Not content with sticking two fingers up at the authorities with his Mega secure cloud storage service, larger-than-life entrepreneur Kim Dotcom is planning to release further privacy-centric services. And interestingly, in a Q&A session with the New Zealand Herald late last night, Dotcom said he intended the secure email and instant messaging services to be both military-grade and so easy to use that the user wouldn’t have to do anything to benefit from this security.

This is always the issue with security – if it requires much thought on the user’s part, it will generally fail. Dotcom, who also released a white paper on Tuesday to accuse the U.S. government of misleading New Zealand authorities while pursuing the German-born millionaire, said in the session that he wanted to “provide tools that give our users their privacy back”:

“We are working on encrypted email, IM, etc. The key to make encryption a global success is ease of use. So I am spending most of my time figuring out how I can give you encryption without you having to do anything and at the same time give you military grade privacy. You are all naked on the Internet. I like to help you put some pants on :-)”

It remains unclear what Mega is planning, technologically speaking, to achieve this kind of friction-free encryption. There are plenty of tools out there for sending encrypted emails and messages, but they tend to involve browser extensions or web forms, or paid subscriptions.

Mega’s cloud storage service has also come in for criticism by some security experts, who have pointed out that its use of so-called “convergent encryption” (in order to allow de-duplication) theoretically leaves a trace of who uploaded which file.

That extradition thing

Of course, Dotcom’s plans hinge somewhat on the ongoing extradition proceedings that he faces. The U.S. had Dotcom and some of his associates raided and arrested at the start of 2012 over allegations of copyright infringement, to do with their highly popular (and now deceased) Megaupload file-sharing service, and wants them sent over to face charges.

Since then, the case has occasionally veered into farce, with the New Zealand prime minister having to apologize for the country’s security services illegally spying on Dotcom, and a judge having to step down from the proceedings after describing the U.S. as “the enemy”.

All the while, Dotcom has maintained that Hollywood lobbyists were behind the raid and arrests. He reiterated and expanded upon these claims in the white paper released on Tuesday, verbosely entitled “Megaupload, the Copyright Lobby and the Future of Digital Rights: The United States vs You (and Kim Dotcom).”

The document highlights ties between U.S. vice president Joe Biden and Chris Dodd, the head of the Motion Picture Association of America (the MPAA, Dotcom’s bête noir), describing the whole affair as a “contract prosecution” linked to campaign contributions. It calls on the U.S. House Committee on Oversight and Government Reform and the Office of Professional Responsibility of the U.S. Department of Justice to “conduct an investigation and hearings into the conduct of the Megaupload prosecution by the U.S. Department of Justice.”

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The controversy began in January when Dotcom was arrested in a dramatic raid in New Zealand and the U.S. announced it would prosecute Dotcom and Megaupload in Virginia. Since then, however, Dotcom (a German national who legally changed his name to “Kim Dotcom”) appeared to have gained the upper hand after he was released on bail and extradition proceedings slowed to a crawl. A New Zealand court has also ruled the warrants used to conduct the raid were illegal.

On Tuesday, the chief judge of the New Zealand district court that must decide if Dotcom can be extradited announced that Judge David Harvey had surrendered the case and would be replaced. The move comes after reports that Harvey said ”We have met the enemy and he is [the] U.S.” at a recent conference in relation to the current state of copyright law.

According to a law professor quoted by the New Zealand Herald, the Dotcom affair was the “case of a lifetime” for Harvey who is one of his country’s leading copyright and internet authorities. Harvey’s sudden recusal is not surprising, however, given that a judge would be hard-pressed to appear neutral after describing one of the parties in a case before him as “the enemy.” His departure means that a new judge will oversee the extradition proceedings, which were slated for next year and may now take even longer if they go forward at all.

Overall, the case is exposing a growing global tension between the U.S. and the rest of the world over the boundaries of copyright law. Even though New Zealand, England and Canada share the same common law legal traditions as the U.S., judges and academics in those countries have grown uncomfortable with America’s increasingly expansive copyright laws and aggressive enforcement tactics. These tactics have included other extradition attempts, including one aimed at a 23-year-old UK student that is extremely unpopular with the British public.

