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Summary:

Not only were the authorities able to shut down MegaUpload and arrest its founders without either SOPA or PIPA, but the facts of the case raise even more red flags about what the government would be able to do to similar services under those proposed laws.

It’s ironic that only a day after a massive, coordinated protest against the SOPA and PIPA anti-piracy bills that have been making their way through both houses of Congress, one of the best arguments against these laws was provided by the federal government itself, in a raid on the file-sharing service known as MegaUpload. Not only did the authorities manage to shut down the site and arrest its founders without the need for either SOPA or PIPA, but the facts of the case raise even more red flags about what the government — and private companies — would be able to do to similar services under the proposed legislation.

As GigaOM’s Janko Roettgers reported on Thursday, the founder and six members of the executive team behind MegaUpload were arrested by the Federal Bureau of Investigation, working with police forces and crime-busting units in New Zealand (where founder Kim Schmitz lived in a $30-million mansion) as well as the United States, Hong Kong, Canada and the Netherlands. The indictment says Schmitz was the architect of a global conspiracy that involved money laundering, criminal racketeering and widespread copyright infringement — a conspiracy the FBI says generated $175 million in criminal proceeds and caused “more than half a billion dollars of harm” to copyright owners.

The authorities didn’t need SOPA or PIPA to shut down MegaUpload

This is exactly the kind of foreign-owned and operated “rogue” website SOPA and PIPA’s defenders — including the Motion Picture Association of America and the rest of the media and entertainment establishment — say the legislation is required for, as Mike Masnick has noted in a post at Techdirt. And yet, the FBI was able to not only shut down the MegaUpload site and seize its domain names, but were also able to arrest the entire management team and commandeer all of their assets, such as the servers the company maintained in several different countries and the entire fleet of luxury vehicles Schmitz kept at his New Zealand estate.

The FBI was able to do this because existing laws — including the DMCA, the Pro IP Act of 2008 (which was sponsored in the House by Rep. Lamar Smith, who also sponsored SOPA) and other international statutes such as the Berne Convention and WIPO rules — give U.S. authorities the ability to arrest foreign nationals such as Schmitz, as well as seizing material such as computers and domain names, if the criminal behavior being investigated involves U.S. property. Among MegaUpload’s $50 million in assets were some computer servers located in Virginia, where the indictment was handed down by a grand jury.

And while SOPA and PIPA supporters might argue that the bills are necessary to make cases like the MegaUpload takedown easier to launch and prosecute, it’s not clear that making that kind of case even easier is something worth supporting. It may have taken two years, but the FBI and the Department of Justice were still able to shut down a website, seize all its assets and arrest its entire staff without ever having to prove (except to a grand jury in Virginia) that the company is actually involved in wilful and deliberate copyright infringement — and the case against MegaUpload is far from a slam-dunk.

The indictment and the Justice Department’s news release certainly tries hard to make it sound as though the case against MegaUpload is open-and-shut, with plenty of salacious details about Schmitz’s New Zealand mansion, his stable of luxury automobiles — with licence plates that read “Hacker” and “Mafia” and “Guilty” — and the millions the company spent on yachts and other toys. And there’s no question that Schmitz (who liked to be known as Kim Dotcom, among other things) has a colorful history as a computer hacker in his native Germany, along with some previous court proceedings involving insider trading.

How is MegaUpload different from something like Dropbox?

But leaving aside the $500 million in harm referred to by the indictment (since most of that figure represents potential sales of copyrighted material that never occurred, a sum virtually impossible to quantify), the actual facts of the case make it less than obvious that MegaUpload was a massive criminal conspiracy. Yes, emails and text messages show the team referring to themselves as “modern-day pirates” — but even the indictment admits the company routinely removed links to infringing content when it was notified by rights-holders, as required under the DMCA.

In other words, MegaUpload acted a lot like any other file-hosting service such as Rapidshare, or even a file-synchronizing service like Dropbox. While Dropbox offers software that allows users to mirror their files across different devices, in order to do this, it also has to host those files — and users can share folders and links to (potentially illegal) files just as they can with MegaUpload or Rapidshare. The indictment says MegaUpload removed some links to infringing files, but not all of them — but if Dropbox were notified of an infringing file, would it have to remove that file from the folders of every user? And what if some of those users had the right to use that file?

This is just one of the many reasons why the MegaUpload case is troubling: The line between what it’s accused of doing and what other apparently legal services are doing is unclear. Perhaps a court case against the company will make those divisions more obvious, but until they are, having laws like SOPA and PIPA that make it even easier to shut down or financially cripple file-sharing services seems like a bad idea.

