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US authorities take MegaUpload offline, and arrest key execs

By | Published on Friday 20 January 2012

MegaUpload

At the end of a week during which online piracy was front page news worldwide, and especially in America, as efforts by the big movie and music companies to secure tough new anti-piracy rules in the US hit a road block, a dramatic swoop by the American authorities took one of the content industries’ biggest foes offline, with key execs running the rogue online operation arrested.

Yesterday evening UK time, the US Justice Department announced it had forced Megaupload.com, and associated websites, offline, and that four executives associated with the companies that run the offending sites, including larger than life founder Kim ‘Dotcom’ Schmitz, had been arrested in New Zealand, and awaited extradition to the USA where they face charges of mass copyright infringement, racketeering and money laundering.

Megaupload.com is a file-transfer service that lets people move large files across the internet, while sister site MegaVideo is a YouTube competitor, but one that operates without licences from the music, movie and TV industries. The sites, ultimately based in Hong Kong, had become key targets for the US content industries in the last year – and especially the Hollywood studios – who accused the Mega companies of enabling large-scale copyright infringement, of doing little to stop their services from being used to infringe, and from profiting big time by selling advertising and subscriptions around unlicensed content streams and files.

The legal case against MegaUpload and founder Schmitz had been quietly – and sometimes not so quietly – going through the motions in the US last year, though the content industries’ frustrations with the Mega business came to wider attention when Schmitz posted an all-star promotional video onto YouTube promoting his file-transfer company. In the vid a bunch of A-list pop stars, most signed to the big record companies who had been quietly taking action against the Mega company, bigged up the MegaUpload service. “When I gotta send files across the globe”, the c’lebs sang, rapped and voxpopped, “I used MegaUpload”.

That so many famous faces from the entertainment industry would publicly support a website that their financial backers were trying to shut down was at the very least rather amusing. Though the ‘Mega Song’ became bigger news when Universal Music tried to have the promo taken off YouTube, utilising its content takedown arrangement with the Google-owned video site.

Universal claimed that one of its artists was in the video without permission, but it turned out she wasn’t, and as Schmitz had signed clearance agreements from all the c’lebs who appeared in the promo song, which his company had written and produced, there was no legitimate claim to have the video removed under either copyright or contract law. MegaUpload announced it would sue Universal over the major’s takedown request.

That dispute is ongoing, but meanwhile the US authorities were busy wrapping up their investigations into the Mega business, the content industries having complained to the powers that be that Schmitz et al were deliberately enabling copyright infringement, making millions out of the enterprise, and costing the copyright industries $500 million in the process.

In court papers released yesterday, the authorities said that their investigations had found many emails between key execs involved in the Mega company in which they discussed uploading vast quantities of unlicensed content to their servers to drive traffic to their sites, including pulling thousands of videos off YouTube and making copies available on their own platform. All of which means the company itself was infringing copyright on a mass scale, and that the presence of large amounts of unlicensed content on MegaVideo and MegaUpload cannot be blamed entirely on the firm’s users (and therefore the Mega execs are not protected by America’s Digital Millennium Copyright Act).

Other emails discussed offering cash incentives to users who uploaded large quantities of unlicensed movies, and when not to take notice of takedown requests submitted by content owners under the aforementioned DMCA. One email also mused “we have a funny business … modern days pirates :)”. Court papers also say that the Mega companies took $110 million through PayPal, which had enabled Schmitz to pay himself $42 million in 2010 alone. The Mega group had 60 bank accounts around the world, and owned a fleet of cars and motorbikes, some with personalised number plates using words like “STONED”, “GUILTY” and “MAFIA”.

Of course, efforts this week by the American content industries to secure new powers to take infringing websites offline hit a wall as their political supporters got cold feet amidst widespread opposition by legitimate web and tech companies. However, SOPA and PIPA, which would force internet service providers and search engines to block infringing sites, are only needed to combat piracy operations outside the jurisdiction of the US courts and authorities. The good news for the American music and movie firms is that the Mega operation’s key server base was in Virginia, giving the courts justification to act, and the authorities a physical entity to target.

Seven individuals and two companies associated with them, MegaUpload Ltd and Vestor Ltd, are named as defendants in the criminal case against the Mega operation. The four men arrested in New Zealand were Schmitz, his co-founder Mathias Ortmann, Mega’s CTO Finn Batato and another associate called Bram van der Kolk.

All four appeared in a New Zealand court earlier today, at one point posing for photographers after a judge agreed to let the world’s media take pictures of the accused. Schmitz’s lawyers initially requested no such photos be allowed, but once in front of the snappers Schmitz himself said he was fine with having his photo taken because “we have nothing to hide”. The Mega founder maintains that his operation was legit, and that he’s been framed by jealous music and movie industry chiefs.

Nevertheless, all four men were denied bail as the US authorities go through the motions of extraditing the accused. If found guilty of the various charges they now face, the Mega execs could face over 20 years in an American jail. Authorities named the three men also accused but not yet arrested as Julius Bencko from Slovakia, Sven Echternach from Germany and Andrus Nomm from Estonia.

Which means Swizz Beatz is off the hook. Earlier this week it was claimed that the famous producer was both a partner in and CEO of the Mega group, he apparently being listed as such on one of the now defunct Mega websites under his real name Kasseem Dean. However, it seems that while Dean did have links to the rogue web firm, he was neither a shareholder nor an executive there, so will not be a target of the criminal action.

It does seem likely, though, that Dean was behind the aforementioned ‘Mega Song’, which would explain how the web company managed to persuade so many famous artists – including Dean’s wife Alicia Keys – to take part in the promo. If the claims against Schmitz et al now prove to be true, that’s going to be a bit embarrassing for Dean, assuming he did indeed twist some arms to assure MegaUpload a bunch of celebrity endorsements.

While the sudden strike against MegaUpload was a bit of a coup for the music and movie industries after a week in which their anti-piracy efforts took a hit, the hacktivist community ensured the pro-file-sharing community got a little speedy revenge, with the Anonymous group of hackers staging an immediate Distributed Denial Of Service attack on the websites of the US Justice Department, the music and movie industry trade bodies, and Universal Music, most being forced offline within fifteen minutes of the US regulators announcing their action against Team Mega.

Still, assuming the case against Mega stacks up in court, and the authorities are able to keep the Mega sites offline long term, presumably the big record labels and movie studios would happily tolerate some attacks on their own web presence if it results in what is, allegedly, one of the biggest piracy operations in history being taken out of business.



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