The entertainment industry and U.S. authorities, on the other hand, are exasperated with services like Megaupload that allow users to store and swap copyrighted music and movies. “Its equipment, machinery,  and servers are here … Many of its victims are in the United States… countless American works illegally reproduced and distributed include, for example, works originally available on YouTube.com, The Sopranos, Seinfeld, Dexter, Chuck, Meet Dave, and The Simpsons,” wrote prosecutors in a filing last week to argue that Megaupload can be tried in the US.

The tension has led online activists to embrace the flamboyant Kim Dotcom as a hero while law enforcement has sought to portray him as the lead gangster of a multi-million dollar criminal enterprise. As for Dotcom, he has proved adept at cultivating support, in part through a defiant Twitter feed:

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The case centers on the search engine’s autocomplete feature — the suggestions for commonly-used search terms that pop up when users start typing something on Google. While they are generally seen as a way to make search more efficient (and provide some amusement when the results behave strangely), not everyone is amused: in fact the French music royalties society SNEP has been campaigning for several years to force Google to stop associating musical terms with terms like “torrent” or the names of filesharing services like RapidShare or MegaUpload.

The group argued that Google was promoting piracy by associating the two terms in public, making it easier for users to infringe copyright of the artists it represents.

But the French courts disagreed, rejecting those claims in 2010 and concluding that making commonly-used search terms transparent in this was was not the same as encouraging unauthorized copying. When SNEP appealed in 2011 and failed again, it looked like the case was over.

Now, however, the Court de Cassation, France’s court of last resort, has said it will set aside the verdict because of a technicality.

In a ruling made on Thursday, the Supreme Court said that the Court of Appeal had actually violated a key clause of the country’s rules on intellectual property in its interpretation of the legal arguments.

The rule states that collection societies like SNEP are within their rights to demand that the court take “all measures to prevent or stop such an attack on a copyright or related rights.” This, said the Supreme Court, was something ignored by the previous ruling: it has now referred the case back to the lower circuit, specifically the Court of Appeal in Versailles, for another go-round:

“CASSE ET ANNULE, dans toutes ses dispositions, l’arrêt rendu le 3 mai 2011, entre les parties, par la cour d’appel de Paris ; remet, en conséquence, la cause et les parties dans l’état où elles se trouvaient avant ledit arrêt et, pour être fait droit, les renvoie devant la cour d’appel de Versailles.”

Although the decision is not really a victory for anyone yet, it does open the door for a different decision. As such, it was welcomed by SNEP, whose CEO David El Sayegh said:

“This decision showing that search engines should be responsible for regulating the internet is a first in France”.

Google France, meanwhile, reiterated its argument by saying that, while it “takes very seriously” online infringement, autosuggest is simply an automatic display reflecting the searches completed by other internet users.

But here’s what’s even more peculiar: even though SNEP’s case failed in the court, it actually had the desired impact in the real world: Google did start filtering some phrases voluntarily after the initial appeal, despite the fact that it had won.

As The Register reported some 18 months ago:

“The company said in December that it would play nice with the big name record labels, TV networks, and movie studios, by providing better protection against piracy on the interwebs.

“Accordingly, various search terms and file-sharing websites have now been erased from Google’s not-altogether spotless mind.”

That means SNEP appears to be trying to make sure that this approach is not merely voluntary, but covers all sorts of copyright material and enshrined in law. That would put it in accordance with some other censorship activity in France, such as the rules that force internet companies to censor pro-Nazi material, for example.

And it also adds to the complicated situation around France’s three strikes law known as Hadopi, which has been in force since 2010 but has had questionable impact on filesharing. New president Francois Hollande has already suggested that he’s considering overturning the law.

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A pair of cryptic court filings surfaced in Virginia this week that suggest Google is in a fight with the federal government over Megaupload, the file-sharing site that was shut down in a dramatic raid in January.

