Executive summary

This report aims to criticize how the Megaupload.com breached US’s Copyright and was

prosecuted in terms of copyright infringement, racketing and money laundering. The beginning

of this report articulates the business background of Megaupload on what it did and the way its

business operated. Next, the critiques associated with US’ laws are analyzed in an attempt to

identify the points where Megaupload breached the US’s law. The analytics discover that

Megaupload had conducted illegal activities which offended US’s business regulation and

harmed entertainment industries. In contrast, this report also examines how reasonable it is for

the defender’s claims that help Megaupload out of the bail in New Zealand’s court and made

Kim Dotcom are currently under the extradition to USA.

The following part of this report demonstrates the implications on Cloud storage services society

and their customers after Megaupload was shutdown. The finding shows that many Cloud web

services have become aware. Some websites close themselves down whereas others start to have

precautions, change their notifications and regulations to access the websites and this also

includes Apple’s iCloud.

The second part of this report scrutinizes Mega.co.nz, the successor of the Megaupload.com,

which now operates in NZ. The report analyzes these website activities based on NZ copyright

laws. The outcomes reveal that this website is more law proof than its older version in which in

case of any problem in terms of copyright infringement will target at the customers only, not the

web hosting as the details are mentioned in the report. Moreover, to prove the case, an example

of case study that based in NZ was introduced as how to the NZ’s laws may not impact Mega but

only directly to its customers.

Lastly, the summary and a suggestion are formulated that there are the gaps in the laws that

conflict each other’s in which changing people’s attitudes since their young ages would be a

solution to those problems.

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Table of Contents

1 Business background…………………………………………………………..……………… 2

2 Megaupload.com……………………………………………………………………….……… 3

2.1 Megaupload breached the laws of the USA …………………………………………………. 3

2.2 Megaupload defenses………………………………………………………………………….. 4

2.3 The implications on Cloud storages…………………………………………………………... 5

3 Mega.co.nz……………………………………………………………………………………… 6

3.1 Mega, the successor of Megaupload………………………………………………………….. 6

3.2 Mega and NZ copyright………………………………………………………………………... 7

3.3 Example case…………………………………………………………………………………..... 8

Reference………………………………………………………………………………………... 8

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1. Business background

In the modern life, while most of people’s activities are related with internet, a new internet

service is infringement machines which allow users to upload and share copyrighted data to the

public worldwide. The well-known websites which are known for infringing copyrighted

contents are “Megaupload, RapidShare, Hotfile, and 4Shared” (Recording Industry Association

of America, 2014). However, one of these websites was shut down because of copyright

infringement is Megaupload.

Megaupload Ltd was found by Kim Dotcom in 2005 with the head quarter in Hong Kong. With

the webpage is www.megaupload.com, Megaupload ran online services like data storage and

downloading. With 18 languages and convenient services, Megaupload became 13 th most

frequently visited site and attracted about 50 million daily visits (Horwitz & Kang, 2012). They

offer for both free members and Premium members who paid for the service to host, share and

download functionality. Besides that, Megaupload created a program which allows users to post

as well as download file multiple times by paying with their account point and cash.

Consequently, they earn the most revenue from both ad replacement and premium memberships

(Recording Industry Association of America, 2014). In addition, RIAA supported that “by many

accounts, the company’s chief has made a lot of money on this illegal enterprise and not one cent

of it has gone to songwriters, artists or labels for the downloading of their music, which serves as

the primary draw of Megaupload business model”. As a result, Megaupload becomes one of the

most “egregious online hubs of copyright theft” (RIAA).

For these illegal activities, on January 19, 2012, Megaupload was shut down by the United States

Department of Justice for the copyright infringement. Horwitz and Kang claimed that

Megaupload had earned more than 175 million dollars from charging their subscription fees and

onlineadvertisement while authors, musicians, movies producers and other copyright holders

were robbed more than 500 million dollars (2012). Horwitz and Kang believed that the shutting

down of Megaupload by Department of Justice can do protect American Intellectual property. In

addition, in January 2012, Kim Dotcom, the founder of Megaupload, was arrested in New

Zealand under the US charges of criminal and now under the extradition (Horwitz & Kang,

2012).

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2. Megaupload.com

2.1. Megaupload breached the Laws of the USA:

First of all, before Megaupload is subjected as guilty, there must have the persecutors who sue

Megaupload. In this case, there are three persecutors, which are Department of Justice (DOJ) of

USA, the Recording Industry Association of America (RIAA) and the Motion Picture

Association of America (MPAA), who claimed Megaupload as conspiracy in committing

racketing, money laundering and copyright infringement (Dredge, 2014).

The charges from those persecutors relies on two criminal copyright statutes, 17 U.S.C. § 506(a)

(1)(A) and 18 U.S.C. § 2319(d)(2).

