Rather than build, Megaupload shutdown undermines SOPA’s case

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By Charman-Anderson /  20 Jan 2012 , 20:11

Megaupload, a Hong-Kong based file hosting service, has been shut down by the FBI, and four of its employees have been arrested in New Zealand at the request of US officials. Three more employees are being sought.

In response, Anonymous, an ad hoc collective of hackers, attacked 14 websites, including record labels, royalty collection agencies, US government sites and anti-piracy sites in Belgium and France. At the time of writing, only the websites of Universal Music, the RIAA, and the WMG remained down, some 12 hours after the attack began. And while Akamai is currently showing that attack traffic is still 24 percent above normal, overall network traffic is only one percent above normal.

To read the media narrative, this would seem like a simple case of file sharers vs the Feds, with Anonymous providing some light entertainment. And if you believe CNet‘s Molly Wood, this was all orchestrated by the authorities to destroy the goodwill built up towards the web industry by Wednesday’ SOPA/PIPA protest:

The Megaupload homepage, the filesharing site that was shut down today.

“My sources tell me the timing of the Megaupload arrests was no accident. The federal government, they say, was spoiling for a fight after the apparent defeat of SOPA/PIPA and not a little humiliation at the hands of the Web. And what better way to bolster the cause for cyber-crackdown than by pointing to a massive display of cyber-terrorism at the hands of everyone’s favorite Internet boogeyman: Anonymous?”

Wood’s theory is a far-fetched, poorly sourced conspiracy theory, relying too much on the idea firstly, that the government would have known in advance how successful Wednesday’s protest would be – I don’t think even the participants realised how well the protest would go until it had happened – and secondly, on the idea that they are organised.

To think that the FBI, somehow, is coordinating arrests to support a bill that is still in Congress makes a nice movie plot, but it doesn’t square with reality.The wheels of this particular sting were put in motion even before the indictment was stamped on 5 January, so the timings of the arrest are most likely to be a coincidence.

But, conspiracy theories aside, there are already hints that it might all be a bit more complicated than past filesharing cases like Napster.

The Megaupload indictment from the Virginian court, where some of Megaupload’s servers were based, thus making them subject to American law, lists among the copyright infringement charges “conspiracy to commit racketeering“and “conspiracy to commit money laundering”.

The Department of Justice says Megaupload “conspirators allegedly earned more than $175 million in illegal profits through advertising revenue and selling premium memberships.” Furthermore, “the conspirators allegedly paid users whom they specifically knew uploaded infringing content and publicized their links to users throughout the world.”

Says Venture Beat:

“It’s really that inducement scenario that harkens back to the days of Napster,” said Owen Seitel of Idell & Sietel LLP, an entertainment and IP law firm. “I wouldn’t be surprised if the site totally shut down and never came back.”

By inducement, Seitel is referring to the action of offering financial compensation in exchange for uploading copyrighted content. On big sites like these, he explained, there is bound to be copyrighted material floating on the servers. But there are “safe harbors” that third-party content sites can take to protect themselves. One of these is complying with “notice and take down structures,” or flagging when copyrighted content comes into the system and then removing it. According to the indictment, Megaupload did not comply by flagging or removing content.

[...] Seitel explained “indictments by their nature are overreaching” and that these allegations should be taken with a grain of salt.

What Seitel means with his last statement is that indictments tend to contain every possible charge that can be imagined, both because that will encourage defendants to enter into a plea bargain and because indictments cannot be amended once handed down by a grand jury.

Venture Beat also has a list of the assets seized from Megaupload, which included 15 Mercedes-Benz, a Rolls Royce, a “rare Lamborghini”, a Maserati, a 1957 Cadillac El Dorado, a lot of very large LCD TVs (including two Sharp 108″ sets which would have cost $185,000 when first put on the market in 2008), and, almost as an afterthought, 60 Dell servers. That doesn’t read like a list of normal business assets, except for the servers.

According to a report from security vendor Palo Alto Networks, Megaupload usage accounted for 25 percent of corporate network traffic on the 1,636 business networks monitored in the study. Gizmodo states that most downloaded content was business-related.

Megaupload’s statement, posted to its site before it was taken down, called the allegations “grotesquely overblown”:

“The fact is that the vast majority of Mega’s Internet traffic is legitimate, and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch.”

Says the Guardian:

A lawyer for Megaupload told the Guardian it would “vigorously” defend itself against the charges, dismissing the criminal action as “a civil case in disguise”.

There’s no doubt that the Virginia courts will be throwing as many books as they can find at Megaupload, and that the defendants will do their best to depict the site as sharing mostly legitimate content but falling victim to some rogue sharers. Founder Kim Schmitz (aka Kim Dotcom) must be regretting setting up servers in the US in the first place: without a technical presence somewhere in the US, the FBI would have had no jurisdiction over Megaupload, making the pursuit of the company and its employees more problematic.

This will certainly be a case to follow as the facts slowly trickle out, but one thing is already clear: rather than these raids supporting the need for SOPA and PIPA, they actually undermine the case for new legislation. Current American law already allows authorities to arrest those suspected of criminal copyright infringement without requiring new powers that threaten to undermine due process and other important legal rights in the US.


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