It appears that the FBI likely demanded that Google turn over Kim Dotcom’s email account and any related information, and then forbid the company to notify him of the investigation. In the past, companies — notably Twitter — have been aggressive in challenging gag orders so that they can notify customers about government searches. Such notification gives subscribers the option of challenging the searches in court.

The new filings are two orders in which U.S. Magistrate Judge Thomas Jones Jr. refuses to extend a gag order that the government has imposed upon Google.

The gag order forbids Google from telling a subscriber that an account has been the target of a search warrant and subject to a § 2703(d) investigation — a controversial search procedure that gained attention when the Justice Department used it to obtain the Twitter accounts of people tied to WikiLeaks.

The judge does not identify the Google subscriber but there is strong circumstantial evidence to suggest the case is tied to Megaupload and its controversial founder, Kim Dotcom who is currently facing extradition charges in New Zealand.

First, the orders came from the US District Court for the Eastern District of Virginia which is where an indictment was unsealed against Dotcom and Megaupload in January. Secondly, the two-page orders refer to recent events to explain why the government’s investigation will not be compromised by a disclosure:

The sole potential problem that notification might create that was raised by the government with specificity in its unredacted brief has now been eliminated by subsequent events. [...]

The existence of the investigation in issue and the government’s wide use of § 2703(d) orders and other investigative tools has been widely publicized now. It is difficult to imagine circumstances in which this Google subscriber, as described by the government in its brief, has not assumed government access to this account and acted accordingly

A connection between the Google court orders and Megaupload is for now entirely speculative, but it is hard to think of another secret investigation that has recently been “widely publicized.”

Christine Chen, Senior Manager for Global Communications and Public Policy, said by email that Google does not comment on specific cases.

The court papers also show that federal agents began their search of the suspect’s Google accounts in July of 2011. The Megaupload investigation reportedly began in 2010.

The seizure of Megaupload’s servers and the arrest of Kim Dotcom and other company executives made global headlines in January. The case received additional attention due to the outlandish character of Dotcom, an enormous man nicknamed Dr. Evil who was reportedly found in a panic room clutching a shotgun at time of his arrest in New Zealand (there are conflicting reports about the gun). The Megaupload episode also led the hacking collective Anonymous to launch a wave of retaliatory attacks that temporarily took down the websites of the FBI and the Justice Department.

Today’s orders also states that Google may notify its subscriber unless the government appeals within 14 days. The rest of the case for now remains under seal.

Here is a copy of one of the orders:

Court Order Lifting Google Gag Order

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Faced with a proliferation of unauthorized book-sharing sites, the publishing industry is embracing some of the same legal tactics as their counterparts in the music and movie industry.

On Wednesday morning, an international coalition of publishers said they squelched two websites, library.nu and file.it. The industry described the sites as “one of the largest pirate web-based businesses in the world” and that the former site alone offered more than 400,000 copyrighted titles.

According to the release, the shut-down is the culmination of a long investigation in which the publishers struggled to identify who ran the sites. The site operators, who allegedly earned millions in advertising revenue, were finally located in Ireland. The publishers say they have commenced legal proceedings in both Ireland and Germany.

It’s not immediately possible to verify the claims, but the sites were down on Wednesday afternoon.

In the bigger picture, the announcement reinforces the publishing industry’s full-scale entry into a new phase of the copyright wars in which content owners are banding together to target foreign websites. The most dramatic recent example came last month when law enforcement seized the servers of file-sharing site Megaupload and arrested its owners in a dramatic raid.

Content owners’ recent success in taking down foreign websites also adds grist to the debate of whether new legal powers, like those in the failed SOPA bill, are actually necessary to target piracy.

The publishers’ aggressiveness overseas mirrors similar domestic efforts in the US. This week, publisher John Wiley launched a new series of “John Doe” suits to identify individuals who had downloaded its “For Dummies” books.

