Megaupload's legal battle with labels and the DOJ: the full story

I didn’t expect to write about Megaupload in 2023, but here we are — former Megaupload officers Mathias Ortmann and Bram van der Kolk have been sentenced to more than two years in prison over their roles in the company, Associated Press reported on Thursday. The two men have been granted delayed sentences owing to the impending birth of Ortmann’s child and van der Kolk’s ill mother.

Dotcom tweeted about the convictions on Thursday, saying the light sentences two men got off easy because they are pinning the blame on him, adding that they “will make terrible witnesses for the US Govt.”

For two weeks, Kim Dotcom and three other former Megaupload staffers accused of criminal copyright infringement were bombarded by accusations from New Zealand prosecutors.

To hear prosecutors tell it, Dotcom is the Joaquin "El Chapo" Guzman of illegal file sharing. The United States Department of Justice (DOJ) alleges that the defendants operated Megaupload as a criminal enterprise designed to profit from the illegal swapping of movies, music and software by users. A hearing is underway to determine whether New Zealand will extradite Dotcom, Mathias Ortmann, Bram van der Kolk, and Finn Batato to the US. Much is at stake for the four, who may eventually face lengthy prison sentences.

Kim Dotcom had just exited a courthouse in New Zealand on Monday when I asked him to pose for a picture under a large mural across the street. It was a very decent copy of Michelangelo’s The Creation of Adam.

He looked up at the painting and said: "That's a copyright violation. Can't do it."

Kim Dotcom, former owner of file-sharing and storage site Megaupload, is being reunited with the data from servers that were seized by police in 2012. According to The New Zealand Herald, New Zealand's Court of Appeal has ruled that police must provide copies of the data on all electronic devices that were confiscated in the raid on Dotcom's mansion "as soon as reasonably practicable." It's the latest decision in a protracted battle between Dotcom, New Zealand courts, and the US government, which is attempting to extradite him to face criminal copyright infringement charges.

The US Department of Justice unsealed a summary of the evidence it has collected against Kim Dotcom, Megaupload, and other alleged conspirators on Friday. The 191-page document lays out details on how Megaupload and its associated sites, employees, and operations — termed the "Mega Conspiracy" — operated and, according to the DOJ, committed racketeering conspiracy, copyright infringement, and money laundering. The investigation concludes that Megaupload made over $150 million in revenues from premium memberships over the years, plus over $25 million in advertising revenues. Those revenues are said to be a direct result of Megaupload's willful promotion of copyrighted materials.

Perhaps the most interesting revelation from the document are details on the files stored for Megaupload and its users. According to the DOJ, when it shut down the site on January 19, 2012, there were roughly 14.9 million videos on Megavideo.com. Only 8.6 million of those videos were viewed at least once, with a total of 34.9 billion views for all of the videos. The document says that roughly 12.8 percent of all viewed videos had received at least one Digital Millennium Copyright Act take-down request. Additionally, the DOJ claims that 43 percent of all views on Megavideo.com — about 15 billion streams — were of content that had received a take-down notice. URLs uploaded by members with at least one take-down request against them accounted for roughly 78 percent of all streams, according to the DOJ.

Hotfile enables customers to store digital files on the company's servers and then share those files with others. The studios accused Titov and Hotfile of encouraging users to share pirated films with each other. This helped the site amass a large audience, enabling Titov to profit from ad sales and subscription fees, according to the MPAA.

Ira Rothken, the lawyer leading Megaupload's worldwide defense, tells The Verge that the conflicting RapidShare and Hotfile rulings show that when it comes to copyright and cloud-storage services, the courts are still trying to sort it out, and at this point the Hotfile decision isn't very significant for his clients. He adds, however, that the court battles prove where such disputes should be resolved. "The healthier place for these types of disputes is in civil court," Rothken says, stating that they "should always be dealt with on the civil level as there are no criminal copyright statutes that cover this area."

Despite Kim Dotcom's protestations, there's no doubt that a lot of people used Megaupload to download pirated content. Now, a new study from Carnegie Mellon's Initiative for Digital Entertainment Analytics suggests that the shutdown could have increased sales and rentals of legal movie downloads. After studying two studios across 12 countries over 18 weeks, authors Brett Danaher and Michael D. Smith estimated that digital revenues were between 6 percent and 10 percent higher than they would have been were Megaupload still a going concern.

The results also suggest that widely available, legal alternatives to piracy are part of the solution; while there are countless alternatives to Megaupload, it seems the popular site's end was enough to drive a significant number of people to legitimate, convenient means. This dovetails with an argument that study co-author Smith has made before — he previously wrote that "Hollywood is leaving money on the table" by delaying movies and imposing release windows around the world. Smith believes that making legal content more valuable than pirated content to the consumer is the answer to studios' woes, and if his latest study is anything to go by, both improving the accessibility of digital sales and stifling the convenience of piracy can go some way to achieving this goal.

