BALTIMORE -- ISPCON -- Power Web Connect, a local ISP in Wisconsin, is one of many service providers across the U.S. getting slapped with legal notices by media giants like Warner Brothers to shut down customers that are swapping peer-to-peer (P2P) files protected by digital copyright (see Application Killers).

This hot topic was the center of debate at the ISPCON conference yesterday, where it emerged that a recent Power Web Connect user was wrongly accused by Warner Brothers of illegally distributing its movies.

“Warner Brothers came after us… They gave us an IP address of a customer and told us to shut them down,” says a spokesman for Power Web. “We checked it out and the customer was a 72-year-old woman with no clue what was going on.”

The case is ongoing. Warner Brothers is apparently still hassling Power Web Connect with nasty letters citing the 1998 Digital Millennium Copyright Act (DMCA) as grounds to cancel the customer. Warner Brothers was not immediately available for comment.

Officials at Copper Valley Telephone Cooperative in Alaska say it has also run into P2P problems with content providers. “We get several letters a week about this,” says a spokesman for the company. He declined to provide more details. Other service providers at the session nodded their heads in solemn agreement.

Legal experts say the peer-to-peer file swapping issue facing service providers is about to get worse in light of the U.S. government’s decision earlier this month to side with the record industry in its dispute with Verizon Communications Inc. (NYSE: VZ).

New York-based Verizon -- the largest U.S. telephone company -- and the Recording Industry Association of America (RIAA) have been in court since September, arguing over whether Verizon should be forced to help crack down on the online song-swapping phenomenon that record labels blame for a decline in CD sales.

”If the Verizon case goes the wrong way, ISPs can expect to receive unlimited requests for data on their subscribers,” says Chris Hoofnagle, legal counsel for the Electronic Privacy Information Center in Washington, D.C.

Verizon argues that the law only applies to Web pages stored on its computers, not the "peer to peer" networks like Kazaa that merely travel across its wires.

”You don’t shut down a highway because people are moving drugs down it… It just doesn’t make sense,” says Joseph Price, legal counsel with Kelley Drye & Warren LLP, a firm that specializes in telecom law.

It looks as if the Justice Department disagrees.

Meanwhile, the RIAA is singing for joy. ”The government's filing supports the proposition that we have long advocated: Copyright owners have a clear and unambiguous entitlement to determine who is infringing their copyrights online, and that entitlement passes constitutional muster," crows Matthew Oppenheim, senior VP of business and legal affairs for the association. "Verizon's persistent efforts to protect copyright thieves on pirate peer-to-peer networks will not succeed." [Ed note: no, no, no, no, no!]

Aside from the legal issues, there are also new technical concerns popping up with P2P file sharing that will cause service providers more headaches.

According to Yuval Shahar, co-founder, president, and CEO of P-Cube Inc, which makes a router that can control and monitor P2P traffic, the problem is getting worse. "We've migrated from MP3 files to complete videos and games, where the average file size being transported has gone from a few kilobytes to hundreds of megabytes... The increased popularity of these services and file sizes is killing the service providers," he says.

In addition, the original P2P protocols were easy to detect, because there was a fixed number in the header of the packet that signaled a Napster session. Today, P2P protocols bypass this as they no longer use known port numbers, Shahar claims: "They are much, much smarter... P2P traffic is pretending to be real Web traffic now."

— Jo Maitland, Senior Editor, Boardwatch