Justice Department Looking To Change The Law That Made It Impossible To Serve Megaupload

from the but-of-course dept

This one is a bit old, but it appears that nothing's happened on it yet. cosmicwonderful alerts us to the fact that, back in October, the DOJ asked the federal courts to amend the rules on serving criminal complaints to foreign companies. As you may recall, the Justice Department ran into a bit of a hiccup when the courts first realized that Megaupload is a foreign corporation with no US address, and that the federal rules on issuing an arrest warrant or summons requires that a copy be sent to "the organization's last known address within the district or to its principal place of business elsewhere in the United States."

But what if there is no business in the US? That's what the DOJ and Megaupload have been fighting about in the courts, though the courts have (so far) said that the DOJ can proceed. Still, with this requested amendment, the DOJ makes it clear it doesn't want to run into this issue again.

The Department of Justice recommends amendments to Rule 4 of the Federal Rules of Criminal Procedure to permit the effective service of a summons on a foreign organization that has no agent or principal place of business within the United States. We view the proposed amendments to be necessary in order to effectively prosecute foreign organizations that engage in violations of domestic criminal law.

First, we recommend that Rule 4 be amended to remove the requirement that a copy of the summons be sent to the organization's last known mailing address within the district or principal place of business within the United States. Second, we recommend that Rule 4 be amended to provide the means to serve a summons upon an organization located outside the United States. The proposed amendments are necessary to ensure that organizations that commit domestic offenses are not able to avoid liability through the simple expedients of declining to maintain an agent, place of business and mailing address within the United States.

While most of the request for the amendment focuses on a ruling in a case involving Chinese espionage via a Chinese firm called Pangang, Megaupload and Kim Dotcom do get a mention. The DOJ first notes how unfair it seems that it can't unleash its powers on foreign companies:

Accordingly, the United States maybe faced with the anomalous result that a private civil litigant will be able to pursue an action against an organization while the government remains helpless to vindicate the laws of the United States through a corresponding criminal proceeding.

And then discusses Megaupload in a footnote:

Another example is provided by a pending case, United States v. Dotcom.... A grand jury returned an indictment against foreign organization Megaupload Limited and other defendants on racketeering, copyright infringement and money laundering charges. In response, Megaupload Limited — a foreign organization that has an extensive presence in the United States (it allegedly leased more than 1,000 servers in the United States, facilitated the distribution of illegally reproduced works throughout the United States, and has caused damages in excess of $500 million to victims) — has specially appeared and argued that it is immune from prosecution in the United States simply because it does not have an agent or mailing address in the United States: "Megaupload does not have an office in the United States, nor has it had one previously. Service of a criminal summons on Megaupload is therefore impossible, which forecloses the government from prosecuting Megaupload."

I wouldn't be surprised to see this amendment eventually go through, though it still does seem somewhat questionable to think that the US government can bring criminal charges against a foreign company with no physical presence within the US.

Filed Under: criminal complaints, doj, foreign companies, kim dotcom, summons
Companies: megaupload

A Tale Of Two Studies: File Sharing Hurts Sales!

from the fun-with-data dept

Over the last couple of weeks, we've seen a bunch of folks on all sides of the debates about file sharing point us to two studies that have come out, one of which supporters of greater copyright enforcement insist prove their point, and another which seems to show (yet again) that file sharing has little impact on buying habits. I wanted to take the time to look through both studies before writing about them, and since they came out so close together, we might as well do one post looking at both. As I started to write up a single post about it all, it got really, really long. So I'm breaking it into three separate posts. One about the first study, which argues that file sharing hurts sales, one that looks at the second study, which argues that file sharing does not hurt sales (and may actually increase sales), and then a third post, which tries to reconcile the findings of the two studies, while also responding to some of the criticism.

The first study is called Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales and is by Brett Danaher and Michael Smith. Smith, especially, has a long history of producing reports that copyright maximalists love. For example, both he and Danaher were responsible for a study last year claiming that the Hadopi 3 strikes program had increased iTunes sales. Unfortunately, a quick review of that report raised serious questions about the basis for those claims, as an alternative hypothesis (related to the sale of new iPhones) showed much more compelling data. I see his name on a lot of research sent around by the maximalists. It's worth noting, as well, that the study was effectively funded by the MPAA, since it was a project of a program run by Smith and funded by the MPAA. Oddly, the paper fails to disclose this tidbit.

