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Last October, television producer Ziad Batal was summoned to the penthouse of the Grand Hyatt in Hong Kong. The reality TV veteran had been told by a friend, motorcycle designer Alex Mardikian, to get on a plane for a summit with a deep-pocketed acquaintance who was looking to make Hollywood connections. After being chauffeured from the airport to the posh hotel, Batal went to a lunch meeting in a suite with a private entryway dominated by a curious statue: a life-size re-creation of the alien from the Predator movies. Batal was escorted to a conference room and introduced to Kim Dotcom, né Kim Schmitz, the 300-pound-plus, 6-foot-7 German hacker-turned-web mogul who founded Megaupload, the cyber-locker service that offered its 180 million users remote storage of movies, music and other files. The 13th-most-visited site in the world at one point, Megaupload was a pirates’ haven — a Napster on steroids, where members could share everything from Lady Gaga hits to Transformers movies with anarchists’ abandon.
Part of the service’s appeal was the antihero persona of Dotcom himself. The 38-year-old had become an online celebrity, as much for his over-the-top lifestyle of $250,000 supercars, supermodel hot-tub parties and the slick YouTube video he had made with Kanye West and Kim Kardashian (in it, he raps about Megaupload: “It’s a hit! It’s a hit!”) as for the popularity of his website. And during those two days of meetings with Batal, Dotcom, a self-professed “Dr. Evil” in a loose-fitting black jumpsuit and closely cropped hair, revealed his plan to expand Megaupload, a wildly easy-to-use service, into an empire that would rival that of his idol, Steve Jobs.
“The vision was very clear: He wanted to be the biggest entrepreneur in the Internet world,” says Batal, who has produced more than 40 mostly documentary and reality programs in Los Angeles and Dubai. “He wanted to take the iTunes model and bring it to movies, video games, everything — and worldwide.” It was a play for legitimacy after years of operating in the shadows. The businessman, said to be worth $200 million — much of it from the millions he is believed to have pocketed from Megaupload, including $42 million in 2010 alone — was interested in Jobs-style fame, too. “I discussed a concept of doing a reality show about him being the Donald Trump of the hacking world,” Batal says. “He was very intrigued by that. He said, ‘Let’s do some research and get together again.’ ”
That reunion never happened. Three months later, in the early-morning hours of Jan. 20, more than 70 New Zealand police officers, including special-tactics personnel, descended on Dotcom’s $24 million mansion in the countryside near Auckland. The raid, which culminated in the highest-profile arrest of an alleged copyright “pirate”to date, was the result of years of coordination among local police, the U.S. Department of Justice and the FBI and was carried out by personnel armed with M4A3 automatic assault rifles, Glock handguns, dogs, sledgehammers and saws. Police confiscated nearly $5 million worth of cars as well as eight flat-screen TVs, jet skis and a Predator statue that mirrored the one Batal had seen in Hong Kong. During the raid, Dotcom was tracked down and arrested near a safe that held a loaded shotgun in the 25,000-square-foot property’s “Red Room,” a secret compartment behind a false door inside a closet. His pregnant wife, Mona, children and staff were found elsewhere in the mansion, which Dotcom had moved into in 2010 after emigrating from Hong Kong.
Dotcom quickly became Hollywood’s Public Enemy No. 1, and authorities seized nearly $9 million of his cash, froze more than 50 bank accounts belonging to him, his associates and their various companies and shut down his website (a message from the FBI now appears at Megaupload.com). In its Jan. 5 indictment, the U.S. government accused Dotcom — who was held at Auckland Central Remand Prison for a month after his arrest — and six of his Megaupload colleagues of racketeering, money laundering and criminal copyright infringement. According to the 72-page document, Megaupload caused more than $500 million in losses to copyright holders — including all six major Hollywood studios and the big record labels — during its roughly seven years of existence. After a court hearing in Auckland on Aug. 20, Dotcom could be extradited to the U.S. for a trial that will be as closely followed as the litigation that led to the end of Napster, Grokster and other early file-sharing websites about a decade ago. He faces up to 50 years in a U.S. federal prison if found guilty of all charges.
