committee:

First: Because the Grokster standard requires divining a company's "intent," the decision was essentially a call to litigate. This is critical because most startup companies just don't have very much money. Whereas I could have managed to pay for a summary judgment hearing under Betamax, I simply couldn't afford the protracted litigation needed to prove my case in court under Grokster. Without that financial ability, exiting the business was our only option despite my confidence that we never induced infringement and that we would have prevailed under the Grokster standard.

Second: The court specifically cites that Grokster's marketing to "former Napster users indicates a principal, if not exclusive intent to bring about infringement." Is this really proof of intent to induce infringement? Does this mean that every advertiser that has advertised in the eDonkey software also has a similar intent? I should hope not, because last summer the campaigns of both President Bush and Senator Kerry ran advertisements on eDonkey. Were they really both courting the "swing infringement vote" or could they have had some other "intent?"

My final point on Grokster is that its inducement standard cannot serve as a long-term equilibrium. Imagine if since eDonkey's inception not only had we not made any statements inducing infringement - but also that we made no statements at all - and instead simply put up a website that read "eDonkey is a peer-to-peer file-sharing application." It seems to me that would not qualify as "affirmatively and actively inducing infringement." If we had never made any other statements would we be in the clear now? If so, new P2P applications will inevitably spring up and easily satisfy Grokster in this way. If we would not be in the clear then the effect of Grokster will go far beyond merely chilling innovation - it will almost certainly freeze it in its tracks.

He wraps up by making a few additional points, one of which is the increasing pressure that innovators are under to do business outside of the US:

As it is, many companies and would-be entrepreneurs simply cannot be sure of where they will stand with respect to the law. As you know, eBay recently acquired the P2P company Skype for more than two billion dollars. Note that Skype was founded offshore; it would be a real tragedy and a blow to our economy should all technology entrepreneurs take their innovations offshore.

In the past decade or so, I've observed an increasing tendency for big businesses to depend on litigation rather than innovation in order to remain relevant. Microsoft, the MPAA, the RIAA, etc., are all guilty of this. I suppose it's the path of least resistance, but it's really hurting the US's position as the technology leader. In fact, I'm sure some would argue that the US has already lost that crown.