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.
To this point in the hearing, it's been all Christine Gordon, the lead New Zealand prosecutor, who argued on behalf of the DOJ. The impact of being accused of crimes for two weeks without the ability to challenge the allegations is "frustrating," van der Kolk said following Wednesday's hearing.
Defense lawyers have a lot of work to do
The executives can soon breath a little easier: Gordon is due to wrap up her arguments on Friday. The defense will then present its case.
Defense lawyers, who have always maintained the innocence of the four defendants, have a lot of work to do. Gordon has presented heaps of evidence culled from Megaupload's internal emails and Skype logs. The information was obtained by the DOJ, which indicted the four in January 2012. It has enabled Gordon to use the executives' own words to attack their claims they operated a legitimate service, one that strictly adhered to the Digital Millennium Copyright Act (DMCA).
"They deliberately introduced copyright-infringing material to their website," Gordon told the court. "They deliberately preserved that material. They deliberately took steps to profit from that material, and made vast sums of money."
For a period, Megaupload, founded in 2005, was the 13th most frequently visited website in the world. The service saw more than 1 billion visitors before it was shut down in 2012. Megaupload didn't build that kind of following by hosting clips of funny pet tricks or family barbecues: it was well established that the site was one of the top places to go to watch pirated movies and TV shows. But the question at hand now is whether Megaupload's managers can be held responsible.
The DMCA is the relevant copyright law in the US and New Zealand has similar requirements. For an ISP to qualify for protection against liability for customers' copyright infringement, it must meet criteria. An internet service provider must not have knowledge of, or profit from, infringing content, and they must remove pirated materials as soon as they're aware of them.
Gordon read from Megaupload's internal documents, showing that executives on numerous occasions discussed specific infringing videos available on their site and what these videos meant to the company's bottom line.
"We make profit off more than 90 percent infringing files."
"That’s the big flaw in the rewards program," van der Kolk told Ortmann via Skype. "We make profit off more than 90 percent infringing files."
Gordon said that more than half of the viewing traffic on Megaupload was associated with material provided by people accused of infringing multiple times. She said Dotcom called them "the special people."
Megaupload induced piracy by paying more than $3 million as part of its rewards program to people whose videos attracted large viewership, Gordon told the court. She said most of those users were repeat infringers, and illustrated her claim with an anecdote about a user identified by the letters "TH." Gordon said Megaupload paid TH $50,000 after the videos he uploaded accumulated 18 million pageviews and helped Megaupload generate more than $112,000 in premium subscription sales. According to the DOJ, Megaupload, during its seven-year existence, generated $25 million in total ad sales and $150 million from selling subscriptions to its premium services.
But did Megaupload execs know TH violated copyright law? Gordon said it's inconceivable that they didn't. TH generated more than 1,000 takedown requests from copyright owners, all processed by van der Kolk. Did Megaupload suspend or boot TH from the service as required by the DMCA? On the contrary, says Gordon: the company increased his server capacity to 2.5 terabytes to accommodate his large stash of infringing files.
On the issue of takedowns, Gordon asserts that Megaupload's system was a sort of shell game. A copyright owner could request the removal of links directing people to a file containing pirated material, but Megaupload's system ensured hundreds of other links would point to the same file. According to Gordon, Megaupload's takedown system was useless and she alleged Dotcom purposely made it so.
"We have the incredible spectacle of [Megaupload] processing takedown notices," Gordon said, "while at the same time paying many of those same repeat offenders."
After all that, keep in mind a few things: In the famed case of Viacom v. YouTube, Viacom said it discovered within YouTube's emails proof of management's ill intent and direct knowledge of infringement. "[We should grow] as aggressively as we can through whatever tactics, however evil. [The site is] out of control with copyrighted material … [If we remove] the obviously copyright infringing stuff … site traffic [would] drop to maybe 20 percent" … steal it!"
YouTube's lawyers said Viacom spliced those quotes together and presented them out of context. That case eventually was settled, and of course, YouTube still operates.
Ira Rothken, the attorney in charge of Megaupload's worldwide defense, declined to provide specifics about his legal strategy, saying only "we're confident we will prevail."
"We're confident we will prevail."
Notably, one prominent US copyright attorney has told the court in New Zealand that the DOJ's argument has "no legal basis." Lawrence Lessig, activist, copyright expert, and US presidential candidate, two weeks ago filed an expert opinion on behalf of Megaupload.
Among Lessig's criticism of the DOJ's position is that the government has only accused Megaupload of helping people pirate content, or "secondary infringement." Lessig argues that to throw someone in jail for piracy, proof is needed that he or she were the ones who uploaded the infringing material. "Such allegations," wrote Lessig, "may be relevant in a civil case alleging secondary infringement but they cannot be a basis for criminal charges."
The biggest problem for Megaupload appears to be that this is not an actual trial: the only threshold that the prosecution must meet is to convince Judge Nevin Dawson there is enough evidence to justify a trial. If the four defendants are extradited, their fate would be determined in the United States.
The defense is scheduled to begin early next week.