Note: An earlier version of this story stated that library.nu redirected to Google (NSDQ: GOOG) Books. The site is no longer doing so and it is unclear why it was doing so before. A Google representative said the company was unaware of the issue.

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Now BTJunkie, another of the world’s largest filesharing sites, seems to have bitten the dust.

The site — a torrent search engine which seems to have been based in Europe — has been running for the past seven years, and at one point boasted at least 80 million users. But over the weekend its pages were replaced by a single blue screen marking its lifespan and a simple message:

“This is the end of the line my friends. The decision does not come easy, but we’ve decided to voluntarily shut down. We’ve been fighting for years for your right to communicate, but it’s time to move on. It’s been an experience of a lifetime, we wish you all the best!”

Although not as well known as some others, BTJunkie was one of the world’s most active torrent search engines, linking to millions of active torrents. That catalog which made it a big deal: in fact, according to data from Compete, it was the 3rd largest site of its kind in 2011.

But unlike Megaupload, which only shut when the police raided the company’s HQ, this closure seems to be proactive on the part of the BTJunkie’s owners. The site was never the target of any direct legal action, but it has been in the crosshairs of entertainment industry for some time: searches for the site are generally blocked by Google, and it became a thorn in the side of the MPAA when a BTJunkie admin was the first to spot that the MPAA was uploading fake torrents back in 2007.

It appears that mounting pressure from recent events has finally broken the resolve of the site’s anonymous owners, with Torrentfreak claiming that one of the site’s owners said the stress and trouble wasn’t worth the effort:

Talking to TorrentFreak, BTjunkie’s founder said that the legal actions against other file-sharing sites such as MegaUpload and The Pirate Bay played an important role in making the difficult decision. Witnessing all the trouble colleagues got into was cause for a lot of worry and stress, and those will now belong to the past.
That said, BTjunkie’s owner still thinks there might be a future for other BitTorrent sites.
“I really do hope so, the war is far from over for sure,” he told TorrentFreak.

That certainly makes this move closer to recent changes by The Pirate Bay, which closed down its .org domain in order to prevent seizure by the American authorities, than a move caused by a direct threat.

In the short term this will certainly be seen as a victory for the content lobby, though in a way it really proves that they don’t necessarily need more legislation to get what they want. But will it make a significant difference to the amount of filesharing in the long term? That seems less straightforward.

It’s unlikely that BTJunkie’s users will simply disappear or stop torrenting: they’ll just move off to other services, or start replacements that take the process back towards square one. But however you spin it, this could be an important moment in the arguments about whether the carrot of better service provision is more effective than the stick of legal threat.

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In a letter filed in federal court late Friday and embedded below, a US Attorney wrote:

Should the defendants wish to obtain independent access to the Mega Servers, or coordinate third-party access to data housed on Mega Servers, that issue must be resolved directly with Cogent or Carpathia. It is our understanding that the hosting companies may begin deleting the contents of the servers beginning as early as February 2

The two companies are based in the US and were the targets of raids that coincided with the unsealing of an indictment against Megaupload and its founders. The comment about possible data deletion created a stir after the Guardian and others reported it this morning. Critics like Cory Doctorow have said the federal government could be complicit in the destruction of personal photos and the music of independent bands, but it is unclear what percentage of the files are this type of material and what percentage are simply things like bootlegged copies of the Fast & the Furious.

The attorney’s letter, like other aspects of the Megaupload case, appears to be driven driven in part by political calculations. (The government, for instance, decided to unseal the indictment one day after Hollywood interests expressed frustration at the collapse of proposed anti-piracy legislation known as SOPA and PIPA.)

The attorney’s letter may be a way to inform users of the Megaupload service that their data could be lost. Or it may be a warning to other communications companies about the risks in providing services to file-sharing companies. The share-price of publicly-traded Cogent Communications tanked after news of the indictment broke ten days ago. Neither Cogent or privately-held Carpathia immediately returned calls for comment.

