by : March 2012, Music Law

Kim Dotcom

Kim Dotcom

In Hollywood, they call him Dr. Evil.  According to the U.S. Department of Justice, his company has stolen over half a billion dollars from copyright owners of music, movies, software, audiobooks and other media.  He lived lavishly in the most expensive private home in New Zealand and drove eighteen luxury cars with license plates labeled “MAFIA” and “GUILTY”.  On January 19th, the New Zealand police arrested Kim Dotcom, founder of Megaupload.com, and several of the company’s top executives.   In their press release, the F.B.I. described the operation as “among the largest criminal copyright cases ever brought by the United States.”  (The five counts of indictment brought against the file-sharing service are telling: Conspiracy To Commit Racketeering, Conspiracy To Commit Copyright Infringement, Conspiracy To Commit Money Laundering and two counts of Criminal Copyright Infringement).

Megaupload.com was estimated at one point to have been the thirteenth most frequently visited website on the Internet, bragging  that it accounted for four percent of all online traffic.  Disguised as a service to help users transfer large files, the deactivated website offered free downloads of popular media. It sold advertisement space and premium subscriptions but did not pay rights holders.  According to the indictment, Megaupload.com generated $25 million in advertising and $150 million in subscription fees over five years.  The money laundering accusations were for the company’s backhanded financial incentive plans designed to pay users who uploaded content that was in high demand.

Dotcom’s arrest was the culmination of a two year international investigation conducted by authorities in the United States (where some of the company’s  servers were located), New Zealand (Dotcom’s country of residence), Hong Kong (where the company was based), Canada (another country that hosted servers for Megaupload.com), Germany (one of Dotcom’s countries of citizenship), the United Kingdom, Australia and the Philippines.

This is not the first legal scandal for Kim Dotcom, who was born Kim Schmitz.  In 2002, he was arrested in Germany for insider trading and embezzlement.  This time, in January 2012, two helicopters ambushed Dotcom’s mansion where the police were forced to cut their way through to a panic room where Dotcom hid with a gun by his side.

Dotcom has his defenders. The bust triggered online acts of retaliation by a group of hacktivists named Anonymous.  The group attacked major websites including those of the U.S. Department of Justice, the U.S. Copyright Office, Universal Music Group, The Recording Industry Association of America and the Motion Picture Association of America.  Anonymous believes that the U.S. government’s seizure of the Megaupload.com domain name is “a violation of freedom of speech,” “internet censorship,” and that the government is “stepping outside of their jurisdiction.”

Under Cover of Daylight

Why Kim Dotcom had to have servers in this country and make himself an easy target for the Department of Justice is not clear, because intellectual property protection is getting harder to circumvent.  Perhaps he hoped that his legitimate activities would give him cover. In fact, along with Megaupload-related domain names, U.S. authorities also seized $50 million in assets and froze the company’s bank accounts.  This is now preventing Megaupload from paying its server hosts, which currently store content in digital lockers.  Users, including the ones who use the site legitimately as a storage cloud, could lose personal documents such as family photos, school reports, and other.

Some of these users are threatening to sue the F.B.I. if their files are erased.  The Associated Press reported that U.S. prosecutors issued a letter on January 30th stating that two of the Megaupload servers, Carpathia Hosting Inc. and Cogent Communications Group Inc., could begin erasing files four days later.

The planned purging was delayed to the following day and the two hosting companies agreed not to erase data for at least two weeks.  The website’s users are not alone in wanting to protect the content.  Megaupload attorneys need this data as evidence to prove the company’s legitimacy.  On the side of the prosecution, the F.B.I. already has emails from Megaupload employees proving they knew about the pirated media and also discussed strategies to prevent a government shutdown of the site.

Celebration Gone Awry

In December 2011, Megaupload released a promotional video on Youtube boasting about its one billion users and fifty million daily visitors.  The video was apparently organized with the help of Swizz Beatz, who was in serious talks to become the company’s CEO.  The four-minute video features appearances from music celebrities including Kanye West, Jamie Foxx, The Black Eyed Peas, Diddy and many others. “When I gotta send files across the globe, I use Megaupload,” raps Will.i.am..

Universal Music forced Youtube to remove the video, which cost $3 million to make and has been viewed over thirteen million times.  The takedown lasted five days and ended on December 9th.  Megaupload then sued Universal Music, accusing the label of abusing copyright laws and soiling Megaupload’s reputation.  Universal Music responded by declaring Megaupload a pirate site in a defense court filing.  The two companies will now swap sides in court as Kim Dotcom faces the possibility of twenty years in prison.

Reflection

In the end, and as was shown, a national and international effort helped thwart an abuse of intellectual property. In part, and taking a broader view, this must have come about because manufacturing is no longer the main driver of current economic growth in the developed world.  An economy based on ideas, and their trade, is becoming increasingly important to all of us.

It is good to remember that an international system of patents was created to promote inventions at the turn of the XIXth Century, when inventors stopped attending World Fairs for fear that their innovations were being replicated without remuneration.  It was important to distinguish then, as it is now, between the legal and illegal transactions of those ideas to advance productivity worldwide. By the same token, it may not be a bad thing for musicians that the DOJ and the rest of the world took Kim Dotcom and Megaupload down.

By Emilie Bogrand

 

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