Kim Dotcom's Mega, the follow-up to Megaupload, is finally set to go live this weekend, and the flamboyant entrepreneur has taken to Twitter to share some details about the new service. Mega will apparently give all users 50GB of free cloud storage, making it a potentially compelling competitor to the likes of Dropbox (2GB free) and SkyDrive (7GB free) — if you're not worried about the service getting shut down like its predecessor, that is.

Dotcom says that his lawyers are working on a way to get MegaUpload users access to their previously stored files and premium status, but it seems impossible right now. On the plus side, Dotcom says that the service is "like time travel," calls it a win for innovation against the US government, and promises to "take you to the future." We'll see if Mega can back up Dotcom's big words this Saturday.

Kim Dotcom has revealed plans to revive the Pacific Fibre cable project that would connect New Zealand to the United States and lead to cheaper and faster internet for residents, The New Zealand Herald reports. The cable will cost about $330 million to build, which Dotcom says will be funded by his recently announced company Mega and other investors. While the venture would not yield free internet for residents, as has been commonly reported, Dotcom says the network would offer significantly higher speeds for a lower cost. Access to the fiber cable would be free for ISPs, while government agencies and businesses would be charged a premium.

Dotcom has recently taken to philanthropic gestures in the country after a New Zealand court ruled that a US search warrant was invalid, and in preparation for his extradition hearing that's scheduled for March of next year. Despite Dotcom's efforts to revitalize the project, funding challenges, regulatory snags, and technical obstacles could still prove to be an issue.

Last month a New Zealand court ruled that the US acted outside of the law with an invalid warrant when searching Megaupload founder Kim Dotcom's home, and now we're starting to see the fallout — the extradition hearing has been put off until next year. According to the AP, the hearing has been moved from next month to March 2013 because of the ongoing dispute over evidence legality. Dotcom himself expressed frustration over the postponement, accusing the US of "dirty delays," and his lawyer told Wired that the controversial figure is looking forward to his day in court. For now, though, he'll have to wait things out at his extravagant New Zealand mansion.

As the FBI and Kim Dotcom prepare for the upcoming trial over cyberlocker Megaupload, the fight continues over what evidence Dotcom will be allowed to see and present in his defense. Though a New Zealand judge ordered the FBI to copy 150TB of potential evidence from the Megaupload servers it seized, it's still not clear how much — if any — Dotcom will be given access to. Now, the FBI has apparently "cherry-picked" a mere 40 pages out of 22 million emails to hand over before an extradition hearing, sparking a disagreement that could delay it.

The head of Dotcom's legal team says the summary document is insufficient, requiring the team to argue a case with "their hands tied behind their backs." New Zealand's Crown lawyer, however, says it's not necessary to have all the information for a hearing that only determines whether Dotcom can be tried in the US. If the case does proceed to an American court, the issue will be argued again.

The court also decided that the FBI did in fact act outside its powers when seizing the Megaupload founder's computers and data. Under international law, New Zealand's Attorney-General must grant foreign authorities like the FBI power to take evidence out of the country. It's difficult to tell at this point what effect the ruling might have on the ongoing case, but it could prove an obstacle to the US's ongoing efforts to extradite Dotcom on money laundering and copyright theft charges. The New Zealand police is currently considering its options.

Steve Wozniak has today spoken out against the US government's handling of the Megaupload case, specifically its freezing of user accounts and attempts to extradite MegaUpload founder Kim Dotcom from New Zealand. Wozniak says that plenty of people used Megaupload for legitimate purposes, and closing the site was not the right action to take. "You don't just shut down the whole street because somebody is speeding," Wozniak told the Associated Press.

Wozniak's helped fund the formation of the Electronic Frontier Foundation (EFF), a non-profit organization which is currently embroiled in a legal battle on behalf of Megaupload users that want access to their entirely legal data. Although the Apple cofounder acknowledges that Megaupload CEO Kim Dotcom may not be as legitimate as he paints himself, Wozniak hasn't found any evidence that justifies the authorities' treatment of Dotcom. "It's just kind of ridiculous what they did to his life," he says, calling the piracy case "hokey" and a threat to internet innovation. Wozniak met with Dotcom last week after he discovered the troubled businessman couldn't attend his speech due to a house arrest order.

Kim Dotcom, now charged with copyright infringement, wire fraud, and racketeering related to his former site Megaupload, is pushing forward with plans for a new venture. Earlier today, Dotcom tweeted about Megabox, something he described before his arrest as "a site that will soon allow artists to sell their creations direct to consumers and allowing artists to keep 90 percent of earnings." This is the first we've heard of Megabox since then, andTorrentFreak has confirmed with Dotcom that the project is "making progress."

