Monday 23 January 2012, 12:02 | By

MegaUpload drops Universal lawsuit as founder fights for bail

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MegaUpload founder Kim Schmitz will remain in custody, for the time being at least, despite the controversial web entrepreneur’s lawyers insisting their client wouldn’t flee New Zealand, where he is being held while the US goes through the motions to extradite him back to the States, partly because his “distinctive appearance” – he’s 6’7″ and weighs 21.5 stone – would make it hard for him to sneak through customs.

Prosecutor Anne Toohey told the New Zealand court this morning that the FBI believes Schmitz, who usually goes by the ID Kim Dotcom these days, has bank accounts not yet seized by the authorities, and would therefore have the means to break bail if it was granted. She added Schmitz had multiple identities, and a record for fleeing criminal charges.

But Schmitz’s legal rep argued that her client had so far cooperated with the authorities, that his passport had been seized and bank accounts frozen, and besides “he is not the sort of person who will pass unnoticed through our customs and immigration lines and controls”.

Schmitz was arrested with three other MegaUpload executives in New Zealand on Friday, and faces allegations in the US of widescale copyright infringement, racketeering and money laundering. The US authorities presented a pile of internal emails between executives at the Mega companies to back up their claims, and then on Thursday swooped on the Mega firm’s Virginia server farm and took the organisation’s various websites offline. If all the criminal charges that have been made against the Mega team were proven in the US courts, the web executives could face up to 20 years in jail each.

The New Zealand judge hearing Schmitz’s bail application didn’t rule either way this morning, saying the bail application was too complicated to make an immediate decision, and that he would issue a written ruling on the matter on Wednesday. Schmitz’s lawyers insisted that their client’s business was legit at the bail hearing, while Toohey talked up the US authorities’ case against the accused, and also revealed two more men linked to the Mega operation had now been arrested in Europe.

While Schmitz tries to secure bail in New Zealand, his associates in the US are preparing to fight the criminal case against him and his Mega cohorts. As previously reported, court papers issued on Thursday say that Schmitz and his team deliberately built a multi-million dollar business on the back of a file-transfer and video-sharing site which relied on the distribution of unlicensed content, a portion of it uploaded by Mega employees. The authorities say the Mega companies took $110 million through PayPal alone, that Schmitz paid himself $42 million in 2010, and that $500 million worth of music and movie content was illegally transferred over the Mega servers.

The Mega team’s legal battle was dealt an immediate blow this weekend when a high profile American defence attorney took on their case, and then stepped back from it, within days. Lawyer Robert Bennett, whose famous past clients include Bill Clinton and Enron, was quickly hired to advise the Mega management when the US’s case against them was revealed on Thursday, but it was confirmed to Reuters last night that the attorney would not be able to represent Schmitz et al in their legal fight because a conflict of interest had emerged with another of the companies represented by his law firm, Hogan Lovells.

Elsewhere in Mega legal shenanigans, it was revealed this weekend that the web firm’s lawyers had requested its lawsuit against Universal Music over the all-star ‘Mega Song’ be dismissed, albeit without prejudice (which means the company could refile the litigation at some point in the future). As previously reported, the Mega company sued Universal after the music major had its promotional ‘Mega Song’ video temporarily removed from YouTube.

It was initially thought that Universal requested the song be taken down on copyright grounds under the US Digital Millennium Copyright Act, and as the major had no copyright claim in the song, that constituted a misuse of American copyright law. However, the music firm insisted it demanded the song be taken down under a separate contractual arrangement with YouTube. The video site’s owner Google subsequently denied it had any special arrangement with Universal enabling the music firm to remove content in which it had no copyright claim, and quickly reinstated the ‘Mega Song’.

However, the exact circumstances around the takedown were never ascertained, and Mega’s lawyers requested on Friday that, despite them dismissing their actual action against Universal, that their demands for Universal and YouTube paperwork relating to the removal of their song still stand. Or something like that, it was all a bit confusing really.

Talking of the ‘Mega Song’, it is – as previously reported – widely believed that producer and rapper Swizz Beatz was behind the promotional video, hence so many A-list artists agreed to take part, despite most of said artists being signed to major music companies then in the process of calling for MegaUpload and MegaVideo to be shut down. As also previously reported, it was claimed last week that Beatz was in fact CEO of the Mega companies, and it seemed Mega’s own website confirmed that fact, though his executive position in the web outfit was denied on Friday.

The producer’s exact relationship with Schmitz and the Mega businesses remains a mystery, though. It seems he was angling for a vanity title within the company, which might explain why Mega’s website was calling him CEO, even if he hadn’t officially been engaged as such. A legal rep of the Mega company told VentureBeat: “To my knowledge, Swizz Beatz was never involved in any meaningful way. He was negotiating to become the CEO, but it was never official”.

Although the producer himself hasn’t issued a statement since last week’s dramatic swoop on the Mega companies, a rep did confirm to the Wall Street Journal that his client had been discussing taking on an executive role with the Mega firm, but that he don’t know “whether the appointment actually went into effect”. Certainly Beatz, real name Kasseem Dean, isn’t being targeted by the US authorities, and sources close to the producer insist he was unaware of any illegal side to the Mega business. Others say talks for Dean to become Mega CEO were very recent, and the billing as such on the Mega website was premature, though others claim that billing had been on the web firm’s official site for some time.

So, all in all, plenty of intrigue remains in what is looking likely to be the most bizarre chapter yet in the file-sharing saga.

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