Throughout the trial, the prosecution contended the sites’ co-founders brought in as much as $4 million per year in advertising revenues, while the defense argued no profits were made – hence any illegal activity was actually on the individual users who chose to participate. In an ironic (or is that hypocritical) twist, it looks like the Pirate Bay is about to be sold for a hefty profit. Details are being finalized at this point, with sources reporting Swedish based “Global Gaming Factory X” putting up somewhere between $7.7 and $7.9 million dollars for the acquisition – making that $3.6 million dollar fine look like chump change. [full text press release, PDF]

So what’s a Swedish company to do with an organization recently convicted of illegal activity by Swedish courts?  Legitimize it, of course. Stick with me for a moment folks, if this business plan doesn’t make any sense to you, you’ve got the jist.

First, Global Gaming chief exec Hans Pandeya, plans to license content from media companies for legal downloads. That’s right – they’re expecting the likes of the Sony and Viacom and Fox and Warner Brothers of the world embrace the namesake Pirate Bay to legally tout their digital wares. No, it’s not deja vu… how’s that business plan working out for you Napster? Surely, those 20 million users in search of free downloads will stick around when the site’s offerings are slashed to near nothing and will suddenly see the light and start paying for it.

Next comes some premium advertising. Pandeya and co hope to raise up to $50 million per year in ad revenues on the newly legit ‘Bay. As of now, the Pirate Bay (and sites like it) have difficulty finding advertisers that will even touch potential breeding grounds for digital theft. Advertisers on display range from bottom feeders to downright scammers, bidding at some of the lowest CPMs on earth. But hey – once it goes legit, everybody will forget the past! Large companies will surely see that same light the users do, and will ignore history to put their highly protected trademarks and reputations all over it. (You might want to turn down your sarcasm detectors if you haven’t already; I’m not responsible if they blow a gasket.)

But lastly, we have a real gem of a business idea. The Pirate Bay is going to get in the Internet services biz. They’re going to take the concept of peer-to-peer and leverage those millions of users’ Internet connections… Users can opt in to a program where they share their existing bandwidth with a peer to peer “cloud.”  Internet service providers can rent capacity on this network when they need short term boosts of bandwidth to handle unusually high loads. This new technology is called “Peerialism” and potential uses might be streaming video during major media events (like the great bandwidth drains earlier this year care of studious employees watching the NCAA Final Four on their work computers.) After all, this distributed model has been used by legitimate researchers to do things like search for aliens and seek out a cure for cancer.  Only here, users will be compensated – financially – for participating. Earnings might be paid out directly, or used within the site to purchase music from the afformentioned licensees.

Cool idea on the bizarro Internet, perhaps. In the real world, the whole idea is perposterous. It’s against the terms of service set by pretty much every single Internet Provider out there. Looking at my own provider’s ToS, I can count at least half a dozen ways this violates my contract. Save yourself the legal jargon – here’s the synopsis, assuming a residential connection. You can’t use the service to make a profit or run a commercial endeavor. You can’t re-sell your connectivity. You can’t redistribute audio/visual content. You can’t charge others in any way shape or form for access to any facet of your service. You get the picture. Ignoring the fact this will either be blocked by your provider or cause your connection to go dark without a refund, it still doesn’t make sense if you consider who the intended customer is: Internet pervice providers. Why again will an ISP essentially buy back the bandwidth it just sold you? It’s like buying a dozen ears of corn at the grocery store and telling your grocer “hey, I just noticed you’re short 12 ears of corn, I’ve got a dozen here you might be interested in!” ISPs already have bandwidth sharing strategies to buy bandwidth from one another when their tubes get clogged… but SURELY they’ll want to go around in circles and buy their own bandwidth back care of their own customers in violation of their own terms of services – from the Pirate Bay, of all places. (OK, you can turn those sarcasm detectors back on, I’m done.)

In summary, so long Pirate Bay. It’s been a good run. And while I’m not a certified financial advisor and you should always read your prospectus first… if Global Gaming Factory X or “Pirate Bay 2.0″ ever goes public, you might want to devise a short sale strategy.