This new study seeks to answer a question we've been asking over and over again: do any of these enforcement efforts actually increase sales? There has been evidence that greater enforcement has a small, but temporary, impact on decreasing infringement, but there was not that much data concerning actual sales. In fact, we've pointed to data (contradicting Smith's other report) that suggested Hadopi had done little, if anything, to increase sales. However, the data here has been limited, in part because there are so many other variables at play, so it's difficult to separate out the actual impact. Smith and Danaher try to use data from various studios to look at the impact on movie sales following the Megaupload shutdown.

To try to determine the impact of the shutdown of Megaupload, Danaher and Smith basically compare movie sales before and after the shutdown date in a few different countries that had very different Megaupload usage. For example, they (using Google Adwords data) suggest that Megaupload had 2% penetration in the US, but 17% in Spain. Then they look at what the impact was in terms of digital movie sales and rentals compared across the different countries, and whether or not there were more sales in countries that had more Megaupload usage. They use this to argue that the key difference is Megaupload usage. The end result is that countries that had more Megaupload penetration saw a greater increase in digital movie sales and rentals following the shutdown than the countries that had lower Megaupload penetration. As they note:

This difference is both statistically and economically significant. Our findings indicate that digital movie revenues for two studios were 6-10% higher over the 18 weeks following the shutdown (across 12 countries) than they would have been if not for the shutdown.

This chart highlights the basics: As you can see, the countries that had higher Megaupload penetration (Mexico, Belgium, France and Spain) all also showed distinctly more sales relative to the other countries, which had relatively lower Megaupload penetration. There's a similar chart for rental data as well, in which you see a similar pattern, though not nearly as strong a correlation.

While I've seen some criticism online of these findings, I actually think the basic research and methodology is fairly solid. Those who have jumped up and said "correlation is not causation" are ignoring the various methods that the researchers used to isolate the shutdown. However, I'm not sure that the conclusions are quite as meaningful as some have suggested. First off, we've seen very similar data when it came to decreases in file sharing after enforcement increases -- but the impact has always been shown to be temporary, until people settle in on a new method for infringement. It would make sense that some users of such a service, who don't want to go hunting for a new free option, will switch to an authorized service if it's available. But if they become aware of other services, they might also switch back. The amount of time the impact lasts will be a key thing to watch.

Of course, the other key thing that is left out of the picture in this study is the role of authorized services in all of this. Part of the reason for the growth of infringement on Megaupload in the first place was the dearth of compelling, simple, non-annoying, authorized services. The industry has, finally, been trying to increase those, and so it could be that people who couldn't find any legit services before looked around again after the shutdown and found newer, better services. While the authors of the report say the findings suggest that Megaupload usage decreases sales, a possible alternative explanation would be that the slow pace with which the industry rolled out authorized services was equally, if not more, responsible. Either way, this report is a useful contribution in understanding the impact.

In our next post, we'll explore the second study that came out even more recently, which appears to come to a very different conclusion.

Filed Under: brett danaher, copyright enforcement, file sharing, michael smith, sales, studies
Companies: megaupload

Human Rights Lawyer Explains Why He's Working For Kim Dotcom: Exposing American Corruption

from the corruption-laundering dept

We recently wrote about how Kim Dotcom has retained famed human rights lawyer Robert Amsterdam to explore whether or not there's a human rights angle to his case, specifically alleging "contract prosecution" by the entertainment industry. I'm still somewhat skeptical that such an argument could go anywhere, but Amsterdam himself has put up a rather detailed blog post, explaining why he's taking the case, which may seem quite different than his usual fare: taking on corruption and human rights violations in far flung parts of the world, including Africa and Latin America. After highlighting the many problems with the case (and the continued failures in court to date), as well as the close ties prosecutor Neil MacBride has with big copyright holders, he points out that he sees some serious similarities to what's happening here with the kind of corruption he's witnessed in third world nations.

This case highlights not only the issue of “state capture” by the Hollywood lobby, but at the same time should lead to a thoughtful discussion on how we define corruption. No one would venture to allege that there is any form of cash payment taking place when official bodies appear to act at the behest of special interests motives. Because that’s not how these groups work.

