Indictment Charges Megaupload With Criminal Copyright Infringement
January 19, 2012. The U.S. District Court (EDVa) unsealed an indictment that charges several individuals and businesses connected to the Megaupload web site with criminal copyright infringement, money laundering, and related crimes.
The business styles itself as a storage locker, but is dedicated to commercially exploiting the uploading and downloading of copyrighted movies, music and other works without authorization.
The grand jury returned the indictment on January 5, 2012. It charges Kim Dotcom, Megaupload Limited, Vestor Limited, Finnbatato, Julius Bencko, Sven Echternach, Mathias Ortmann, Andrus Nomm, and Bramm Van Der Kolk.
Kim Dotcom is also known at Kim Schmitz and Kim Tim Jim Vestor.
The U.S. Department of Justice (DOJ) stated in a release on January 19, 2012, that "Dotcom, Batato, Ortmann and van der Kolk were arrested today in Auckland, New Zealand, by New Zealand authorities, who executed provisional arrest warrants requested by the United States. Bencko, Echternach and Nomm remain at large."
The DOJ added that "law enforcement also executed more than 20 search warrants in the United States and eight countries, seized approximately $50 million in assets and targeted sites where Megaupload has servers in Ashburn, Va., Washington, D.C., the Netherlands and Canada. In addition, the U.S. District Court in Alexandria, Va., ordered the seizure of 18 domain names associated with the alleged Mega conspiracy."
The domain is no longer accessible. If one attempts to use an internet browser to access www.megaupload.com, the web page that is returned states that "This domain name associated with the website Megaupload.com has been seized pursuant to an order issued by a U.S. District Court."
The Office of the U.S. Trade Representative (OUSTR) listed Megaupload in its report [6 pages in PDF] titled "Out-of-Cycle Review of Notorious Markets", released on December 20, 2011. See, story titled "OUSTR Releases Notorious Markets Report" in TLJ Daily E-Mail Alert No. 2,321, December 21, 2011.
The OUSTR classified Megaupload as a "cyberlocker", that enables "users to store files on servers that can be accessed at any time and from any location, which allows widespread sharing among users who obtain the link to these ``lockers.´´"
The OUSTR added that cyberlockers, "while widely used for lawful purposes, can also enable the widespread distribution of unauthorized content by disseminating the link via websites, blogs, forums, etc."
The OUSTR also listed the United Kingdom based Putlocker web site as a notorius cyberlocker. It stated that this "site offers both streaming and downloading of significantly large video files, and includes a reward system for popular uploaders." Putlocker remains online.
The indictment states that megaupload.com is a "commercial website and service operated by the Mega Conspiracy that reproduces and distributes copies of popular copyrighted content over the Internet without authorization. Since at least September 2005, Megaupload.com has been used by the defendants and other members and associates of the Mega Conspiracy to willfully reproduce and distribute many millions of infringing copies of copyrighted works, including motion pictures, television programs, musical recordings, electronic books, images, video games, and other computer software."
The indictment states that the "Mega Conspiracy" collected about $150 Million in subscription fees, and about $25 Million in adverting fees.
It also states that "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. The more popular content that was present on Mega Conspiracy servers would increase the number of visitors and premium users that the Conspiracy could monetize".
The indictment explains that while Megaupload.com advertises itself as a "cyberlocker", in fact, the vast majority of its "users do not have significant capabilities to store private content long-term". For example, uploaded files must be downloaded within 21 days, and at least every 90 days thereafter, or Megaupload.com deletes them. Moreover, when users download stored files, advertisements are displayed.
The indictment continues that "The content available from Megaupload.com is not searchable on the website, which allows the Mega Conspiracy to conceal the scope of its infringement. Instead of hosting a search function on its own site, the Mega Conspiracy business model purposefully relies on thousands of third party ``linking´´ sites ..." In addition, the "Mega Conspiracy" provides "financial incentives for premium users to post links on linking sites ..."
The indictment also states that the defendants did not terminate the accounts of known copyright infringers, and only selectively complied with their obligations to take down infringing files.
The indictment also charges conspiracy (18 U.S.C. § 371) to commit criminal copyright infringement (17 U.S.C. § 506 and 18 U.S.C. § 2319), as well as criminal copyright infringement, and aiding and abetting criminal copyright infringement.
It also seeks forfeiture of property, including $175 Million in revenues, bank accounts, PayPal accounts, 18 enumerated domain names, and Mercedes-Benz, Maserati, Lamborghini, Rolls Royce and other cars.
The indictment also includes charges based upon the DOJ's expansive readings of the relevant statutes. For example, the indictment charges conspiracy to commit racketeering in violation of 18 U.S.C. § 1962.
The Congress enacted the Racketeer Influenced and Corrupt Organizations Act (RICO Act) in 1970 to facilitate the criminal prosecution of the organized crime leaders. The persons and organizations targeted by this Act tended to maintain their organizations with violence and corruption of law enforcement, circumstances that are not present in this action. The DOJ has gradually expanded the reach of the RICO Act since 1970, with the acquiescence of the courts.
The indictment also charges conspiracy to commit money laundering, based upon making
incentive payments to users. This too goes beyond the purposes for which the statute was