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After nearly four years, is it time to just settle the Megaupload case?

Kim Dotcom's extradition hearing gets underway, but there's no end in sight

Greg Sandoval

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."

Coming from one of the world’s most notable accused copyright violators, the line was funny. What isn’t so funny is that after nearly four years, his court fight continues to drag on. Last week, an extradition hearing finally got underway and it will determine whether Dotcom and three other Megaupload executives will be sent to the United States to face criminal copyright violations and related charges.

The now-defunct Megaupload was a web storage service where millions of worldwide users went to share unauthorized copies of films, songs and other digital entertainment. He was arrested in a dramatic police raid in January 2012, and since then, Dotcom has continually blasted the US Department of Justice and New Zealand prosecutors, who are arguing the case on the DOJ’s behalf, for wasting millions in taxpayer money.

Who can forget that New Zealand dispatched platoons of machine-gun wielding policemen to storm Dotcom's house by helicopter?

In court on Monday, as I watched the judge, dozens of lawyers, legal assistants, security guards, and other staff supporting this case, it began to dawn on me the enormous public resources dedicated to stopping people who are sharing media without permission. That when Dotcom's assertions about the whole thing being absurd started to resonate.

Who can forget that when New Zealand arrested Dotcom, they dispatched platoons of machine-gun wielding policemen to storm his house by helicopter? Since then, thousands of documents have been processed during dozens and dozens of court proceedings. And whichever side loses the issue of extradition will undoubtedly appeal, and resolving just that issue will take years. In the courtroom, I begin to wonder if it wasn’t better for everyone — including the copyright owners — to settle the case out of court.

The DOJ alleges that Megaupload cost the Hollywood studios hundreds of millions of dollars, and there’s no denying that the service was a favorite destination for people across the globe to share pirated content. There’s also no denying that some of the conversations between Dotcom and the other defendants, obtained by the DOJ from Skype conversations, sound damning. "If copyright holders would really know how big our business is, they would surely do something against it," said Bram van der Kolk, according to the transcripts. "They have no idea we are making millions in profit every month." The defendants have yet to present their side at the hearing.

Haven’t the stakeholders already achieved most of their goals?

Even if the DOJ and the big music and film companies eventually win a conviction against Dotcom, what is there left to gain by dragging him back to the States and tossing him in jail? Haven’t the stakeholders already achieved most of their goals?

Megaupload is dead. Many of the assets belonging to Dotcom and the other defendants, which are estimated to be worth more than $50 million, have been seized. Even if Dotcom resurrected Megaupload tomorrow, it’s doubtful the service could mount a comeback in a drastically changed competitive climate. The company would have to compete in the web storage segment against heavyweights such as Amazon, Google, Dropbox, and Apple. YouTube, Spotify, Pandora, Amazon, and Netflix now offer licensed and legal content that is either free or dirt cheap.

Surely, piracy still exists in a significant way, but there are signs it’s in decline. Music sales for the first half of the year were $3.2 billion, which is about what they were during the same period in 2014. Sales have held steady for the past several years and this compares favorably to the decade before, when it wasn’t unusual to see annual sale decreases of 10 percent or more.

And is Dotcom worth anything as a cautionary tale? If people at the film studios and music labels are determined to make an example of him, then they've accomplished their mission. He has lost his money, been arrested at gunpoint and saw his business destroyed. After all this time, wouldn't a better solution for copyright owners — as well as US and New Zealand taxpayers — be a negotiated settlement?

There’s certainly a precedent. The music industry didn’t try to throw Mark Gorton, the founder of Limewire, into jail — even though Gorton cost the labels trillions of dollars in damages, according to the RIAA. Instead, they sued him and forced him to pay $105 million.

The DOJ won’t look good if they fail in their attempts to extradite

The Hollywood film studios didn’t lock up Anton Titov, founder of Hotfile, a Web storage service that the studios said adopted an "identical business model" as Megaupload’s. The studios won a judgment in court and Titov was forced to shut down his service. And this is where it gets interesting: the MPAA, the trade group representing the film studios, said that Hotfile agreed to pay compensation of $80 million. However, news site TorrentFreak culled emails from Sony Pictures that were leaked by hackers last year, and these indicate the top studios only required Titov to pay $4 million.

If that’s true, then it shows the studios are very interested in being able to ballyhoo big settlements, presumably to use as deterrents. With Megaupload, they could legitimately claim to have recovered the $50 million that’s been seized. They could also try to negotiate with him to get an even larger sum. This way, the studios could conceivably keep the money instead of the DOJ.

Then, there’s the question of risk. The DOJ won’t look good if they fail in their attempts to extradite. If they’re successful, what will a jury think about the way he was arrested, methods typically reserved for terrorists and narco kingpins? A loss would be a hit to their credibility, and they could inadvertently turn Dotcom into a bigger celebrity than he already is. For the studios, that would be a nightmare.

A settlement looks like a better option by the day.

Correction: This story incorrectly spelled the name of Mark Gorton, the founder of Limewire.