It is a demonstration of the growing ambiguity of the lines between regulators and the regulated, and the proper role of intellectual property in the digital age. As we’ve seen in the sad and tragic case of Aaron Swartz, for whom Prosecutor Carmen Ortiz was seeking 13 criminal charges and more than 50 years in jail, the American justice system is increasingly flawed by this prosecutorial exuberance aimed at future political reward.

It is one thing when the victims of these abuses are American citizens, who live at the whim of an unaccountable prosecutorial machine driven by personal political ambitions and an appetite for headlines. It is something else entirely when these prosecutors visit their ambitions upon foreign citizens, charging them with heinous crimes with no basis under law, even if that person has never once set foot inside the United States (like Kim Dotcom).

That is, he appears to be aware of the nature of corruption laundering that's going on -- using the close connection between big businesses and governments to create laws where people can make the case that cracking down on some behavior is necessary to stop crime, but where the details show it's really about cracking down on competition and innovation.

And, he notes, this sort of activity is a huge stain on the US and the federal government:

With this attempt to “colonize” the global internet under U.S. laws, Washington is quickly making a bad name for itself, and putting its considerable influence on the wrong side of digital rights, free markets, and competitive innovation. They do this in the name of protecting a broken business model, subsidizing monopolies, and seeking to destroy crucial online functions instead of adapting to the incredible opportunity afforded to them through mass connectivity. We deserve better, we can do better, and everyone can benefit from a more reasonable approach focused on the best interests of the public, not the best interests of lobbyists and the politicians in their pockets.

We see this as a grand ideological debate with far-reaching implications, and sadly, my lengthy experience in countries where special interests control the levers of power may have some utility here.

Even if there isn't a legal human rights angle, it should be interesting to see what Amsterdam turns up. This growing recognition of how laws are created to benefit legacy players, and then used against innovators, is a real problem. Shining more light on that would be tremendously helpful in actually promoting important innovations.

Filed Under: corruption, human rights, kim dotcom, robert amsterdam
Companies: megaupload

Kim Dotcom Hires Human Rights Lawyer To Claim MPAA's Chris Dodd Targeted Him In 'Contract Prosecution'

from the seems-like-a-longshot dept

Lost in all of the hype about the launch of Kim Dotcom's new Mega service was the fact that he's hired a new high profile lawyer, with a different focus. Some of the details were buried in Ars Technica's coverage of the Mega launch party, in which they mention the adding of Robert Amsterdam to the legal team:

Also circling is the latest addition to Dotcom’s ever-expanding legal team: Robert Amsterdam of Washington, DC and London-based Amsterdam & Partners. The human rights lawyer says his key work has been in Venezuela, Russia, and Nigeria. Now he's contracted by Kim Dotcom to investigate a possible human rights angle on the Megaupload case—in particular whether one human, former Senator and current MPAA head Christopher Dodd, breached Dotcom’s rights by going out of his way to engineer what Amsterdam said could be seen as a “contract prosecution.”

Amsterdam agrees his work could help Dotcom seek redress from the US government down the track. But his immediate aim is to publicize Dodd’s role. “This prosecution should not be afforded the presumption of regularity," he says. "The way this was done—the helicopters; the rappelling down the buildings [of Dotcom mansion]; the over-reaction—all of these are signs of a classic political prosecution.”

Amsterdam will spend the next two days interviewing the Megaupload team as part of his preparations for a “white paper” he will publish in around two months’ time.

This strikes me as a huge longshot for a variety of reasons, but it certainly makes for an interesting storyline to follow. If such an investigation actually does get somewhere, there could actually be blowback for those who led the charge against Dotcom. As it stood, it seemed unlikely that, even if the case fell apart, there would be any ramifications for those who championed the cause in the first place. Again, I find it highly unlikely that this exploration will lead anywhere, but Dotcom's legal team has done amazingly well on a variety of fronts to date, so perhaps they know more than has been made public already about all of this.

