BitTorrent developed a peer-to-peer file sharing technology that facilitates the transfer of large files on the Internet. The developer published the software as open source without restrictions on its use. Although computer designers at Silicon Graphics and Red Hat Software have used the technology for the lawful transfer of computer files, many other users have used it to make and transfer illegal copies of copyrighted movies. Like Grokster but unlike Napster, BitTorrent maintains no list of files transferred by its users and has no ability to monitor its users' activities. Unlike at Grokster, no one at BitTorrent ever encouraged users to use the software to make illegal copies of content. To the contrary, Bram Cohen of BitTorrent exhorted users not to use the software for illegal purposes.
You are David Chao, a partner at DCM Capital, and are considering making an equity investment in BitTorrent. What factors would you consider when making your decision? If you were the head of Warner Brothers' home video unit, would you give BitTorrent a license to sell your films? On what conditions, if at all?