Dotcom's work also apparently earned him a visit from tech luminary Steve Wozniak after his release on bail in February. A few hours before announcing Megabox, he posted a picture of the two together and mentioned Wozniak's support of the Electronic Frontier Foundation. The EFF has been instrumental in fighting for the US Department of Justice to copy and return legitimate files to users of Megaupload. Dotcom himself is still assembling evidence, including a huge amount of Megaupload data.

The Motion Picture Association of America (MPAA) says that it is "sympathetic" to users that stored "legitimately acquired or created data" on Megaupload's servers, but points out that the file-sharing service's terms of use "clearly disclaimed any guarantee or continued access to uploaded materials."

Meanwhile, the battle to determine whether the FBI acted outside of its power when it procured data from Kim Dotcom's hard drives rages on in New Zealand. Under international law, the FBI has no right seize property and take it back to America without permission from New Zealand's Attorney-General. According to Stuff, John Pike, a lawyer representing the Attorney-General asserted that the FBI acted legally as the copied data did not amount to physical material. Pike said that "[information] may be the most valuable thing we have, but it is not scooped up by the act — nothing of the physical items have gone overseas and that was our undertaking."

It's not quite a freeze in the ongoing Megaupload case, but US district court judge Liam O'Grady today applied the breaks to discussion of what to do with the massive amount of data stored on Megaupload's servers. Before that question could be resolved, O'Grady said, the more pressing issue of why the FBI didn't formally server criminal papers to Megaupload (as opposed to Kim Dotcom himself) needed to be studied. The issue was apparently enough for O'Grady to remark "I frankly don't know that we are ever going to have a trial in this matter."

Naturally, Megaupload's legal team gleefully jumped on the comment, claiming that international law doesn't allow the FBI to serve criminal papers to a foreign company. The prosecutor in the case suggested the issue might be moot anyway, given that Dotcom owns 68 percent of Megaupload. Either way, judge O'Grady wants the issue resolved first and until it is, we're not likely to know what will happen to all the data kept on its servers.

When the US government seized 25 petabytes of data from filesharing service Megaupload in January, copyright infringers weren't the only ones who took a hit. Countless third parties who used the service for legitimate purposes, both commercial and personal, were also caught in the government's anti-piracy dragnet. By now you probably know one of them, Kyle Goodwin of Ohio, who suffered an ill-timed hard drive crash at the time of the Megaupload seizure, leaving countless hours of precious footage for his sports website lost in digital limbo. Worse, with Megaupload's funds frozen, hosting service Carpathia has been stuck eating the costs of maintaining data that neither they nor anyone else can access.

At a court hearing today in Virginia's Eastern District, the Electronic Frontier Foundation is presenting Goodwin's case. Speaking over the phone earlier this week, EFF's Julie Samuels commented on the case, pointing out that protections for third parties already apply in other, non-digital contexts. "Take for example if a bank is seized because there is illegal activity going on within that bank. There are processes and ways for people who weren't involved in the alleged illegal activity to get their stuff back."

You may recall that the user files contained on Megaupload's servers — some 25 petabytes worth — were in danger of being deleted last February. Hosting company Carpathia still has them, however, and now the Electronic Frontier Foundation has filed a brief in a US District Court for a user who wants his data back. According to the document, Kyle Goodwin hosted video files for his business, OhioSportsNet, on Megaupload as a backup to his own hard drive. After a hard drive crash, he lost all the data — which is said to have included the raw footage for a full-length documentary, highlight reels for local student athletes, and promotional videos — and was then unable to obtain his backups from Megaupload due to the shutdown of the service. The brief calls on US District Judge Liam O'Grady to "establish a mechanism for the return of property to innocent third parties like Mr. Goodwin."

The EFF isn't the only entity to request that the data on Megaupload's servers be protected. The Motion Picture Association of America petitioned Carpathia to retain the data in the hopes that it could aid in future legal action against Megaupload — even though keeping the data is reportedly costing Carpathia around $9,000 a day. With the fate of both the user data and Megaupload co-founder Kim Dotcom still very much up in the air, we expect we'll see more of these type of requests surface before this story comes to a close.

Megaupload may be gone, but its users are just starting to feel the pressure of potential legal action for copyright infringement. The MPAA has petitioned Carpathia, which hosts 25 petabytes of files formerly from Megaupload, to keep it in hopes of using the user data and other information as part of a lawsuit against the company. In the letter, which surfaced as part of a court filing by Carpathia, the MPAA states that it wants the data because "the Studios have civil claims against the operators of Megaupload, and potentially also against those who have knowingly or materially contributed to the infringement occurring through Megaupload." Among other information (PDF), the MPAA is seeking "all data associated with those content files, the uploading or downloading of those files, and the Megaupload users who uploaded or downloaded those files."

