Peer-to-peer (P2P) file-sharing technology offers significant benefits but also poses risks to consumers who use it, according to a Federal Trade Commission staff report issued last week prior to yesterday's landmark Metro-Goldwyn Mayer (MGM) Studios v. Grokster, Ltd. ruling. The staff report, "Peer-to-Peer File-Sharing Technology: Consumer Protection and Competition Issues," analyzes the consumer protection, competition, and intellectual property issues that were discussed at the FTC's December 2004 workshop on P2P file sharing. The report recommends that industry and government take steps so that consumers receive the many benefits from this technology while avoiding the risks that it creates.

P2P technology enables computer users to share communications, processing power, and data files with other users. Use of P2P technology can yield significant benefits, such as enhancing efficiency by allowing faster file transfers, conserving bandwidth, and reducing storage needs. Businesses, government agencies, academic institutions, and others use P2P applications for a variety of tasks. However, the most common application by far is commercial file-sharing software programs used by consumers to exchange files, such as music and movie files, with others; information presented in the FTC's report indicates that tens of millions of individuals have used a P2P file-sharing program.

The FTC's P2P workshop was held on December 15-16, 2004, and included seven panels, featuring representatives from the P2P file-sharing software industry, the entertainment industry, hi-tech research firms, government agencies, academic institutions, and consumer groups. The Commission also received 51 public comments concerning a variety of issues related to P2P file sharing.

The FTC staff's report states that the workshop provided "valuable insight." It concludes that P2P technology continues to evolve in response to market and legal forces. Consumers face risks when using commercial P2P file-sharing software programs, including risks related to data security, spyware and adware, viruses, copyright infringement, and unwanted pornography. There was little empirical evidence submitted in connection with the workshop, however, addressing whether these risks are greater with P2P file-sharing programs than with other Internet-related activities such as surfing websites, downloading software, and using e-mail or instant messaging.

The report makes recommendations concerning what industry and government should do to decrease the risks associated with the use of P2P file-sharing programs. Industry should engage in technological innovation and development, industry self-regulation (including risk disclosures), and consumer education. Government should investigate and bring law enforcement actions when warranted, work with industry to encourage self-regulation, and educate consumers about the risks associated with using P2P file-sharing software.

The report also presents the competition and intellectual property issues that were discussed at the workshop. The FTC staff report generally concludes that policymakers should balance the protection of intellectual property and the freedom to advance new technologies, thereby encouraging the creation of new artistic works as well as economic growth and enhanced business efficiency. The report concluded that it would not be prudent at this time to make specific recommendations for policymakers about the intellectual property issues that P2P file sharing raises, because the Grokster decision was due to come out. No word if such recommendations will be forthcoming now that the decision has been released.

One thing is clear: legal and authorized P2P systems will not be disturbed by this ruling. Thus, smaller artists without big label promotional spending dollars will still have a chance to take advantage of the distribution potential that the internet and P2P systems can provide when properly utilized.