updated 9/19/2005 3:17:42 PM ET 2005-09-19T19:17:42

Grokster Ltd., facing a copyright-infringement lawsuit for developing software that can be used to swap pirated music and movies, is in talks to be acquired by a company that wants to build a legal file-sharing service, a newspaper reported Monday.

The Wall Street Journal, citing unnamed people with knowledge of the talks, said Mashboxx probably would work out a revenue-sharing arrangement with Grokster because Grokster itself likely would have little or no value.

Before any deal could go through, though, the record labels would have to drop or settle the pending lawsuits against Grokster, the people familiar with the matter told the Journal.

The development follows a June ruling by the U.S. Supreme Court giving the entertainment industry the go-ahead to proceed with lawsuits against Grokster and another file-sharing software developer, Streamcast Networks Inc.

The high court said such companies can be liable if they deliberately encourage customers to infringe on copyrights in an attempt to grow audiences and sell more advertising. Grokster has argued that it shouldn't be liable because file-sharing has legitimate uses.

Mashboxx, headed by former Grokster president Wayne Rosso, is among a new crop of peer-to-peer-based services slated to launch this year to offer music download sales and, in some cases, swapping of tracks that are not under copyright restrictions.

Mashboxx, based in Virginia Beach, Va., also has a deal with Snocap Inc. to facilitate authorized content distribution. Through Snocap, the labels will be able to assign usage rules for each track, deciding whether users on Mashboxx or other peer-to-peer networks can listen to a track a few times before they must purchase it, or what sort of copy restrictions each file will have, for example.

Mashboxx already has a licensing deal with Sony BMG Music Entertainment and is seeking deals with other major labels.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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