From this wording, it sounds possible that the MPAA is considering pursuing suits against individual users, but the group told Wired that it's not planning anything of the sort. "If there’s evidence of a frequent infringers, high volume infringers, who are able to continue that operation despite knowledge by Megaupload, that could point to evidence that was involved in this infringing campaign," said MPAA vice president Howard Gantman. "There is a possibility that litigation might be pursued against Megaupload or various intermediaries involved in Megaupload’s operation. We’re not talking about individual users." It's still possible that the MPAA could go after uploaders, but content owners have scaled back individual lawsuits in recent years and user data has come up in previous trials, so this isn't necessarily disingenuous.

Megaupload founder Kim Dotcom was recently released on bail, and just gave his first TV interview since being arrested to New Zealand's 3 News. Predictably, he used the opportunity to come out with guns blazing against his critics and vowed to conquer his numerous legal issues. He has two main defenses: firstly that the site is far too large for him to police individual instances of piracy, and secondly that competitors like Mediafire and Fileserve provide the exact same service. Dotcom also claims that neither the MPAA nor any movie studios ever contacted him or his site before taking legal action, and offers his thoughts on why he's been singled out:

Dotcom goes on to blame the studios' business models for encouraging piracy in the first place, while maintaining that it was never his site's main raison d'être. After all, when will.i.am's gotta send files across the globe, he uses Megaupload.

A little over a month has passed since Megaupload founder Kim Dotcom was jailed in New Zealand on charges filed by the US Department of Justice, but now he's surprisingly been freed on bail. A New Zealand judge has decided that it was "very unlikely" that Dotcom had sufficient funds to flee or go into hiding after his main assets had been seized — apparently, four bank accounts were discovered in the Philippines, but they were all empty. While US prosecutors said that it was likely Dotcom had access to more funds because of his wealth, the New Zealand judge felt Dotcom was put in the position of having to "prove a negative," and thus the assertion that he might have more money wasn't enough to keep him in custody.

Somewhat humorously, part of the agreement of Dotcom's bail was that he was not allowed to use the internet, a condition that his lawyers felt was ridiculous. However, the prosecution believed there was a high risk of "reoffending" if he could get online — there were even concerns that he could start the business up in a jurisdiction where the US was powerless to stop him. Dotcom still awaits his extradition hearing, which is now expected to take place by March 2nd.

New charges were filed Thursday in the case against Megaupload and its co-founder Kim Dotcom, expanding the scope of the accusations and providing additional details that could hamper Megaupload's defense. The nine additional charges add wire fraud to the mix, bringing the total number of allegations against the company to fourteen. Megaupload is now also directly accused of reproducing content from outside sites — including YouTube — and making it available for download. It's a notable shift from the previous allegations, which simply accused the company of encouraging others to upload pirated media. User behavior patterns cited in the document also bolster the contention that Megaupload was a download-only destination rather than a true file-sharing network: of the site's 66.6 million registered users, only 5.86 million had ever uploaded a file to Megaupload or Megavideo.

Megaupload attorney Ira Rothken, who has been serving as the public voice of the defense, continued to sound bullish in the face of the new allegations, telling the Wall Street Journal that "those things are short on substance," and that "at the end of the day, Megaupload strongly believes it is going to prevail." As for Kim Dotcom himself, he is still under custody in New Zealand. An extradition request is expected to be filed on February 22nd, but it may be some time before he is brought to US soil.

Federal prosecutors said that data from users of Megaupload could be obliterated as soon as Thursday, February 2nd, but now it looks like the data has been temporarily escorted away from the chopping block: CNET reports that hosting firms Cogent Communications and Carpathia Hosting have agreed to hold onto the data for a minimum of two weeks, according to Megaupload's attorney, Ira Rothken. He says that "the hosting companies have been gracious enough to provide additional time so we can work out some kind of arrangement with the government." Federal officials announced late last week that they were done looking at Megaupload's data, and with the company's assets frozen, it's been unable to pay its hosting bills.

Rothken said that he hopes to use Megaupload's user data for the company's defense, and that "the United States, as well as Megaupload, should have a common desire to protect consumers." While judgement on the accusations against Megaupload's executives is pending, the issue with Megaupload's customer data is quite imminent: in any event, it's a striking example of modern data storage concerns across corporate and international boundaries.

As for what was in these intercepted Skype sessions, Stuff.co.nz revealed details of a conversation between Megaupload co-founder Mathias Ortmann and head programmer Bram van der Kolk in which the pair worried about what founder Kim Dotcom would do if the company found itself in legal trouble. As Van der Kolk reportedly said in a 2007 conversation, "Would he take the last little bit of money and take off? He's good at that."