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The federal authorities on Thursday announced that they had charged seven people connected to the Web site Megaupload, including its founder, with running an international criminal enterprise centered on copyright infringement on the Internet.
According to a grand jury indictment, Megaupload one of the most popular locker services on the Internet, which lets users anonymously transfer large files generated $175 million in income for its operators through subscription fees and advertising, while causing $500 million in damages to copyright holders.
Four of the seven people, including the sites founder Kim Dotcom, born Kim Schmitz, have been arrested in New Zealand, the Justice Department and Federal Bureau of Investigation said on Thursday; the three others remain at large. The seven who a grand jury indictment calls part of a Mega Conspiracy have been charged with five counts of copyright infringement and conspiracy, the authorities said.
It was almost as if the thrums of digital artillery could be felt across millions of keyboards. As some of the internet's biggest power players, including Google and Wikipedia, protested two fast-tracked anti-piracy bills going through Congress, the US Justice Department launched an attack on one of the web's biggest alleged scofflaws, Megaupload, and, in a counterattack, the hacker group Anonymous temporarily blacked out DOJ's website.
Techno-pundits and mainstream observers quickly connected the dots between anti-piracy protests and the Megaupload arrests, notching the dustup as potentially the biggest salvo yet in the multi-billion dollar internet copyright wars pitting, in essence, Hollywood and its Washington lobbyists against internet free speech and its hacker protectors. This week has been the week of copyright warfare, but the decision to nuke the king copyright violator so spectacularly only goes to show how little the feds need bigger bombs, writes Sam Biddle on the tech-scene site Gizmodo.
The Justice Department has not commented on the timing of its arrest of Kim Dotcom (also known as Kim Schmitz), the high-flying millionaire CEO of Megaupload, who is now in custody and being prepared for extradition to the United States from his home base of Auckland, New Zealand. The arrests came after a two year investigation. Megaupload was perhaps the most brazen of dozens of file-sharing sites, offering cash for particularly lucrative uploads and partnering with some big-name rappers in its barely-concealed bid to dispense and disperse pirated music and film. The site has 150 million members and makes up 4 percent of all daily traffic on the web.
But the decision by the Justice Department to net such a big, obvious fish at this time raised eyebrows among the internet cognoscenti, who posited that it was meant as a retort to populist digital forces that amassed in protest of the fast-tracking of two anti-piracy bills, the Stop Online Piracy Act (SOPA) and Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (PIPA). Citing the protests, Congressional leaders forestalled the bills on Friday, saying they need more work.
Championed by the Motion Picture Association of America and the Chamber of Commerce, the anti-piracy bills would have broadened the Justice Department's justifications for seeking court orders against alleged copyright violators, prevented advertisers from doing business with such sites, banned search engines from listing them, and forced internet service providers to block the sites.
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I'm conflicted about Megaupload. It seems clear that a substantial part of their business was facilitating the violation of copyright. However, it's not clear that they themselves were in violation of the law. Certainly, many of their customers are entirely innocent, and now find themselves grossly inconvenienced.
I'm curious as to what warning the US government gave Megaupload. If this attack came without due warning then I feel Megaupload was treated unfairly. Certainly their customers were treated unfairly, being given no warning before being deprived of their files. It looks as though the government may have acted capriciously in their haste to demonstrate their effectiveness as SOPA faltered.
Yesterday I wrote up a first reaction to the Megaupload case. Having spent some more time going through the indictment in much greater detail, I have some more thoughts and concerns.
First, it's important to acknowledge that the founder of Megaupload, who goes by Kim Dotcom, has a long history of flaunting the law in a variety of ways. That makes him quite unsympathetic in a court. On top of that, there are certain claims in the indictment that, if true, mean it's quite likely that he broke the law. Whether or not the violations amount to racketeering & conspiracy is beyond any analysis that we're going to be able to do here. I would say that I would not be at all surprised if he's found guilty.