Dotcom was a natural target for U.S. authorities, which are believed to have looked into Megaupload partly at Hollywood’s urging. The site, founded in 2005 — around the time Kim Schmitz legally changed his surname — boasted of more than 1 billion total visitors, and Dotcom has long drawn attention by chronicling his lavish lifestyle online. He documented a vacation to France (think: Ferraris, a helicopter and yacht) with a 30-minute video posted to one of his now-defunct websites. And countless clips Dotcom uploaded to YouTube show him thumbing his nose at authorities while racing through crowded European streets in his souped-up Mercedes-Benz sedans. “I have a big kid inside me,” he has said.
All the while, Dotcom has dodged questions from journalists and business partners about his checkered past as a rogue entrepreneur convicted of insider trading and embezzlement. Indeed, Dotcom had run afoul of authorities several times before. While living in Germany in the 1990s and early 2000s, he started several technology ventures, including an Internet retail site that tanked after he carried out a “pump and dump” scam with the firm’s stock; and an e-payment company that cratered after it gave him a large loan. And this is to say nothing of his 1998 computer fraud conviction that stemmed from his hacking exploits. But beyond Dotcom’s past issues, the entertainment industry cared about Megaupload because of its sheer size.
“This guy was operating the largest cyber-locker out there — thousands and thousands and thousands of links to content,” says Michael Robinson, executive vp of worldwide content protection at the Motion Picture Association of America, which lobbied the government to take action. “Someone setting up a kiosk and selling counterfeit goods on a street corner in front of a legitimate shop — you’d expect law enforcement to stop that behavior. That’s all we ask for on the Internet.”
Although exact figures are hard to come by, piracy has become an epic financial problem for content creators. The Obama administration has claimed that intellectual property theft costs the U.S. $58 billion a year, but some question that figure. The MPAA has said global piracy costs movie studios more than $6 billion a year, and still more money is spent fighting content theft, though the MPAA declined to say what it spends. One thing is clear: The entertainment industry has portrayed Dotcom as the worst facilitator of copyright infringement.
Still, some believe Megaupload and Dotcom were unfairly singled out among an array of global cyber-lockers — services that offer storage and remote backup of a user’s files, which often can be accessed and shared (and shared again) by other users. After all, the government’s track record on prosecuting large online piracy operations is scant — previous file-sharing services such as Napster and Grokster were dismantled after private parties (not the government) went after them for copyright infringement. The Dotcom arrest came on the same day the U.S. House Judiciary Committee tabled the Hollywood-supported Stop Online Piracy Act, which would have greatly increased the government’s powers to target infringement overseas. Ira Rothken, one of Dotcom’s U.S.-based attorneys, tells The Hollywood Reporter that he believes his client was targeted by the Obama administration as a “favor” to the entertainment industry while the president let the SOPA and PIPA legislation go down in flames. “[Dotcom] innovated in a way that brought unfair attention from Hollywood,” Rothken says. (While Megaupload might have been a disruptive force in the content distribution business, it isn’t clear how the service was any more innovative than legitimate cyber-lockers or more nefarious operations that have made a business of trafficking pirated material. The Department of Justice did not return phone calls seeking comment.) The government’s pursuit of criminal action against Megaupload has rattled the legal community. “It was shocking,” says Michael Elkin, an attorney who represented video-sharing site Veoh in its successful defense of a 2007 lawsuit by Universal Music Group. “The government has taken some action against physical piracy in the past, but to see them crack down on an online site, during the midst of the SOPA debate, caused many people to turn their heads and take notice.”
For some, the Megaupload takedown was notable because Dotcom gained legitimacy by aligning himself with Hollywood stars and A-list musicians who, by showing up in a Megaupload music video, appeared to give his service their tacit approval. On Dec. 9, six weeks before Megaupload was shut down, Dotcom released a glossy pop video in which a bevy of recording artists and other notables — including Sean Combs, will.i.am, Jamie Foxx, Alicia Keys, Snoop Dogg, Serena Williams, West and Kardashian — praise Megaupload. The professionally produced tune features Dotcom boasting of the service’s 1 billion users, while Combs tells listeners he uses Megaupload “cuz it’s fast.” Will.i.am notes, “When I gotta send files across the globe, I use Megaupload.” Between testimonials, the chorus rasped by Grammy-winning R&B singer Macy Gray demands, “M-E-G-A, upload to me today/Send me a file.”