Documents under Seal

Other documents in the case remain under seal. They likely contain additional details about the case and could be part of the US government’s efforts to persuade other countries to extradite the Megaupload defendants:

In the US criminal system, prosecutors often do not put all of their evidence into an initial indictment — instead they put what was needed to persuade a grand jury.

The standard of proof needed to obtain a grand jury indictment is much lower than an actual conviction (in the words of author Tom Wolfe, a grand jury “would indict a ham sandwich”).

Prosecutors’ chances to obtain a conviction are likely to turn in large part on the criminal law of conspiracy. Conspiracy has in the past been a powerful tool for the federal government and provides an easier path to conviction than does the law of copyright.

The case is unlikely to be resolved anytime soon as the US government must first resolve extradition proceedings in New Zealand where Megaupload’s gun-toting founder, Kim Dotcom, remains in jail. Two others made bail and three other defendants are still at large.

In another development, the Wall Street Journal (NSDQ: NWS) reported
this weekend that the federal government has been giving a low-profile to prosecutors and agents involved in the case. The paper reported that the government is concerned about retaliatory attacks from the hacking group Anonymous, which crashed several government servers in response to the Megaupload shutdown.

US Attorney Letter re Cogent
var docstoc_docid=”111605150″;var docstoc_title=”US Attorney Letter re Cogent”;var docstoc_urltitle=”US Attorney Letter re Cogent”;

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But this speculation overlooks the fact that the feds have an easier tool than copyright law to convict Dotcom — the law of conspiracy.

The legal debate centers on the man nicknamed “Dr. Evil” who was arrested last week in New Zealand and now faces extradition charges. A judge this morning denied him bail, citing Dotcom’s enormous wealth and multiple passports.

The US charges against Dotcom, who was nabbed in a panic room clutching a sawed-off shotgun, are based on an indictment unsealed last week that accuses him and six others of criminal copyright and three other charges.

Contrary to many reports, those other charges are not about money-laundering and racketeering but instead about conspiracy to commit those crimes. The distinction is important because conspiracy charges are a key law enforcement tool for the federal government that, critically, do not require proving the underlying crime.

“It’s a huge engine for the government and one of its bread and butter statutes,” says Miriam Baer, a criminal law specialist at Brooklyn Law School.

Under federal law, a person is guilty of conspiracy if they agree with another person to commit an illegal act and then any person in the conspiracy does something to move the plan forward. This means that the conspiracy doesn’t have to be successful — only that someone performs an “overt act.”

Baer says this can be “particularly easy” to show because an overt act can be anything from a phone call to an email message. “There’s usually plenty of overt acts to choose from.”

This means that debates about the scope of US racketeering laws or the way that safe harbors apply to Megaupload may not matter in the end. Instead the government simply has to show that the Megaupload gang agreed to engage in racketeering, money laundering or criminal copyright and that they took a step to do so.

According to Baer, the conspiracy laws also provide the government with considerable leverage that makes it easy to flip individual defendants. That’s because everyone is responsible for what anyone else does in the conspiracy and the law carries stiff penalties — meaning the government can use the promise of a lenient sentence to try and turn one of the seven Megaupload defendants into a witness against the others. “Conspiracy charges are particularly valuable [to the government] because it doesn’t matter if you are a big or small part of the conspiracy,” she says.

And on top of this, procedural rules further tip the scale in the government’s favor. Specifically, in conspiracy cases, prosecutors can introduce evidence that would normally be excluded as hearsay.

All of this means that any future trial is likely to likely to turn on what Dotcom and the others actually believed they were doing. As Baer points out, the prosecution must show that the defendants agreed to do something they knew that was illegal — not just that they made an agreement.

For now, any trial is a ways off as the extradition proceedings for Dotcom and three others wind their way through the New Zealand courts. Three other defendants are still at large.

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Instead, it looks as if there will be a fundamental shift in how cloud file sharing providers do business. On the losing end will be a small, but thriving, pirate cottage industry.