The 17 U.S.C. § 506(a)(1)(A) outline as: (a) Criminal Infringement – in general – any person

who willfully infringes a copyright shall be punished as provided under section 2319 of title

18… and 18 U.S.C. § 2319(d)(2) demonstrates the penalty as (a) Any person who violates

section 506 (a) (relating to criminal offenses) of title 17 shall be punished as provided in

subsections (b), (c), and (d) and such penalties shall be in addition to any other provisions of title

17 or any other law (White, 2012).

When comparing those two remarks with Megaupload’s activities that the report already outlined

in the business background, Megaupload would be under the bail as the following reasons:

1. Megaupload offered cash bounties as an incentive to users based on the number of times

other people download their contents. This behavior is not under the online business

model and represents as a channel that encourages uploaders to be more infringement for

copyright due to the demand of the free and none subscription contents. In addition,

Megaupload neglected to seek and eliminate all the contents and links regarding

intellectual property after the Megaupload was informed. What Megaupload did is only

deleted the specific link but keep other links that still made the customers could

download the copyright files. This is considered as guilty in federal criminal law

("Megaupload domains seized in copyright infringement case," 2012).

2. Megaupload had no accountability as it was the host website delivering those services.

The web owner was already aware and be able to inspect any file on their website but

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ignore to control and take out any file in the database that harmed copyright materials

("Perfect 10 targets Megaupload," 2011).

3. Megaupload broke the common digital business model of cloud storage services in terms

of making profits. For example, features. Megaupload deleted any file that has no

download after 90 days or 21 days for users who have not subscripted. Rather than to be

stored in the database properly, any file that has no or low download will be eliminated

whereas the popular one got pay. This is the uncommon way of cloud sourcing storage

data activity (Parloff, 2012).

4. Megaupload’s operating model was wrong. In Megaupload, only small number of users

paid for registration of storage capacity. Hence, most of the money came from

advertisement. These advertisements were viewed when there were downloading

activities which mean this was not the storage business model (sambookman, 2012).

5. Megaupload allowed indicted persons to instruct and share the link related to infringing

contents. For instance, indicted persons could able to search inside internal database for

copyright materials ("Megaupload domains seized in copyright infringement case,"

2012).

6. Megaupload did not terminate any accounts that found rendering intellectual property

resources infringement. This showed that Megaupload accompanied the guilty users.

7. 91 percent of 66.6 million subscripted customers had never put any of their actual data

such as personal office documents or business data in Megaupload’s database except

illegal files of copyright. Moreover, 90 percent of the download and upload were

infringing materials (Parloff, 2012).

2.2 Megaupload defenses:

For Megaupload, it can defense and put itself at the safe harbor under the First Amendment

Doctrine (FAD), Digital Millennium Copyright Act (DMCA) and the Universal Declaration of

Human Rights (UDHR). Megaupload would have alibis as:

1. Even though DMCA enforces that copyright host web page has to remove the copy right

contents from the page, it does not regulate that the files must not be appeared on that

page again. As a result, the infringing copyright stuff was uploaded again after the

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previous one was deleted. In this case, Megaupload can say that it was out of control

(Reuters, 2014).

2. Megaupload provoked DMCA that it already did what the web supposed to do in terms of

noticing and taking down information as DMCA impulses but the problems belong to the

users. Megaupload already illustrated the handing copyright notices and counterclaim on

the webpage. Hence, before every single file was uploaded, the notification was warned

(Ernesto, 2012).

3. Dotcom explained in his interview that he can prove that he also spent millions of dollars

on legal consultants and they guarantee that what he did is legal (Parloff, 2012).

4. Megaupload provokes FAD that the company had to protect and cannot reveal or access

to the property (uploaded files) of the users under this law. What the users stored in the

website would automatically be protected under the copyright holders. So that,

Megaupload cannot intervene that information (Mennecke, 2013).

5. As a consequence, Megaupload can argue that it has no idea what was uploaded to the

database because every uploaded file from users has its private encryption. This means

that Megaupload cannot be held responsible if that file is illegal (Wagner, 2013).

6. Under the UDHR, there should have no interfere to personal privacy, family,

correspondence and home as well as to attack upon the honor and reputation. This makes

the argument from Megaupload has more power in terms of protecting and not to

interfere their users’ properties (Schaffarczyk, 2013).

There are the gaps in the laws that help Megaupload’s owner Dotcom to still be free. The

imprecise of laws and incompatible with acts create the conflict between themselves rather than

to support each others. For example, the copyright law turns as a violation of free speech. These

make the laws cannot impulse the justice properly and Megaupload out on bail.