When the “Mega Song” video went viral, many of those featured in it quickly disavowed any relationship with Megaupload, saying they were unaware of the company’s business practices. But online, the video and its cavalcade of stars gave the impression that Dotcom was aiming to cross over into the mainstream media business and even a music career. “His plan was to create a more artist-friendly distribution platform where the creators would get paid more than what they do when Apple sells their product,” says Batal. In January, as Megaupload was about to be shut down, rapper and record producer Swizz Beatz was negotiating to become the company’s CEO, a spokesman for the musician confirms. (After the indictment, those talks were cut off; Swizz Beatz, who is married to Keys, declined comment.)
Megaupload, of course, was never so audacious as to advertise that users could download pirated content from its servers. But the company allowed users to share files they uploaded to the service and even incentivized them to contribute popular copyrighted content with the promise of monetary rewards, according to the indictment. The Department of Justice has alleged that the company generated $25 million in ad revenue and more than $150 million in subscription fees during its existence. Had Dotcom turned the venture into a legitimate enterprise — as he had suggested to Batal — it’s unclear how the businessman would have structured payments to artists, let alone cut deals with the corporations that control the content he is alleged to have illegally distributed. “If the business model [adopted by entertainment companies] would be one where everyone has access to this content at the same time, you wouldn’t have a piracy problem,” he said March 1 on New Zealand’s Campbell Live news program, his only lengthy television interview after he was released on electronically monitored bail in February. “It is really, in my opinion, the government of the United States protecting an outdated, monopolist business model that doesn’t work anymore in the age of the Internet.” The U.S. government will need to prove that Megaupload is not protected by a provision in existing copyright law that shields digital services that seek to remove infringing material from their networks. For that reason, the case could be the single biggest prosecution of a copyright infringer and one that could impact the law for years.
Anthony Falzone, a lecturer at Stanford Law School’s Center for Internet and Society, believes the government’s case against Megaupload is premised on an aggressive extension of U.S. copyright law that seeks criminal penalties — rather than the civil remedies used against Napster and Grokster — that could stymie innovation. “It is going to be a big landmark for entrepreneurs, investors and anyone thinking of creating digital distribution platforms,” Falzone says. For example, Pinterest, a pinboard-style social photograph-sharing service that has exploded in popularity this year, could be viewed as a platform for the dissemination of copyrighted material, even as it continues to shape itself. “It creates tremendous risk if your platform is used for the wrong reasons.”
Publicly, Dotcom has long held that legal advice he received led him to believe he was on safe ground. “I’m no criminal,” he said in the March 1 TV interview. “We can’t be liable for actions of third parties. As long as we follow a regime of taking things down that are reported to us, which we have done over all these years, we are protected, according to the law.” Dotcom also said in the interview that no film studios or record labels had sued him for copyright infringement or even sent him a cease-and-desist letter. Through his attorneys, Dotcom declined THR‘s requests for comment.
Even as he protests his innocence, Dotcom has become a poster child — and a Robin Hood of sorts — for the anti-establishment, thanks to his extravagances and cartoonish, danger-seeking persona. Those searching for Megaupload online might come across pictures of Dotcom in dark sunglasses racing a tricked-out Mercedes-Benz coupe, eating a large hunk of meat off a spit, dancing aboard the yachts Amnesia and Golden Odyssey, wielding a shotgun on a duck hunt and sitting in an oversize bathtub fully clothed with scantily clad women at his side. To complete his nerd-hero persona, Dotcom was the No. 1 Call of Duty: Modern Warfare 3 player in the world when arrested, and many online images show him playing video games. To some, the photos are the equivalent of extending a middle finger to Hollywood. “He drives fast cars; he seems to always have a cadre of women around him — but at every turn in this guy’s life, he left a wake of destruction and incredible profitability for himself,” says Jason Carbone, former co-executive producer of The Bachelor and The Bachelorette.
But those who have worked and played with Dotcom paint a slightly different picture: that of a fun-loving father of five whose appetite for fast cars and booze is matched by sharp intelligence and lofty business aspirations that fall more in line with, say, YouTube founders (and onetime alleged infringers) Chad Hurley and Steve Chen than a pirate flaunting copyright law from a beach in St.-Tropez. “He’s extremely smart, extremely driven,” says Batal. “I think Hollywood can negotiate with someone like this. You don’t put a guy like this behind bars; you say, ‘This is what we need to work together.’ ”
The case is shaping up to be a pitched battle. Dotcom has pulled together a high-powered legal team including digital-rights expert Andrew Schapiro at Quinn Emanuel, signaling he is planning a vigorous defense. Already, New Zealand courts have granted Dotcom concessions, loosening the terms of his bail so he may use the Internet, swim in a nearby pool and visit a music studio to continue recording a hip-hop album. And a handful of procedural issues have given some the impression that authorities are bungling the case. At one point, it appeared New Zealand authorities could be forced to return all of the items they seized during the raid on “Dotcom Mansion.” (On April 27, a New Zealand court ruled that two cars and about $250,000 should be returned, though the decision appeared unrelated to the clerical errors found in legal paperwork filed on the raid.) And allegations have been made that Megaupload has not been properly served criminal papers by the FBI. U.S. District Judge Liam O’Grady, who is overseeing the case, has even suggested that the procedural errors could jeopardize the ability to hold a trial.