Filed Under: chris dodd, contract prosecution, human rights, kim dotcom, robert amsterdam
Companies: megaupload, mpaa

Megaupload to DOJ: Misleading Semantics Aside, You Told Us You Were Investigating Infringing Files, So We Preserved Them

from the these-things-are-important dept

The back and forth between the DOJ and Megaupload continues. As you may recall, a key piece of evidence against Megaupload was the fact that it "knew" about certain infringing content on the site after being informed about it - and that Megaupload left that content in place. However, when the warrant was finally unsealed (over objections from the DOJ), it revealed that the "reason" that Megaupload "knew" about this content was because the DOJ had reached out to Megaupload's hosting partner, Carpathia, and told them about this content, seeking information about it for the purposes of a criminal investigation (likely Ninjavideo). Carpathia made all of this clear to Megaupload, and Megaupload cooperated entirely, and did not delete the content for fear of deleting evidence in a criminal investigation after it had been made aware of it.

Megaupload then pointed all of this out to the court, arguing that the DOJ misled the court in getting the warrant in the first place, since it didn't mention the specific circumstances for why Megaupload was aware of the content, but had kept it up. The DOJ's response, from earlier this week, was to argue that since the DOJ never contacted Megaupload directly, none of this matters.

Megaupload has wasted little time in hitting back hard, pointing out that (a) the DOJ was well aware that Carpathia had informed Megaupload of the investigation, (b) that, at the very least, Megaupload's actions in context show non-nefarious reasons for having left the content up (basically arguing the intent) and (c) that, no matter what, the DOJ needed to at least inform the court of these basic circumstances.

Third, the Government attempts to distance itself from what Megaupload was told about the 2010 warrant by emphasizing that it did not directly instruct Megaupload to preserve the allegedly infringing files. (Dkt. 155 at 3.) But it is well settled that a private party's actions are imputed to the Government when that party is enlisted by the Government and acts in accordance with the Government's instructions. Thus, courts confronting criminal searches and seizures have consistently found Fourth Amendment interests implicated where a private party acts as the Government's "instrument or agent." See Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 614 (1989); United States v. Richardson, 607 F.3d 357, 364 (4th Cir. 2010). As the Fourth Circuit has indicated, "the key factors bearing upon the question of whether a search by a private person constitutes a Government search are: '(1) whether the Government knew of and acquiesced in the private search; and (2) whether the private individual intended to assist law enforcement or had some other independent motivation.'" ....

Here, Carpathia's communications with Megaupload satisfy both prongs. The Government not only knew of Carpathia's actions but orchestrated them. Indeed, the Government's affidavit in support of the June 24, 2010 search warrant expressly requested that "Carpathia and its customer MegaUpload be permitted to view the warrant and Attachments A and B to the warrant to assist them in executing the warrant." ... Correspondingly, the Order sealing that warrant, which "found that revealing the material sought to be sealed would jeopardize an ongoing criminal investigation," authorized the Government to provide the warrant only to Carpathia, and authorized Carpathia to "provide a copy of the warrant with attachments and this sealing order to MegaUpload.".... In conveying the instructions to Megaupload, Carpathia noted that it had "attempted to convince the Government to work directly with Mega on this matter, but given the complex jurisdictional issues, they have been unwilling." .... It is equally clear that Carpathia's sole purpose in communicating with Megaupload on that date was to assist the Government in executing the June 24, 2010 warrant.

The key point is that even if the government believed Megaupload still could have deleted the evidence that it had explicitly sought from Megaupload (which would be quite surprising), it at least had the duty to make it clear why Megaupload was aware of this content, as that has a pretty direct implication on Megaupload's reasons for keeping the content around.

Even if the Government could somehow avoid responsibility for Carpathia's instructions and the Magistrate Court's sealing order, there would remain the undeniable fact that the Government failed to inform this Court of critical, exculpatory information about the circumstances under which Megaupload learned of the allegedly infringing files and subsequently cooperated with the Government's investigation. See United States v. Leon, 468 U.S. 897, 926 (1984) (material omissions that render search warrants misleading can be grounds for invalidating warrants);...

Once again, it seems like the government simply rushed through the Megaupload case, ignoring many, many important details, and basing its case on the theory that if the entertainment industry hates Kim Dotcom so much, he must be all bad. And, if you're dealing with someone "all bad" apparently the DOJ seems to think it can take a bunch of shortcuts.