Where my concerns come in is in some of the "evidence" that's used to add to the overall indictment. To be clear, in a case like this, the issue is the evidence as a whole, combined to show intent and a general pattern to actions. So the allegations in the indictment don't necessarily mean that any individual action is, by itself, illegal. But, I still worry that some of the specific actions used to pain this picture are (1) potentially taken out of context, (2) are presented in a way that likely misrepresents the actual situation and (3) could come back to haunt other online services who are providing perfectly legitimate services.
Following nearly four years of international legal disputes, extradition matters started Monday in Auckland for Mr. Dotcom, 41, and three colleagues who helped run his highly successful online storage site, Megaupload, before it was seized by American authorities in January 2012. The Department of Justice has been gunning ever since to get Mr. Dotcom and his associates into a U.S. courtroom to face charges of large-scale copyright infringement, money laundering and racketeering.
The Justice Department alleges Megaupload cheated Hollywood out of $500 million by providing a service in which large files, including pirated movies, could be stored online and subsequently shared. Former Megaupload employees Mathias Ortmann, Finn Batato and Bram van der Kolk are also currently on trial. A one-time programmer for the site, Andrus Nomm, surrendered to U.S. authorities in February and is now serving a 366-day prison sentence.
Internet entrepreneur Kim Dotcom speaks during the Intelligence and Security select committee hearing at Parliament in Wellington, New Zealand
Judge Nevin Dawson is expected to rule within the next month whether the subjects of the so-called “Mega Conspiracy” will be extradited, which the defendants have fought against tooth and nail for years. Proceedings had been delayed nine times before finally getting underway this week. “This case is not just about me. This case is about how much control we allow U.S. corporations and the U.S. government to have over the Internet,” Mr. Dotcom, born Kim Schmitz, said on Twitter before Monday’s hearing.
Ron Mansfield, an attorney for Mr. Dotcom, said that the case should be altogether dropped since New Zealand copyright law contains a safe-harbor provision for Internet service providers, according to Stuff. Another lawyer, Grant Illingworth, argued that the defendants need to access frozen funds before they’re forced to fend off criminal allegations any further. “The issue at this stage isn’t whether they will have a fair trial when they are extradited, but whether they will have a fair extradition hearing,” Mr. Illingworth said.
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After three years the U.S. Department of Justice might get its man. Its man, in this case, is the notorious owner of online storage locker Megaupload, Kim Dotcom. On Tuesday, a New Zealand judge said that Dotcom could be extradited to the U.S. to stand trial for a series of criminal charges including copyright infringement, racketeering, wire fraud, and money laundering. Dotcom has been in New Zealand fighting his extradition for three years since U.S. agents and New Zealand police officers burst into his New Zealand mansion in 2012 and cut through locks to get to Dotcom, who was in his secured panic room. The arrest included dozens of agents and two police helicopters. The agents seized 18 luxury vehicles, 150 terabytes of data, NZ$11 million in cash while arresting Dotcom and three other men.
Megaupload founder Kim Dotcom
At that time, Megaupload was one of the largest online storage lockers, and according to Ars Technica, consumed more bandwidth on corporate networks than Box or even Dropbox. Yet, the company also appeared to follow many of the regular industry practices related to taking down infringing content when publishers requested it through what are known as takedown notices. However, in the indictment, the U.S. government accused Megaupload of having a “veneer of legality” that hid the fact that the company knew that its customers shared pirated files. The authorities even found emails from Megaupload employees that indicated they too searched for pirated content on the site. The government accused the company of generating more than $175 million through illegal activities.
The world reacted to the raid with surprise. For one, it felt like overkill to send helicopters after Dotcom, but two, the world of file sharing and pirating content was changing rapidly. Thanks to streaming services like Spotify, Rdio and others on the music side, going legit was often easier than wading through torrents or surfing the dark web. Meanwhile for movies and TV shows, people could sign up for Netflix, Hulu, Amazon’s Prime TV, or pay to watch individual videos through iTunes. There’s also options that let people stream content where they wanted and when they wanted. Borrowing a password to your parent’s cable network was a lot easier than trying to find last night’s Breaking Bad episode on Megaupload or BitTorrent.
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