2.3 The implications to Cloud storages:

There are many sites has operated the business similar to Megaupload, for example, 4Shared,

Filesonic, Dropbox and Google Drive. After Megaupload’s activities were indicted as criminal

business against the laws, other cloud storage operators become aware. Some websites close

themselves down whereas others start to have precautions, change their notifications and

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regulations to access the websites and this also includes Apple’s iCloud. Upon all above, there is

a question as to who own the data and what are the implications if the cloud storage is shutdown

like Megaupload (Mennecke, 2013).

Cloud storages, like Apple’s iCloud, have many servers in different locations all over the world.

The way these businesses operate is as the cyberlockers. The analogy that we can portray here is

a bank that offers a safe locker for a customer, the property inside that locker belongs to the

customer and the customer pays for the safety only and this is the same as Cloud. In every Cloud

storage, before the data is uploaded, there is a notification that the website shows their

responsible only for space of storage. In regard to files and contents, it is the users who own the

data and have to take account for what they have uploaded.

As Megaupload was taken down, many cloud services are in the spotlight and impacted from the

people feeling that their information on cloud is at risk. In addition, as some function on some

cloud websites are disabled in order to avoid targeting by law, this creates unsatisfaction to

customers. As a consequence, number of traffics on cloud storage decreases, people have begun

to backup their data in the secondary devices such as portable hard drive and mainframe

(Albanesius, 2012).

3. Mega.co.nz

3.1 Mega, the successor of Megaupload:

After fleeing to New Zealand and now under the process of extradition to USA, Kim Dotcom has

run the successor of Megaupload.com namely Mega.co.nz on January 19, 2013. Just one hour

after the website kicked off, 100,000 users signed to the site and followed by more than 1 million

in 24 hours. In addition, mobile version in Android, Blackberry and iOS is available as the

website can run on the HTML5 platform (Schaffarczyk, 2013).

The remarkable of this new website, Mega, is about the attractiveness of availability of the

storage space. Mega offers free 50 GB and 4 TB for the paid accounts.

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3.2 Mega and NZ Copyright:

Kim Dotcom has confidence to announce that Mega is copyright focuses and more law proof

than Megaupload because the website requires customers not to infringe intellectual property nor

illegal activities. For Mega, it uses Advanced Encryption Standard algorithm which generates a

second unique key for the decryption of the files. This means that only a person who can access

the file is that file’s subscriber (Wagner, 2013).

On one hand, this shows a good security mechanism and privacy for uploaders. On the other

hand, it means Mega does not need to respond for any illegal commitment as it can defenses

itself that it cannot lock into any personal customers’ files. If any film studios or audio

companies discover infringing contents in the website, they can have prior to access the content

but they cannot sue the site as the accountability action belongs to the file’s uploaders (Kerr,

2012).

According to New Zealand copyright laws which are Copyright Act 1994, Copyright (New

Technologies) Amendment Act 2008 and Copyright (Infringing File Sharing) Amendment Act

2011 (CIFSAA), there are rooms for Mega to avoid the legal enforcement under those act (New

Zealand legislation, 2014a, 2014b, 2014c).

1. NZ copyright laws persecute directly the person who infringing files which are the

uploaders rather than both the host website and the uploaders like in USA. This makes

Dotcom is not guilty and still stays in NZ under this law for the Megaupload case (New

Zealand legislation, 2014a).

2. NZ copyright laws prioritize NZ intellectual properties so that any infringing materials

from outside NZ in the Mega will not be claimed as illegal until there is any owner of

those property requests for inspection and sues Mega.

3. From the point 2, the prosecution of none NZ property from aboard, such as from USA,

is considered as the secondary copyright infringement charge which is the crime that

unprecedented both in USA and NZ. This is the reason why Dotcom still under the

extradition in NZ (Parloff, 2012).

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4. Even though the NZ copyright laws really restrict toward any NZ property, there are still

some problems in that laws. For example, exclusion and fair dealing. This articulates that

any copyright resources that are used for criticisms, news reporting, educational study or

new format shifting will not be identified as infringement (New Zealand Legislation,

2014c).

5. Peer to peer (P2P) file sharing activity is a channel that can harm NZ copyright laws. P2P

is under the protection of s14 of the New Zealand Bill of Right Act (NZBORA). The

transferring of files that fall into this category, if has a reasonable limited prescription,

will be supported by Free and Democratic Society Law (sambookman, 2012).

3.3 Example case:

The concrete example that the NZ copyright laws only target uploaders not the web hosting

like Mega is the case of Rianz. On November 24, 2011, Rianz (the Recording Industry

Association of NZ) on behalf of Sony Music sued a customer of Telecom on downloading

infringing song of Rihana, “Man Down”. Although this customer has not been aware the

actions were illegal. This customer of Telecom, not the web hosting itself, had to pay the

damage of $616.57 to Rianz. This example makes Mega has the feeling that the way it

conducts the business in NZ is at the safe harbor.

