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Regarding the fair use point: I think this type of music-sharing network is outside the bounds of fair use. Even putting aside the question of copying the actual music file (let's assume you can only listen to available music while attached to this network), I see problems. I don't have a background in law, so my opinion is merely subjective, but I've never heard of fair use being applied to sharing among dozens, much less thousands (millions?) of people you don't know. As I understand it, fair use means (more or less) that you can share a book/recording/etc. with close friends and family. Sharing would include the implication that when your friend has your book, you can't use it until he gives it back. There's another angle to fair use, in which people have been defending the right to transform the medium on which they store the product (CD to MP3, computer to computer, etc.), but that concept doesn't cover sharing so much as an individual's storage and retrieval choices. So I'd suggest that community sharing of music won't be a great catalyst to advance the fair use argument.
As far as the question of enforcement: If the networks are pervasive in dense urban areas, it wouldn't take long for law enforcement to start driving around to find them. Warrants might be difficult without specific information about the sources of each file (you can't just knock on every door in the neighborhood, at least most of the time), but I assume it wouldn't be difficult to triangulate the locations of individual base stations. It's (probably) a lot easier to be anonymous over the entire Intranet than over a local wireless network. Bust enough people, and the whole system falls apart from fear.
It's a great idea, and I wish we could just do it. Maybe some day, with enough wins for the fair use camp and a re-tooling of the music industry, it could become a legal reality. But I'm not going to hold my breath.
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