Filed Under: doj, evidence
Companies: carpathia, megaupload, ninjavideo

DOJ Responds To Megaupload's Accusations Of Misleading The Court... By Misleading The Court

from the that's-how-that-works? dept

We've discussed a few times now how Megaupload is arguing that key elements in the warrant used to criminally charge the company and its principles were misleading to the court. In particular, Megaupload has pointed out that part of the "evidence" for criminal conspiracy was that Megaupload knew about infringing activity on the site, but chose not to do anything about it. However, as Megaupload made clear in its filing, the reason it knew about it was because it was informed that the content was subject to a federal investigation, and that the "evidence" needed to be preserved. As we detailed in our last post on the subject, the DOJ went straight to Megaupload's hosting partner, Carpathia, to let them know about this. Carpathia pleaded with the DOJ to talk directly to Megaupload (after receiving assurances that Megaupload was not the target), but the DOJ rejected that request.

However, since this was evidence of potentially criminal activity, Carpathia told Megaupload about it, implying that the DOJ was making it clear that Megaupload should not delete the files.

Notably, the Government avoided communicating with Megaupload directly, instead deputizing Carpathia to do so on its behalf. (See June 25, 2010 email from Phil Hedlund to Mathias Ortmann and Kim Dotcom, Ex. 1 ("Please know that we attempted to convince the Government to work directly with Mega on this matter, but given the complex jurisdictional issues, they have been unwilling").) Far from warning Megaupload that the Government considered it to be part of a worldwide criminal organization, which the Government even at the time was terming the "Mega Conspiracy," the Government, through its anointed agent Carpathia, represented to Megaupload that "[w]e have no reason to believe the [sic] MegaUpload is the target of the investigation."

Megaupload cooperated with the Government and voluntarily arranged with Carpathia to supply the Government with the files identified in the sealed warrant. In accordance with the Government's express admonitions--as conveyed to Megaupload through the sealing order and Carpathia's instructions--Megaupload avoided signaling that anything was afoot or otherwise compromising the investigation, preserving the files in their original condition without alerting users or the public that anything had changed. At no time did the Government or Carpathia indicate that Megaupload could or should remove the files identified in the warrant from its cloud storage platform without compromising the stated secrecy of the investigation, much less did they suggest that Megaupload was legally obliged to do so lest it be complicit in an ongoing criminal conspiracy.

The DOJ has now responded to these claims, and it's done so in its typically misleading fashion. For example, it insists that Megaupload is misleading in its own filing, because the DOJ never directly spoke to Megaupload. They leave out the whole part about the DOJ talking to Carpathia, who had to talk to Megaupload if it wanted to preserve the evidence in question without risk of it being deleted. But, no, in the DOJ's version, this is all just Megaupload fantasy talk.

Megaupload's pleading and the search warrant materials at issue disproves the allegation that the government misled the court as part of a conspiracy to entrap Megaupload. For instance, Megaupload alleges that the government "affirmatively [led]" Megaupload to retain certain files on its servers.... Yet Megaupload does not cite a single communication between the government and Megaupload or a single instruction from any member of the government to Megaupload; there are none.

Notice the lack of any mention of the Carpathia communications between the DOJ and Carpathia, or between Carpathia and Megaupload. That seems like relevant info that the DOJ conveniently just skips right over.

Is this really the best argument that the DOJ can put forth? The filing also does highlight that the DOJ made other arguments against Megaupload in its filings -- which is true -- but it doesn't mean that the questionable aspects concerning some of the key claims should simply be ignored, as the DOJ would prefer.

Filed Under: doj, entrapment, evidence
Companies: megaupload

Music Company Asks For Permission To Pursue Its Delayed Civil Suit Against Megaupload; States Extradition 'May Never Occur'

from the when-even-the-'good-guys'-are-getting-sick-of-the-endless-delays... dept

It's not just Kim Dotcom that's tiring of the endless procedural delays in the US's prosecution of him and his service. Other plaintiffs who are looking to legally pursue Dotcom for infringement are getting fed up with the length of the process, which still has no end in sight.

Microhits, one of two copyright holders who filed civil suits against Megaupload two months after after the FBI raid on Dotcom's home, has just requested it be allowed to move forward on its civil lawsuit as it feels the DOJ's case is taking too long to proceed.