Kim Dotcom was born Kim schmitz to a finnish mother and an alcoholic German father and spent his childhood in Kiel, Germany, about 60 miles north of Hamburg. Dotcom, who speaks English with a German accent, told file-sharing blog TorrentFreak in December that his father routinely beat him and his mother, sending them to the hospital. Dotcom said he has not seen the man since he was 8 years old.
The young Schmitz received his first computer at 9, according to a January Sunday Business Post story, and earned money by copying computer games for friends. He later moved to Berlin and fell in with the Chaos Computer Club, a hacking group founded in 1981. Schmitz began using the sobriquet Kimble, a tribute to The Fugitive lead character Richard Kimble, who is falsely convicted of murdering his wife and must spend his life on the run. Schmitz’s use of this nom de guerre presaged a lifetime of shape-shifting and identifying with antiheroes and the misunderstood.
It’s unclear whether he went to college or received any formal computer training, but a 19-year-old Schmitz was described in a 1992 Forbes story about the nascent hacker movement as “one of the most celebrated hackers in his country.” Around this time, Schmitz tried to parlay his knowledge of computer systems into security consulting work, and in 1994, he started DataProtect, a security company meant to leverage his skill and knowledge as a hacker. In 2000, Schmitz sold 80 percent of DataProtect to German conglomerate TUV Rheinland for an undisclosed but presumably hefty sum.
By then, Schmitz already had experienced his share of legal troubles. In 1998, a Munich court convicted the hacker and an associate of computer fraud and trafficking in stolen phone cards. In 2001, Schmitz bought about $330,000 worth of shares in beleaguered online shopping club LetsBuyIt.com and announced his intention to pump about $45 million into the company. This caused shares in LetsBuyIt.com to skyrocket, and he sold them shortly thereafter for a profit of about $1.34 million without ever having made a significant investment in the firm, according to news reports. In January 2002, Schmitz was arrested in Bangkok and extradited to Germany, where he spent five months in jail while awaiting trial and was ultimately found guilty of insider trading. He was given a probationary sentence of one year and eight months and paid a fine. In November 2003, another of Schmitz’s ventures blew up in his face when he pleaded guilty to embezzling money from Monkey AG, an e-payment business he had started a few years earlier with German private-equity company BMP. Schmitz took about $300,000 from Monkey in the form of a loan; he was sentenced to two more years’ probation.
As he fought legal troubles, Schmitz was attracting media attention for provocative and outlandish statements. Shortly after the 9/11 terrorist attacks, he offered $10 million for information leading to the arrest of Osama bin Laden. Newspapers and magazines breathlessly covered his reward offer, but some reporters checked into his past and turned up former associates who labeled him a braggart who took credit for others’ accomplishments. Indeed, he claims to have once reduced former German Chancellor Helmut Kohl’s credit rating to zero and has bragged of hacking into Pentagon computers and watching satellite imagery of Saddam Hussein’s palaces during the Gulf War. Many of his boasts have been unsubstantiated, but enough of his activities have been corroborated to suggest that some of the tales could be true. An October 2001 story in the U.K.’s Guardian quoted a detractor on a hacker message board: “The only things Herr Schmitz needs to land the role as the next James Bond villain are an eye patch, a wheelchair and a cat.”
During this time, Schmitz, flush with cash, already was displaying a penchant for fast cars and a wild lifestyle. In 1999, for example, he created the Megacar, a modified Mercedes-Benz S-Class sedan outfitted with a computer and high-speed Internet access — technology that wouldn’t hit the mainstream for more than a decade. He intended to sell the aftermarket vehicles, but the business appears to have not received the blessing of Mercedes, and it is unclear whether anything ever came of the venture.
