Founded in 2005 by Kim Dotcom in Hong Kong, Megaupload eventually became one of the most popular filesharing websites available and, at one point, was ranked as the 13th most popular website in the world. The site allowed users to upload and download films, television shows, anime, games, and other content for free, but made money by charging a subscription fee for users who wanted faster access. They also made money via advertising.
The indictment accuses Megaupload, it's founder Kim Dotcom, and six other individuals of costing copyright holders over $500 million in lost revenue due to pirated films and other content. Dotcom and 3 others were arrested, each facing a maximum of 45 years imprisonment due to racketeering, money laundering, conspiracy to commit copyright infringement, and related charges. According to the FBI, the charges against Megaupload make it one of the largest criminal copyright cases ever pursued by the United States.
According to the indictment against Dotcom, Megaupload Ltd., Vestor Ltd., Finn Batato, Julius Bencko, Sven Echternach, Mathias Ortmann, Andrus Nomm, and Bram van der Kolk, MegaUpload's design was intentional to encourage piracy. The site would delete personal files after "non-use," which meant realistically only popular files - which tended to be unauthorized intellectual property - would remain on the site for more than 21 days. The indictment also claims that MegaUpload's Top 100 feature, on the front page of the site, did not accurately represent the most commonly downloaded files and instead was edited so as to exclude illegal content. It also address restrictions the company placed on users, requiring them to pay to view more than 72 minutes of video content at one time, which encouraged users to pay to view copyright infringing works.
Most importantly, the indictment says that the site violated the Safe Harbor provision of the Digital Millenium Copyright Act. This provision protects sites that host user-uploaded material from prosecution as long as they comply with takedown notices when served. The Justice Department says that the so-called Mega Conspiracy isn't protected by the DMCA because the sites' operators both upload and download infringing content using the service, and financially benefit from systems intended to violate copyright laws. The Justice Department also says that an "Abuse Tool" that U.S. copyright holders could use to remove illegal material "did not actually function... as they copyright owners were led to believe."
"When a file is being uploaded to Megaupload.com, the Conspiracy’s automated system calculates a unique identifier for the file (called a “MD5 hash”) that is generated using a mathematical algorithm. If, after the MD5 hash calculation, the system determines that the uploading file already exists on a server controlled by the Mega Conspiracy, Megaupload.com does not reproduce a second copy of the file on that server. Instead, the system provides a new and unique URL link to the new user that is pointed to the original file already present on theserver. If there is more than one URL link to a file, then any attempt by the copyright holder to terminate access to the file using the Abuse Tool or other DMCA takedown request will fail because the additional access links will continue to be available."
Furthermore, against arguments that the sheer amount of content uploaded would make it impossible to effectively police, the Justice Department says that MegaUpload already had a system in place to police content that would have portrayed the company negatively.
"In addition to copyrighted files, other types of illicit content have been uploaded onto the Megaupload.com servers, including child pornography and terrorism propaganda videos. Members of the Conspiracy have indicated to each other that they can automatically identify and delete such materials on all of their servers by calculating MD5 hash values of known child pornography or other illicit content, searching the system for these values, and eliminating them; in fact, such files with matching hash values have been deleted from the MegaConspiracy’s servers. Members of the Mega Conspiracy have failed to implement a similar program to actually delete or" terminate access to copyright infringing content."
This system would likely have allowed MegaUpload to protect itself from investigations for child pornography or terrorism, which the DMCA does not expressly shield website against.
Dotcom, who was born Kim Schmitz, and three others were arrested by officials in New Zealand. The others have not yet been apprehended. Authorities also seized over twenty vehicles, many with vanity license plates like "GUILTY", "STONED", and "MAFIA." They say emails and chat logs show the organizers acknowledging that they are "modern days pirates" and saying that they "can afford to be cooperative" with DMCA Takedown requests.
Prosecutors were able to claim jurisdiction in Virginia in part because some of of the pirated files were hosted on servers located in Ashburn, Virginia.
All of Megaupload's sites have been terminated, including MegaUpload, MegaVideo, MegaPix, and MegaLive, among others. In response, the self-described hacktivist group Anonymous claimed responsibility for a distributed denial of service attack against the website of the Justice Department, the Motion Picture Association of America, and the Recording Industry Association of America. A Lawyer for the company says that he has due process concerns, as there was no hearing before the FBI shut down the site.
Hearings are not usually held before grand jury indictments.
Many sites listing illegal streaming anime linked to or embeded videos hosted on Megauploads video streaming service, MegaVideo.
UPDATED at 7:06 PM to include details about the indictment and to correct the charges.
UPDATED at 6:01 PM to include details about arrest, protest, and legal response.