MegaUpload stumbled over rewards

The indictment of MegaUpload alleged a number of illegal acts, including money laundering and active copyright infringement by the company’s executives, which tried to compete with YouTube by copying as many videos from the Google-owned site as possible. But one of the key accusations of the indictment involves MegaUpload’s affiliate program:

“For much of its operation, the Mega Conspiracy has offered an “Uploader Rewards” Program, which promised premium subscribers transfers of cash and other financial incentives to upload popular works, including copyrighted works, to computer servers under the Mega Conspiracy’s direct control and for the Conspiracy’s ultimate financial benefit…. In total, the Mega Conspiracy directly paid uploaders millions of dollars through online payments.”

MegaUpload’s affiliate program rewarded uploaders with free premium services and even cash if their files directed a lot of downloaders to the site. To be clear, most people didn’t get rich with the rewards: 10,000 downloads of your files simply got you a free one-month premium membership. However, users who brought the site 10 million downloads received $10,000 via Paypal.

The MegaUpload rewards program: $10,000 for 10MM downloads.

These kinds of rewards programs have long been a thorn in the eye of rights holders, who argue that the emphasis on high download numbers automatically pushes people to infringe and offer popular MP3s or movies for download. The MegaUpload indictment also suggests company executives had knowledge of their affiliates’ infringement, quoting from internal emails in which they discuss that some of the users offer MP3s, ripped DVDs and Vietnamese movies. One of the uploaders referenced in the indictment received more than $55,000 from MegaUpload.

How much hosts pay for traffic

MegaUpload introduced its rewards program in 2005, and the move was quickly copied by many other file hosters. The logic behind these affiliate deals was that the sites could easily monetize traffic. File hosters restricted download speeds and capabilities for non-paying users to the point where many simply gave in and purchased premium memberships. The indictment against MegaUpload alleges the site made more than $110 million via Paypal alone, and users unwilling to pay were further monetized through ads.

Not an easy way to get rich: One user's stats of affiliate earnings through a cloud hosting service.

Affiliate deals made sense for one-click-hosters, but they also led to an interesting cottage industry that was largely focusing on redistributing pirated works. Uploaders distribute their files to multiple hosts, then link to them on third-party sites that openly promise access to infringing content. They discuss the details of their trade on web forums specializing on affiliate relationships, and openly compare how much each and every host pays them for their traffic.

Browsing these forums offers a fascinating insight into an under-reported part of the file-sharing scene. Some of these uploaders only make pennies on the dollar, despite investing lots of time into posting files and promoting them in various places. Said one:

“I upload porn and I am only able to make about ($1) per day and I have my own blog, am posting in about 20 mega threads on 15 different forums and am posting around 15 different scenes a day.”

Others make even less, with one writing he hopes “to someday earn 1$/day or more.” But there is also the other end of the spectrum, with some uploaders making $1000 or more per month, and a few even clocking three-digit earnings per day.

From Hotline to MegaUpload

These kinds of pirate cottage industries aren’t entirely new. Even before the days of Napster, there was Hotline, a client-server protocol that allowed anyone to set up small file-swapping services on their own computer. Hotline admins regularly password-protected their servers, asking users to click on certain banner ads to receive a password. After Hotline’s demise, much of that activity shifted to BitTorrent and Edonkey2000, with some users running ad-heavy forums and others even password-protecting downloads in order to get people to click on their links

The emergence of cloud file hosters multiplied revenue opportunities, but the writing was quickly on the wall: The bigger file hosters have been shifting away from these kinds of rewards programs for a while. RapidShare stopped rewarding people for traffic two years ago, and a company spokesperson told me this week, “Such a system would be very effective advertising, but we concluded that it could increase abuse.”

MegaUpload apparently ended its own rewards program last summer, according to the indictment, but the criminal proceedings at the company were already underway at that point. Smaller competitors were eager to step in and pay users for uploading files, but the dramatic shut-down of MegaUpload has all but put an end to this practice.

Image courtesy (CC-BY-SA) of Flickr user spcbrass.

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