With 150 million registered users, about 50 million hits daily and endorsements from music superstars, Megaupload.com was among the world’s biggest file-sharing sites. Big enough, according to a US indictment, that it earned founder Kim Dotcom US$42 million last year alone.
The movie industry howled that the site was making money off pirated material. Though the company is based in Hong Kong and Dotcom was living in New Zealand, some of the alleged pirated content was hosted on leased servers in Virginia and that was enough for US prosecutors to act.
The site was shut down on Thursday. At the same time Dotcom and three Megaupload employees were arrested in New Zealand on US accusations that they facilitated millions of illegal downloads of films, music and other content, costing copyright holders at least US$500 million in lost revenue.
New Zealand police also seized guns, artwork, more than US$8 million in cash and luxury cars valued at nearly US$5 million after serving 10 search warrants at several businesses and homes around the city of Auckland.
News of the shutdown seemed to bring retaliation from hackers who claimed credit for attacking the US Department of Justice’s Web site. Federal officials confirmed it was down for hours on Thursday evening and that the disruption was being “treated as a malicious act.”
A loose affiliation of hackers known as “Anonymous” claimed credit for the attack. Also hacked was the site of the Motion Picture Association of America.
New Zealand’s Fairfax Media yesterday reported that the four defendants stood together in an Auckland courtroom in the first step of extradition proceedings that could last a year or more.
Dotcom’s lawyer raised objections to a media request to take photographs and video, but then Dotcom spoke out from the dock, saying he did not mind photos or video “because we have nothing to hide.” The judge granted the media access and ruled that the four would remain in custody until a second hearing on Monday.
Dotcom, Megaupload’s former chief executive and current chief innovation officer, is a resident of Hong Kong and New Zealand, and a dual citizen of Finland and Germany, who had his name legally changed. The 37-year-old was previously known as Kim Schmitz and Kim Tim Jim Vestor.
Two other German citizens and one Dutch citizen were also arrested and three other defendants — another German, a Slovakian and an Estonian — remain at large.
The Electronic Frontier Foundation, which defends free speech and digital rights online, said in a statement that the arrests set “a terrifying precedent. If the United States can seize a Dutch citizen in New Zealand over a copyright claim, what is next?”
The indictment was unsealed one day after Web sites including Wikipedia and Craigslist shut down in protest of two US congressional proposals intended to make it easier for authorities to go after sites with pirated material, especially those with overseas headquarters and servers.
Before Megaupload was taken down, the company posted a statement saying allegations that it facilitated massive breaches of copyright laws were “grotesquely overblown.”
“The fact is that the vast majority of Mega’s Internet traffic is legitimate and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch,” the statement said.
According to the indictment, Megaupload was estimated at one point to be the 13th most frequently visited Web site on the Internet. Current estimates by companies that monitor Web traffic place it in the top 100.
Megaupload is considered a “cyberlocker,” in which users can upload and transfer files that are too large to send by e-mail. Such sites can have perfectly legitimate uses, but the Motion Picture Association of America, which has campaigned for a crackdown on piracy, estimated that the vast majority of content being shared on Megaupload was in violation of copyright laws.
The Web site allowed users to download some content for free, but made money by charging subscriptions to people who wanted access to faster download speeds or extra content. The Web site also sold advertising.
Megaupload was unique not only because of its massive size and the volume of downloaded content, but also because it had high-profile support from celebrities, musicians and other content producers who are most often the victims of copyright infringement and piracy. Before the Web site was taken down, it contained endorsements from Kim Kardashian, Alicia Keys and Kanye West, among others.
The company listed Swizz Beatz, a musician who married Keys in 2010, as its chief executive. He was not named in the indictment and declined to comment through a representative.
The indictment was returned in the Eastern District of Virginia, which claimed jurisdiction in part because some of the alleged pirated materials were hosted on leased servers in Ashburn, Virginia. Prosecutors there have pursued multiple piracy investigations.
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