In 2001, the hacker won the Gumball 3000 road race, a quasi-legal 3,000-mile-long trek across continents that is a favorite of playboys who have money to spend and women to impress. “It is race all day and party all night,” says Matt Hardigree, editor of automotive blog Jalopnik.
The race that Schmitz won in a $450,000 modified Mercedes began in London and went through St. Petersburg, Helsinki, Stockholm and Copenhagen, and then back to London. (This year’s race takes place in the U.S. and Canada and culminates May 31 in Hollywood.) A YouTube video about the 2004 race shows Schmitz discussing a bribe of Moroccan police to detain a competitor piloting a Porsche 911. In one video from the race, Schmitz appears to use his Mercedes sedan to bump from behind a Porsche 911. In another video, he rockets past a police car and smiles into the camera, saying,”Dr. Evil is always getting away with it.”
Gumball 3000 founder and CEO Maximillion Cooper says in an e-mail interview that Schmitz once had a private jet loaded with mechanics to follow his Mercedes in case a quick repair was necessary. He owned at least 18 exotic cars, including a $400,000-plus Rolls-Royce Phantom convertible and three $250,000 Mercedes-Benz CLK DTMs, a supercar of which there are less than 200 in the world. (In a slick 11-minute video uploaded to YouTube on April 21, Dotcom and professional race-car driver Kimi Raikkonen are shown circling Germany’s famed Nurburgring track in CLK DTMs. The clip is set to a Euro pop song that features Dotcom rapping the lyrics, “Here we go now, going crazy, going faster, motherf–er.” He boasts that the video was shot with a crew of more than 100 people and required 30 cameras, two helicopters and one fixed-wing aircraft.)
“[He] doesn’t do anything halfheartedly,” says Cooper, who met Schmitz in 1999. “That outlook is an amazing asset, and he certainly lives life to the full, but sometimes he’ll do anything to achieve those big goals and on more than one occasion is prepared to overstep the mark.”
Cooper traveled the world and partied with Schmitz/Dotcom for more than a decade. He recalls a memorable 2001 trip to France on the 264-foot Golden Odyssey, which features a mosaic-tiled swimming pool, gym and coral-reef aquarium that spans two decks. For lunch, Cooper, Schmitz and a “huge entourage” that included what Cooper describes as “Aryan” bodyguards all took speedboats to the shore for lobster and champagne. All the while, Cooper says, Schmitz’s “helicopter hovered above us with his personal film crew and additional security to take photos.” Cooper claims the lunch cost upward of $100,000 and was paid for with “suitcases of cash arriving by boat.”
A 30-minute German video produced by Schmitz’s now-defunct website Kimble.org titled Kimble Goes Monaco appears to depict some of the events Cooper describes. The film features an introduction set to a version of the Dallas theme song and shows the hacker tooling around a seaside city in France with a fleet of Ferraris, doing doughnuts in a black Mercedes next to a helicopter and partying aboard the Golden Odyssey. He also takes in the Monaco Grand Prix and purports to hack the vehicle of race-car driver Michael Schumacher so that it becomes inoperable during the Grand Prix. Laughing, Schmitz then makes an obscene gesture to the camera.
Despite this, Cooper describes his friend as “quite quiet and reserved. Even when hosting a party, he’s far more comfortable sat [sic] watching it from afar in a control room than being the life and soul of it.”
Schmitz, who until the early 2000s still resided in Germany, appears to have realized that there have been consequences to his penchant for extravagance and braggadocio. “I think my lifestyle is one of the main reasons I’ve been so under attack. In the U.S., with my lifestyle, I’d be one of many,” he said in 2001 on German talk show The Harald Schmidt Show. “But here in Germany, people condemn this very public way I enjoy my success. It’s clear it’s a source of a lot of envy and of many of my problems.”
After this string of messy legal entanglements, Schmitz decamped to Hong Kong for a fresh start. In December 2002, he set up a company there called Kimpire Ltd. and began promoting a supposed invention called Trendax, which was marketed as a hedge fund that could use artificial intelligence to generate untold returns for investors. Again, the success of the venture is unknown. Soon, Schmitz would legally adopt Dotcom as his surname, in a nod to his online ventures (his aliases include King Kimble and Kim Tim Jim Vestor). It appears the change occurred around the time he launched his most ambitious venture yet.
