"The MPAA must have ways of detecting illegal use," says the CIO, who spoke on the condition of anonymity to protect the FBI’s investigation, which is still active. (Neither the MPAA nor the FBI would comment on the case.) "They contacted us and said our IP address was illegally serving up information, and we said, ’No, that’s not possible.’"

Indeed it was.

Fortunately, for him and his organization though, he is done with the whole business. The hard drives cost only a few hundred dollars to replace, and downtime was minimal. In addition, the MPAA didn’t pursue legal action because, he says, his organization was an innocent bystander that cooperated fully with the investigation.

But if the entertainment industry has its way, your company might not be as fortunate. The industry is taking steps to hold your company liable if your systems are used to share pirated materials?which could happen either when a hacker invades and loots your free disk space or when your users are busy swapping copies of the latest song from the Dixie Chicks. The warning shots have already been fired: In April 2002, Integrated Information Systems, a high-tech company, paid the Recording Industry Association of America (RIAA) $1 million in an out-of-court settlement, after the company allegedly permitted its employees to share copyrighted MP3 files on its corporate network. Although this may come off as a scare tactic, there are good reasons to protect your company from becoming the entertainment industry’s next poster child for copyright infringement. We’ll tell you how seriously to take the warnings and how to protect your company?which is easier to do than you might think.

The Entertainment Police

When music industry associations won the court battle to shut down Napster?that giddy but short-lived music-swapping service that made peer-to-peer (P2P) a household phrase?they were just getting started. The entertainment industry is at war with Internet pirates, which it believes are threatening its very livelihood. The MPAA, which estimates that the U.S. film industry loses $3 billion a year from physical piracy alone, is growing increasingly frustrated by how often video files are available on the Internet before the movies are released in theaters or on DVD and video. The RIAA, meanwhile, blames piracy for the 7 percent decrease in the number of compact disc shipments during the first half of 2002. That kind of research causes much eye-rolling among Internet libertarians who believe file-swappers aren’t necessarily downloading files they would otherwise purchase, and others who say that a free sample might entice listeners into buying a whole album. But the threat to the industry is real, if overstated.