Wading through the blogosphere (as opposed to wading through the two feet of snow outside), it looks like the story starts here: CNET reports that sources close to the RIAA claim the group’s budget is being slashed and their role reduced. One might assume they face the same problems as any business or organization – a tough economic climate, dwindling sales, and so on. A likely story, but given the fact that those 350,000 lawsuits targeted many innocent individuals, levied disproportionately high penalties to very small time file sharers, and in sum total did next to nothing to curb on-line piracy, maybe the truth is their litigious witch hunt has been a near total failure, and they’re finally acknowledging that.

It’s not all good news for fans of file sharing, as you aren’t off the hook yet.  The RIAA has apparently struck deals with several major ISPs to enact a “3 strikes and you’re out” policy.  So the witch hunt is still on, but instead of slapping you with a lawsuit, the RIAA intends on tattle-taling to your Internet provider instead.  The ones who have agreed to cooperate (and so far, the ISPs in agreement have NOT been named), will likely follow this line of attack: (1) a warning; (2) a second warning coupled with speed reduction and/or possible block of peer to peer traffic, (3) cut off your Internet access all together.

NY State’s own Attorney General Andrew Cuomo apparently played a large role in brokering this deal.  You may remember Cuomo’s campaign to stop on-line child pornography earlier in the year (aka the ISPs campaign to have a good excuse to stop providing Usenet service while making good press yet not actually doing much to stop on-line child pornography)… borrowing a page from that book, we can see the list of ISPs Cuomo has already gotten cooperation from in the past here. I’ll reiterate – the RIAA has not said which ISPs are on board; and this is speculation on my part, but I have a feeling we’ll see a lot of those same names come out as participants.

So the bit of good news is, you probably aren’t going to get sued if you’re caught illegally downloading a couple of songs.  The RIAA also will never know your identity, nor harass or subpoena your ISP to learn your identity.

The bad news? There’s a couple points…

• The RIAA doesn’t need to follow due process anymore. That saves them a lot of lawyers, a lot of time, and a lot of money.  Remember those budget cuts I mentioned?  Probably not relevant; they don’t need the budget to do things this way. No lawyers needed, less in depth investigation needed… any suspicion of somebody? Just fire off an e-mail!
• The RIAA still reserves the right to sue big-time file sharers with large volumes of songs.  They might go after you if you do something particularly irksome as well (careful with those “leaked” pre-release albums, kids!)  There’s no clear line. So while the risk to file sharers has gone down, it hasn’t gone away.
• It looks like enforcement is a the discretion of the ISPs, and it’s the RIAA’s word against yours. No real proof needs to be provided, no appeals process, etc… unless your ISP is nice enough to provide a fair process, you’re probably out of luck, be it rightly or wrongly accused.
• Lastly, it’s just a huge can of worms that probably shouldn’t be opened.  ISPs should be neutral. They provide a service that transmits your data from point A to point B.  They shouldn’t have any business telling you what you can or can’t send from “A” to “B” – if you’re breaking the law, there’s a legal system to deal with it. Does this mean ISPs are going to start spying on your traffic to confirm RIAA complaints?  Does it mean they’re going to do the police work for other industry organizations?  Are ISPs themselves going to take heat if they fail to comply with RIAA requests? Are they going to go beyond cutting off your Internet access and blacklisting you from their services as a group – again, without any sort of legal due process to prove your guilt?  (That’s what they’re looking to do in some European countries, by the way.)  Are they going to apply the connection-slowdown-punishment to other areas at their discretion? Obviously there’s a lot more questions than answers right now, but it doesn’t look good for the pro-net neutrality folks.

Surely this will be an on-going process that we’re all going to have to wait to see how it pans out. It’s a small victory for file sharers.  Potentionally a large loss for privacy and neutrality advocates. Possibly, like the RIAA’s last campaign, a bunch of hot air that gets them nowhere fast. Some day we’ll come up with a way where artists looking to get paid can, and ‘netziens looking for free content can find it without fear… but it’s certainly not today.