Some More on SOPA

January 31, 2012 News

Last week, as the Internet world was still reeling from the SOPA and PIPA controversies, the Department of Justice (DOJ) was busy enforcing existing copyright infringement laws. On Thursday, January 19, the government shutdown Megaupload, the massive file-sharing website.

The site was one of the most popular on the web, receiving some 50 million unique visits per day—nearly a quarter the average daily traffic to Google, according to Quantcast, a company that measures online audiences. All that remains is an imposing banner on their website with the seals of the FBI and DOJ: “This domain name associated with the website has been seized pursuant to an order issued by a U.S. District Court.”

Megaupload, along with its subsidiary site Megavideo, allowed users to upload and/or stream copyrighted movies and television shows. The DOJ called the action “among the largest criminal copyright cases ever brought by the United States.”

A Virginia grand jury indicted the company and many of its executives on January 5. Charges included racketeering conspiracy and conspiracy to commit copyright infringement. The DOJ argues that Megaupload’s operators earned more than $175 million in illegal profits and caused an estimated $500 million in harm to copyright holders. (Not surprisingly, the profits from any advertising on the popular website went directly to the company, and not to the movie studios or television networks that created the hosted content).

After the indictments, authorities arrested 4 people and executed more than 20 search warrants in the United States and 8 foreign countries, seizing 18 domain names and an estimated $50 million in assets—including the company’s primary servers run in Virginia and Washington, D.C.

Most attention is being focused on German millionaire and fortuitously named Megaupload founder Kim Dotcom. Dotcom was arrested by police in New Zealand and seems likely to be extradited to the U.S. to stand trial in federal court. His lawyer has said that the company simply offered online storage and that his client is innocent.

Was this shutdown just an effort by the government to flex its muscles in the midst of the SOPA/PIPA scandals, or is there a broader legal significance? Probably the former, according to most analysts. Many thought that the timing was suspicious, given that the sites were shut down barely 24 hours after major websites like Wikipedia and Reddit voluntarily went dark to protest the bills in congress. The takedown will surely be welcomed by the music and entertainment industries, which had been lobbying heavily for those pieces of legislation. (Those proposed bills, if passed, would make it easier for U.S. courts to go after piracy sites that, unlike MegaUpload, operate entirely overseas and thus escape American jurisdiction).

If there is broader significance, the case could test the strength of the so-called safe harbor clause of the Digital Millennium Copyright Act. §512(c) of the Act establishes a “notice-and-take-down” scheme under which providers are immune from third-party (i.e. user) infringements as long as providers “respond expeditiously” when notified of specific infringements by copyright holders. In layman’s terms: providers are not immediately responsible if a web user posts something that infringes on a copyright holder’s rights until that holder notifies them. Once notified, the company bears the obligation to investigate and remove the troublesome content or risk liability.

Megaupload seeks to invoke this clause, according to its lawyers, claiming that the website should be treated like YouTube. However, safe harbor does not exist if the site has “actual knowledge” of pervasive infringement and does nothing to stop it. The sheer magnitude of infringing content alone could make it difficult to convince a court that it deserved immunity.

Moreover, Megaupload actually offered paid users who uploaded popular content—another fact that could cut against its stance of being merely an “online data locker.” Felix Wu, a professor at Cardozo Law School, noted in an interview with Law360 that these facts suggest that “they were directly engaging in copyright infringement or assisting people with infringement.”

This could have far-reaching effects if the United States will begin taking a more active role in policing online infringement—particularly given the global nature of these cases, and the attendant extraterritoriality concerns. Stay tuned… depending on which website you are reading this on.

Brian Farkas