The U.S. Department of Justice shut down the Hong Kong-based file-sharing service Megaupload on Thursday during an ongoing investigation into the company's alleged copyright infringement. The Federal Bureau of Investigation (FBI) and U.S. Justice Department announced on Thursday that seven individuals and two corporations have been charged in the United States with violating piracy laws and committing other crimes.
According to an indictment filed by a grand jury in the U.S. District Court of Alexandria, Virginia on January 5, the defendants were accused of two substantive counts of criminal copyright infringement and conspiracies to commit money laundering, racketeering, and copyright infringement. The indictment listed 103 alleged, overt criminal acts, including a 2010 incident involving a user who watched the television anime series Fruits Basket via a linking site.
The U.S. Justice Department claims that Megaupload Limited, Vestor Limited, and seven individuals gained more than US$175 million in illegal proceeds and cost copyright holders more than US$500 million in lost revenue. The FBI's press release labels Megavideo and its related sites and services as an "international organized criminal enterprise" responsible for large-scale worldwide piracy of various copyrighted works. As one of the largest criminal copyright cases brought by the United States, officials executed more than 20 search warrants in nine countries, confiscated about US$50 million in assets, and seized 18 domain names associated with the alleged "Mega conspiracy" on Thursday.
Founded in 2005, Megaupload allowed users to reproduce and distribute movies, music, television programs, electronic books, and software, according to the grand jury's indictment. The legal document also alleges that Megaupload supported the use of third-party linking websites to promote infringing content and used a business model designed to encourage illegal uploading. The U.S. Justice Department said that the company failed to delete accounts of users known to distribute copyrighted material and misrepresented that infringing copies of works were removed.
The individual defendants are citizens of Germany, Slovakia, Finland, Estonia, and the Netherlands. New Zealand authorities arrested four of the defendants, including the Megaupload founder Kim Dotcom and director Mathias Ortmann, in Auckland on Thursday. The accused individuals each face a maximum sentence of 65 years in prison for the combined charges. According to BBC News, Megaupload posted a message saying that "the vast majority of Mega's internet traffic is legitimate" and that the allegations were "grotesquely overblown" before the site was shut down on Thursday.
Last February, police in Japan's northern Akita Prefecture arrested an 18-year-old male student for allegedly using Megaupload to illegally distribute 260 manga titles.
On Wednesday, various websites participated in an Internet "blackout" to protest the Stop Online Piracy Act (SOPA) and Protect Intellectual Property Act (PIPA) bills that were proposed in the U.S. Congress.
But the government asserts that Megaupload merely wanted the veneer of legitimacy, while its employees knew full well that the site's main use was to distribute infringing content. Indeed, the government points to numerous internal e-mails and chat logs from employees showing that they were aware of copyrighted material on the site and even shared it with each other. Because of this, the government says that the site does not qualify for a “safe harbor” of the kind that protected YouTube from Viacom's $1 billion lawsuit.
For instance, the “abuse tool” allegedly does not remove the actual file being complained about by a rightsholder. Instead, it only removes a specific Web address linked to that file—but there might be hundreds of such addresses for popular content.
In addition, the government contends that everything about the site has been doctored to make it look more legitimate than it is. The “Top 100” download list does not “actually portray the most popular downloads,” say prosecutors, and they claim that Megaupload purposely offers no site-wide search engine as a way of concealing what people are storing and sharing through the site.
Megaupload employees apparently knew how the site was being used. When making payments through its “uploader rewards” program, employees sometimes looked through the material in those accounts first. "10+ Full popular DVD rips (split files), a few small porn movies, some software with keygenerators (warez)," said one of these notes. (The DMCA does not provide a "safe harbor" to sites who have actual knowledge of infringing material and do nothing about it.)
In a 2008 chat, one employee noted that "we have a funny business... modern days [sic] pirates Smile," to which the reply was, "we're not pirates, we're just providing shipping servies [sic] to pirates Smile."
Employees send each other e-mails saying things like, “can u pls get me some links to the series called ‘Seinfeld’ from MU [Megaupload]," since some employees did have access to a private internal search engine.
Employees even allegedly uploaded content themselves, such as a BBC Earth episode uploaded in 2008.
Other messages appear to indicate that employees knew how important copyrighted content was to their business. Content owners had a specific number of takedown requests they could make each day; in 2009, for instance, Time Warner was allowed to use the abuse tool to remove 2,500 links per day. When the company requested an increase, one employee suggested that "we can afford to be cooperative at current growth levels"— implying that if growth had not been so robust, takedowns should be limited. Kim Dotcom approved an increase to 5,000 takedowns a day.
Employees also had access to analytics. One report showed that a specific linking site had “produce[d] 164,214 visits to Megaupload for a download of the copyrighted CD/DVD burning software package Nero Suite 10. The software package had the suggested retail price of $99.” The government's conclusion: Megaupload knew what was happening and did little to stop it.
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