Microhits has asked the United States courts to stop delaying its case against Megaupload until the extradition issue is resolved - because it might never happen.

New papers filed with the US district court in Virginia say the extradition is "a mere possible future event but indeed an event which may in fact never occur."

Microhits, whose catalog includes Christina Aguilera, Rod Stewart, Marvin Gaye and Dr. Dre, had its original filing put on hold for six months to allow the US to proceed with its case, something the DOJ doesn't seem to be in any hurry to do. Megaupload's legal defense requested these two civil suits be put on hold for a number of reasons, while mentioning the close resemblance between Microhit's filing and the US government's indictment.

In its motion, Megaupload said the civil suit allegations "appear to be copied verbatim" from the indictment filed in January. If the civil suit progressed in parallel with the criminal case, Megaupload's defendants may be forced to assert their Fifth Amendment right against self incrimination but then waive it as part of the civil case, the motion said.

"This would be an unfair burden on their constitutional rights," the document contends.

Further, Megaupload argued it is broke, as its assets were frozen in January. The company has been asking the U.S. government to unfreeze some funds in order to pay for the preservation of upwards of 28 petabytes of data stored on the service and needed for the legal cases.

As it stands now, extradition hearings won't begin for another 8 months, and Microhit is worried it may never get to directly pursue Megaupload -- and that Megaupload may have its money safely out of reach by the time it gets the green light.

Microhits also pointed to the potential loss of any damages. They said Mr Dotcom had posted messages on his Twitter account in which he wrote about his new Mega business. In the posts, Microhits said he had "openly avowed to move their assets and operations out of reach of the United States".

Megaupload's lawyers fired back, stating that its assets weren't even under Dotcom's control at this point.

They said the US Government had seized the assets and were "doling out limited amounts for living expenses and foreign counsel".

"Defendants' assets are still sequestered and no amount of tweets and blog-posts will 'un-freeze them' - that requires a court order."

Mr Dotcom's team said facing the civil action would be difficult because of no access to seized funds, seizure of books and records and no access to the former Megaupload servers. The FBI has copied parts of the servers and wanted to delete the rest.

So, even if Microhits receives the go-ahead, its options are greatly restricted by the DOJ's previous actions against Megaupload. Microhits does have a point, though -- this case has dragged on far too long with very little progress being made by the prosecution. At this point, it almost looks as though the DOJ has settled in for a war of attrition -- one that will slowly bleed Dotcom, keeping his assets frozen, his business closed and any evidence contained on Megaupload's servers in the control of people who can't seem to decide whether to keep it or destroy it.

The longer this drags on, the less likely it seems that the DOJ has a strong case. But, as has been demonstrated by other site seizures, it really doesn't seem to matter whether there's a winnable case behind the shutdowns. Entities like the DOJ and FBI that are more than willing to seize first and ask questions later are probably not the kind that will step aside and let a civil suit take precedence. Microhits is going to find itself empathizing with Megaupload, as delay after delay push any sort of resolution back across the horizon.

Filed Under: civil case, copyright, doj, extradition, kim dotcom
Companies: megaupload, microhits

Megaupload Tells Court That DOJ Deliberately Misled Court In Getting Warrant

from the more-problems dept

Lawyers for Megaupload have filed a motion with the court handling the US side of the prosecution against the company, arguing that the original warrants were defective due to blatant misrepresentations by the government. As you may recall, in the case involving Kyle Goodwin, a Megaupload user who is trying to get his data back, he had to ask the court to unseal the warrant the DOJ used to seize Megaupload because the government had kept it secret. While the Justice Department went ballistic trying to prevent this unsealing, the judge allowed it to happen. And it didn't take long to figure out why the DOJ preferred to keep it private because among a bunch of problems, was the big one: a key bit of evidence that the DOJ used against Megaupload to prove that it had "knowledge" of illegal activity on its servers existed because the government -- via service provider Carpathia -- had explicitly told Megaupload to hold onto certain data since it was a part of a criminal investigation.

As Megaupload points out in this filing, it's particularly ridiculous that Megaupload was told to hold onto certain information as part of a criminal investigation -- to which it complied -- and then that very fact is being used against it, because it didn't delete the info. And, of course, the DOJ didn't explain the context in getting the warrant.