4. Summary

As Dotcom is still free, this can prove that the gaps in the laws and cooperation of states are

not properly functioned. Besides, the conflict between laws themselves has become an issue

that provides rooms for criminals and infringement. In addition, data sovereignty is emerging

as a problem on what is the boundary power of intervention between countries. Those

problems are hard to be solved. To this article, rather than to focus on outcomes and

consequences, we should look into the root of the problem which is the attitude of the web

surfers. In many countries such as China, the copyright law is extremely weak and the people

do not have a good perception on what it means and its implication in terms of intellectual

property. Therefore, we should implant the awareness on those issues to people since the

young ages. As a result, the new generation will be aware and behaves in the right attitudes.

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References:

Albanesius, C. (2012). After Megaupload, storage sites shutter services. PC Magazine, 1-1.

Dredge, S. (2014). Kim Dotcom and Megaupload sued for copyright infringement by music labels. Retrieved from http://www.theguardian.com/technology/2014/apr/11/riaa-mpaa-megaupload-kim-dotcom-piracy-lawsuits

Ernesto. (2012). MegaUpload shut down by the Feds, founder arrested. Retrieved from https://torrentfreak.com/megaupload-shut-down-120119/

Horwitz, S., & Kang, C. (2012). Federal indictment claims popular Web site shared pirated material. Retrieved from http://www.washingtonpost.com/pb/business/economy/federal-indictment-claims-popular-web-site-shared-pirated-material/2012/01/19/gIQA4rDwBQ_story.html

Kerr, D. (2012). MegaUpload rises from the dead as Mega. Retrieved from http://www.cnet.com/news/megaupload-rises-from-the-dead-as-mega/

Megaupload domains seized in copyright infringement case. (2012). Telecommunications Reports, 78(3), 7-8.

Mennecke, T. (2013). MegaUpload.com and first amendment in the digital age: How copyright enforcement is threatening free speech and how the constitution can win. Retrieved from http://www.slyck.com/story2238_First_Amendment_in_the_Digital_Age_How_Copyright_Enforcement_Is_Threatening_Free_Speech_Online_And_How_The_Constitution_Can_Win

New Zealand legislation. (2014a). Copyright (Infringing File Sharing) Amendment Act 2011. Retrieved from http://www.legislation.govt.nz/act/public/2011/0011/latest/DLM2764312.html?search=ts_act%40bill%40regulation%40deemedreg_copyright+%28infringing+file+sharing%29_resel_25_a&p=1

New Zealand legislation. (2014b). Copyright (New Technologies) Amendment Act 2008. Retrieved from http://www.legislation.govt.nz/act/public/2008/0027/latest/DLM1122502.html?search=ts_act%40bill%40regulation%40deemedreg_copyright+%28infringing+file+sharing%29_resel_25_a&p=1

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New Zealand Legislation. (2014c). Copyright Act 1994. Retrieved from http://www.legislation.govt.nz/act/public/1994/0143/latest/DLM345634.html?search=ts_act_copyright+act&sr=1

Parloff, R. (2012). Megaupload and the twilight of copyright. (cover story). Fortune, 166(2), 130-140.

Perfect 10 targets Megaupload. (2011). Managing Intellectual Property(206), 87-87.

Recording Industry Association of America. (2014). Megaupload: The real story. Retrieved from http://www.riaa.com/news_room.php?content_selector=riaa-news-mega-upload-news-real-story

Reuters. (2014). Ex-Bank of New York Mellon employee pleads guilty to insider trading. Retrieved from http://fortune.com/2014/10/24/bank-new-york-mellon-insider-trading/

sambookman. (2012). A justified limitation? The Copyright (Infringing File Sharing) Amendment Act 2011. Retrieved from http://nzhumanrightsblog.com/policy/a-justified-limitation-the-copyright-infringing-file-sharing-amendment-act-2011/

Schaffarczyk, K. (2013). Can Kim Dotcom’s Mega beat the law where Megaupload failed? Retrieved from http://sciblogs.co.nz/guestwork/2013/01/30/can-kim-dotcoms-mega-beat-the-law-where-megaupload-failed/

Wagner, K. (2013). One important way Mega is more law-proof than Megaupload. Retrieved from http://gizmodo.com/5977674/one-important-way-mega-is-more-law-proof-than-megaupload

White, K. (2012). More notes on federal criminal law and the Megaupload case. Retrieved from http://www.popehat.com/2012/01/24/more-notes-on-federal-criminal-law-and-the-megaupload-case/

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Appendices

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