Last week a consortium of U.S. federal agencies, working with police forces from around the world, shut down a series of file sharing/file storage sites best known as MegaUpload. They also arrested the senior executives of the companies behind the sites — including the flamboyant apparent leader of the group Kim Dotcom — and seized various assets of the company and the individuals. MegaUpload and its senior executives are not particularly sympathetic characters. But the arrests bothered me. I did not initially know why.
Many sites have been shut down for offering illegal goods, whether it be counterfeit goods meant to look like the original (fake Rolex watches for example), or illegal copies of software, But this one felt different. So I decided to write a blog piece about it. While writing this piece, I figured it out.
There are people who use technology to steal. Whether it is bank account balances, credit card numbers, knock-off copies of famous brand products, or digital content, it is clearly stealing. The technology is just the means to an end. I have no problem with arresting these types of people.
Then there are people who try to push the limits of the law using current technology. Sometimes these efforts lead to new uses of the Internet. For example, in the early days of the Internet I remember that the very first commercial Internet spam came from a law firm. The law firm got blasted for what was at that time seen as an outrageous attempt to commercialize the Internet. Ah the good old days when there was only one spammer. Yet commercial email advertising has become a major part of the Internet experience.
I do not see people who push the limits as criminals. Some of them may be bad people, and they often get sued, and they often lose, and I am fine with that. But I would leave it to the civil courts to define what appropriate technology behavior is. I would not make it a criminal issue.
The concepts of file sharing and on-line file storage on the Internet are still fairly new, and the law around what is allowed and what is not is still in flux. Several early cases, particularly A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001) and MGM Studios, Inc. v. Grokster, Ltd. 545 U.S. 913 (2005), established that if the file sharing company encouraged people to share copyright protected files through its site, then the site itself was liable for contributing to the infringement.
The current area of uncertainty involves the 1998 Digital Millennium Copyright Act (DMCA). Under the DMCA, service providers are protected from copyright infringement liability if they follow certain procedures. When they are notified by copyright owners of infringing material on their site (called a take down notice), they must promptly take down the copyright infringing material.
So far, courts have held that service providers do not lose the protection of the DMCA simply because they are aware that their site is being used to store copyright infringing material. See Viacom International, Inc. v. YouTube, Inc., No. 07 Civ. 2103 (currently on appeal although likely to settle) where the court found:
“[I]f a service provider knows (from notice from the owner, or a “red flag”) of specific instances of infringement, the provider must promptly remove the infringing material. If not, the burden is on the owner to identify the infringement. General knowledge that infringement is “ubiquitous” does not impose a duty on the service provider to monitor or search its service for infringements.”
The heart of the government’s case against MegaUpload seems to be that the owners of MegaUpload were aware that its site was being used for the exchange of copyright infringing material. Case law suggests that this knowledge is not sufficient for civil liability. It is hard to imagine that it would then be sufficient for criminal liability.
The government then seems to admit that MegaUpload removed offending files when it received a DMCA takedown notice. But the government also seems to be saying that MegaUpload was slow to remove files and did not do a very good job. Again, this does not appear to constitute criminal liability.
I have already discussed the problem that the sheer size of today’s major file sharing and file storage sites makes it impossible for companies to be in 100% compliance with the DMCA. See Copyright Enforcement on the Internet – Where should we draw the line? Even Apple does not maintain 100% compliance.
MegaUpload made some effort to remove infringing materials after it received take down notices. MegaUpload is a huge site. MegaUpload itself claimed that it had 50 million daily visitors and traffic on its sites accounted for 4% of all Internet traffic. The site could not possibly maintain 100% compliance with the DMCA. Does that make the owners of the site civilly liable for copyright infringement? Does it make them criminals? Those are tough question and ones where I do not think there has been any case law yet.
It is important for technology innovation that we let people push and test the limits. One of the founders of Napster, Sean Parker, took what he learned from Napster and became one of the key people in developing Facebook. If Parker had been branded a criminal instead, I would not say that social media would not exist, but social media might have developed much more slowly than it has.
By attacking MegaUpload before the limits of the DMCA have been established, theU.S.government is likely to scare off companies and new products and services that would otherwise provide legitimate technological innovation in on-line data storage (cloud storage) and file transfer services. TheU.S.government should have waited until case law was settled on this issue before using its full force to arrest and detain the MegaUpload individuals and seize their assets all over the world.
The criminal indictment quotes from many emails that suggest that the individuals who were arrested did participate in uploading some individual copyright infringing files to their own sites. Although these charges are minor, they may be the strongest part of the government’s case.
Even though the government’s case appears weak overall (and I say appears because we really do not know all the facts yet), I predict that the U.S. government will attempt to save face by putting so much legal pressure on MegaUpload that the executives will be forced to plead guilty to some minor charges and to forfeit their sites, seized property and money.
Gary Marshall's Technology Law Blog 
I understand your argument, but I see a lack of good faith on the part of MegaUpload to properly implement the DMCA Safe Harbor Provisions. FromWhy the feds smashed Megaupload:
I cannot see a legal rationale for removing one link to a file, but not removing the file when a company has been notified that it in violation of a copyright. The only rationale I can see is that the Megaupload site holders wanted to make it as difficult as possible to remove the copyrighted file. I see the same logic in the limit of 2,500 take down requests per day. I do realize that each take down request has labor required to process it, however Megaupload’s position of only removing the link and not the file likely had the result of inflating the number of takedown requests, so that this volume of takedown requests was self inflicted.
[…] are tough question and ones where I do not think there has been any case law yet. See my blog post Why the MegaUpload Arrests Bother Me) for further discussion on this particular […]