This Court recently ordered the unsealing of the documents previously submitted by the United States to support taking down the Megaupload cloud storage site by seizing the domain name(s) --- such unsealing lays bare a crucial omission the Government made to the Court in the secret process.  Specifically, the Government’s affidavits underpinning the warrants omitted critical, exculpatory information regarding whether, why and how Megaupload knew it was hosting criminally infringing files.  The Government represented that, “[o]n or about June 24, 2010, members of the Mega Conspiracy were informed, pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing copies of copyrighted motion pictures were present on their leased servers at Carpathia Hosting, a hosting company headquartered in the Eastern District of Virginia,” and that, “[a]s of November 18, 2011, thirty-six of the thirty-nine infringing copies of copyrighted motion pictures were still being stored on servers controlled by the Mega Conspiracy,” after it was informed of the infringing content.... This snippet—which appears in each relevant affidavit and is the only direct, corroborated evidence the Government purports to offer as proof that Megaupload had requisite knowledge—suggests that Megaupload was warned of its potentially criminal complicity yet persisted in hosting the files without concern for their illegal content.  The affidavits, in short, paint Megaupload as a brazen scofflaw. 

The truth, as the Government well knows, is quite different.  Megaupload had every reason to retain those files in good faith because the Government had sought and obtained Megaupload’s cooperation in retrieving the files and warned that alerting users to the existence of the warrant and the Government’s interest in the files could compromise the investigation.  Carpathia informed Megaupload that the warrant was sealed, and that only Carpathia and Megaupload, not the users of the infringing files, were to know of its existence, and at the Government’s request provided Megaupload a copy of the sealing order. The Government selectively parsed its account so as to exclude critical facts that negate any notion that Megaupload had criminal mens rea to retain the infringing files.  The Government deliberately neglected to apprise the Court that:

•       Megaupload received the June 24, 2010 warrant in the course of cooperating with a Government investigation; 
•       Megaupload was informed of the June 24, 2010 warrant by its vendor, Carpathia Hosting (“Carpathia”), with the Government’s consent and for the express purpose of obtaining Megaupload’s voluntary assistance with executing the warrant;
•       The Government declined to communicate directly with Megaupload about the warrant, instead deputizing Carpathia to communicate on its behalf;
• Carpathia directed Megaupload not to open “EM7 tickets” on the infringing files—which would have alerted a larger number of people to the existence of the warrant and jeopardized the secrecy of the investigation—“[b]ecause of the Government’s seal on the warrant,” asking that Megaupload instead deal directly with a single person at Carpathia;
• Megaupload’s preservation of the status quo, particularly by not taking down or otherwise disturbing the files identified in the June 24, 2010 warrant, was faithful to the Government’s express desire, reflected by the Magistrate Judge’s order sealing the warrant (provided to Megaupload by Carpathia at the Government’s request) and by Carpathia’s instructions on the Government’s behalf, for Megaupload to ensure that evidence would remain preserved and that the target users would remain unaware of the investigation; and
• Consistent with its stated desire that the warrant and investigation remain confidential so as not to tip off the target users, the Government—neither directly nor through Carpathia—ever requested that Megaupload take down the files identified in the June 24, 2010 warrant.

Megaupload is now arguing that the warrant and the seizure itself were defective and need to be overturned based on the fact that they were completely misleading on this bit evidence. In fact, the government specifically appears to have instructed Carpathia to tell Megaupload (1) to retain the files in question and (2) that Megaupload was not the subject of the investigation:

Nowhere did the Government tell this Court that its June 24, 2010 warrant had been calculated to enlist good-faith cooperation with a criminal investigation, while preserving the secrecy thereof. Nowhere did the Government tell this Court that the Government had sought Megaupload's voluntary assistance in executing the warrant. Nowhere did the Government tell this Court that Carpathia had assured Megaupload, in the interests of its requested cooperation, that there was no basis to believe that Megaupload was a target. Nowhere did the Government tell this Court that Megaupload had in fact cooperated precisely as requested. Most importantly and most troublingly, nowhere did the Government tell this Court that Megaupload had been informed by Carpathia, acting on behalf of the Government and heeding the Government's insistence upon sealing, that the secrecy of the warrant and the Government's investigation must be preserved to avoid destruction of evidence and notification of the targeted users. Nor did the Government inform this Court that the sealing order it had obtained and furnished Carpathia to provide to Megaupload likewise required secrecy and expressly specified that [redacted ]. In sum, nowhere did the Government tell this Court that Megaupload had done exactly what the Government had asked it to do--execute a search warrant without alerting the ostensible targets to the existence of an investigation. The Government's contention to this Court that Megaupload's preservation of the status quo was evidence of criminal intent is false, and deliberately so.

Attached is an exhibit in which Carpathia explicitly says it told the DOJ that Megaupload was happy to cooperate with the US government on such investigations.

Given its responses so far, I fully expect the government to go ballistic over this filing as well, but with each filing, their case looks weaker and weaker. As we've said in the past, it really does seem like DOJ agents were taken in by Hollywood's story about how Megaupload was pure evil and that was obvious to anyone -- and, as such, the DOJ could take various shortcuts in bringing the site and Kim Dotcom down. To be honest, what's still incredible to me about all of this is that, prior to the takedown, I probably would have agreed that Megaupload was likely a "bad player" in the space and that Dotcom had a reputation of thumbing his nose at the law. But as more and more details have become clear, it's looking more and more like the DOJ cut corners so badly that it's entire case may be at risk. If true, this will be a massive embarrassment for anyone at the DOJ associated with the case.

Filed Under: doj, misleading, warrant
Companies: megaupload

Kim Dotcom Cleared To Pursue Case Against New Zealand For Illegal Spying

from the opening-up-a-can-of-worms dept

The latest in the saga of New Zealand's Government Communications Security Bureau (GCSB) -- their version of the NSA -- illegally spying on Kim Dotcom, is that he's been cleared to file a lawsuit against the GCSB for its activities and the GCSB will be told to reveal some of the details of its secret electronic spying setup.

The order for the GCSB to reveal top secret details came as the High Court at Auckland ruled the spy agency would now sit alongside the police in a case probing the unlawful search warrant used in the raid on Dotcom's north Auckland mansion.

Chief high court judge Helen Winkelmann said the GCSB would have to "confirm all entities" to which it gave information sourced through its illegal interception of Dotcom's communications.

She said her order included "members of Echelon/Five Eyes, including any United States authority". The Echelon network is an international intelligence network to which New Zealand and the United States are members, along with Australia, Canada and the United Kingdom.

You have to imagine that New Zealand officials are seriously regretting falling for the DOJ's version of the Megaupload story without bothering to actually check the details, huh?

Filed Under: gcsb, illegal spying, kim dotcom, new zealand
Companies: megaupload

New Study: Megaupload Shutdown May Have Hurt Box Office For Smaller Movies

from the makes-sense dept

TorrentFreak points us to an interesting new study from Christian Peukert of the Munich School of Management, and Jorg Claussen from the Copenhagen Business School, that looks at the shutdown of Megaupload to see if they can determine what impact it had on the box office for various movies. The findings are probably not what Hollywood wanted to see: basically, the evidence shows that taking down Megaupload didn't suddenly send people running back to the theaters. In fact, for many, many movies there appeared to be a tiny decrease in box office take, though the results are not statistically significant. The one exception to this was for "blockbuster" films that appeared on more than 500 screens. There there was a similarly tiny increase in box office. Considering that the MPAA and studio heads keep insisting that they're really concerned about indie filmmakers when they try to stamp out piracy, this suggests they may be doing it wrong.

Of course, you shouldn't read too much into non-statistically significant findings, but at the very least the data does pretty clearly show that there wasn't a sudden rush by people to go back to the theaters once Megaupload went away. Furthermore, it's possible that at least some movies -- perhaps a lot of movies -- were slightly harmed by less word of mouth. As the researchers note:

Our counterintuitive finding may suggest support for the theoretical perspective of (social) network effects where file-sharing acts as a mechanism to spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay. The information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences.

At the very least, it seems like a good area of research that deserves more study going forward.

Filed Under: box office, infringement, movies, sharing, study
Companies: megaupload