This work is licensed under a Creative Commons Attribution 3.0 Unported License

Post and thumbnail photos courtesy of Flickr users Mark Strozier and Kevin Dooley

  1. One Question – Where are my family photos? They were on megaupload, and where are they now? Feds stealed them. I think its a good idea to sue them.

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  2. usa is a rogue state … fortunately it is in the process of suiciding itself

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  3. They did not even need to use DMCA, or Pro IP Act. So many unnecessary laws, tos, eulas etc. The Dropbox insight is dead on, thought that very thing today.

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  4. I find the statement that the site caused “more then half a billion dollars in harm” absurd. That assumes every piece of copyrighted material passed on the server would otherwise have been purchased….an unlikely even. The figuring of damages in copyright cases is completely ridiculousness.

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    1. Content owners and carriers have been making this calculation for years, and only the media believe the numbers.
      The first big case of this was when the Secret Service raided Steve Jackson Games back in 1990. See http://en.wikipedia.org/wiki/Steve_Jackson_Games,_Inc._v._United_States_Secret_Service

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  5. I can’t wait till the file sharers and file thieves all get hauled away like Kim Dotcom….. what a lardasz-geek. Then Psudo journalists, like many who write about tech (even on this website) will stop teasing with lame articles that tell people how to get free (stolen) stuff, or look how your freedoms will be taken away, etc…

    The tech press only like to write about things with certain buzz words, even though soooo much of it is total BS non-information.

    So when the free stolen stuff dissapears from the web, many of these psudo-journalists will have to go pan-handling for their next day rate. What a great day that will be.

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  6. John E. Bredehoft Saturday, January 21, 2012

    Ah, but all sites are rogue sites. RIAA/MPAA members frequently blast Google-owned YouTube (while at the same time making deals with YouTube to get their content featured).

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  7. Your headline “MegaUpload case proves we don’t need SOPA or PIPA” and your ending paragraph “This is just one of the many reasons why the MegaUpload case is troubling … ” are at odds.

    It MAY demonstrate that SOPA/PIPA are not needed, but the FBI et al didn’t act over a 24-hour period before they raided the sites.

    File-sharing will happen, one way or another. The problems come from companies making billions from those shares. GREED does weird things to people.

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  8. Oh c’mon, let’s face it, almost everyone you know will equate Megaupload with piracy. People using MU for legitimate purposes are rather rare. MU’s business model depends on display ads and a subscription service. The display ads require tremendous amounts of page views, which MU gets through piracy. The subscription service allows for less hassle when downloading; they entice with pirated content, make you so annoyed at waiting you pay them for the less hassle. They make millions on illegitimate file sharing.

    The dropbox analogy is not dead on. Dropbox doesn’t focus on sharing – they focus on data synchronization and collaboration. Most users of Dropbox are legit, and they actively discourage illegitimate content. I sure as hell won’t look for illegitimate content on Dropbox.

    People seem to compare the MU situation as arresting Ford for making cars that the bank robbers will use. Using that analogy, I would say that MU is a Ford who designs cars with the bank robbers in mind – faster, armoured, with weapons, hiding places for the loot and all.

    MU was taken down, and rightly so. There was enough of a due process. I would rather have MU taken down than have users fined thousands of dollars they have no hope of paying. After all, it’s MU who’s profiting from the piracy.

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    1. Darken Aoc Rahl Saturday, January 21, 2012

      People equate MU with piracy? Really? Given the option between MU and Kazaa and which to compare to piracy I would say that Kazaa was a tool used for piracy. Yet Viacom leading the charge for SOPA developed Kazaa and spread it to millions of users via CNET and made millions off of illegitimate filesharing only to turn around and sue the people for using the tools they made then whining about how widespread piracy was that they encouraged in the first place.

      This is corporate censorship for the sole purpose of creating legal monopolies by shoving the little guy in the corner away from the public eye. The entertainment industry has been trying to control the internet for ages to turn it into a glorified PPV service like the cable TV. Mindless sheep like you let them do so.

      SOPA doesn’t give a damn what you think the focus of a website is. All they care about is completely shutting down sites which have the ability to in the future cause possible copyrighting. That means goodbye Youtube, Facebook, Wikipedia, Photobucket and yes Dropbox. Some freedom we have in this country. Wake up to a little reality.

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  9. what makes youtube/dropbox holy ?

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  10. That’s sad…since it’s all BS…SOPA/PIPA were junk + MU arrest was unfair + I don’t think swizz he has any legal connections to MU…imo it was all fabbed up to get other celebrity endorsements.

    p.s. looks like someone is pissed – FBI vs ANONYMOUS video:
    http://www.peeje.com/anonymous-hackers-we-legion-211/

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