In 2005, Dotcom quietly started Megaupload from an apartment in Hong Kong. He said in the March 1 Campbell Live interview that it was simply “a solution to a problem that still exists today.” Dotcom said in the interview that he had been trying to send a file to a friend via e-mail, but he received an error message explaining that it was too large to transfer. “I thought: What can I come up with? What can I do to solve that?” he said. Thus, the idea for the cyber-locker service was born. The site offered partial access for free but gave users unlimited use for about $13 a month, $78 a year or $262 for a lifetime subscription, according to the indictment. Over the next few years, Dotcom added racy file-sharing service Megaporn, Ustream competitor Megalive and a YouTube streaming competitor Megavideo, among others. Megaupload Ltd. grew to employ a purported 155 people and to store an astounding 25 million gigabytes of data on more than 1,000 leased servers in Virginia — the location of which provided the legal grounds for the Justice Department to pursue action against the company and its owner.
Despite the popularity of the sites, Dotcom disappeared from the public eye until his move to New Zealand in early 2010. By then, the father of three young children was calling himself a family man, laying relatively low and hoping for a fresh start. (At the time of the New Zealand raid, Dotcom’s Manila-born wife, reportedly a former model, was pregnant with twins; she gave birth to two girls in March. The New Zealand Herald reported that Dotcom told the hospital to send the placenta “to the FBI for forensic analysis so they can verify there is no pirate DNA.”) But laying low by Dotcom’s standards involved christening his rented home in the country town of Coatesville with a sign that read “Dotcom Mansion,” and decorating the grounds with large sculptures of giraffes. In an effort to curry favor with New Zealanders, he lavished Auckland with a $500,000 New Year’s Eve fireworks display (which he flew a helicopter through), donated to Christchurch earthquake relief and purchased government bonds. But the New Zealand government was concerned about Dotcom’s past criminal activity. According to a March story by the Associated Press, the country’s immigration officials granted him residency only after weighing the money he could bring to the country against his past.
“I am here because of my family; we have little kids,” Dotcom told Campbell Live. “Hong Kong is a concrete jungle, there is no fresh grass, there are no trees. … I wanted to give my kids an environment of happiness, nature and peace.” But Dotcom appears to have not completely abandoned his pleasure-seeking exploits: Megaupload and another related company spent nearly $8 million on yacht rentals in the Mediterranean Sea from April to June 2011, according to the indictment.
In a now-infamous April 2010 e-mail to worried neighbors and the landlord of his rented mansion, Dotcom tried to minimize his troubled past, though he still joked that his neighbors should come for a visit and bring cocaine. “Fifteen years ago, I was a hacker, and 10 years ago, I was convicted for insider trading. Hardly the kind of crimes you need to start a witch hunt for,” Dotcom wrote, according to news reports. “Since then, I have been a good boy, my criminal records have been cleared, and I created a successful Internet company that employs 100+ people.” But about 18 months after he settled into his new home, the Department of Justice and the FBI’s years-long effort to track and build a case against Dotcom would culminate at the doorstep of his countryside idyll.
Despite signs that dotcom wanted to go straight, the indictment paints him and his company as singularly obsessed with profitability and uninterested in obeying copyright law. The indictment alleges that Megaupload generated fresh content through its “Uploader Rewards” program, which provided free premium membership and up to $10,000 for users who uploaded any popular works to the service (Megaupload did not ask users for specific content). There also are indications that the company’s employees knew the legal line they were straddling. The indictment cites an online chat exchange between Mathias Ortmann, chief technical officer, and Bram Van Der Kolk, the company’s “programmer-in-charge,” in which Van Der Kolk stated: “We have a funny business … modern days pirates:)” Ortmann replied: “We’re not pirates, we’re just providing shipping services to pirates :).” Both were also named in the indictment.
At first, Megaupload did not register on Hollywood’s radar. But industry watchdogs began to take notice as Megaupload appeared to grow more bold. For example, the indictment alleges that Dotcom and his colleagues illegally distributed the Liam Neeson thriller Taken in October 2008, months ahead of its January 2009 release. Creative America, a SAG-AFTRA-supported advocacy group aligned with the entertainment industry, produced a 2011 public service announcement that targeted Dotcom and showed the “infamous” businessman next to luxury yachts and automobiles. The group accused him of earning $300 million a year off the backs of copyright holders and urged action.
But the jurisdictional barriers to arresting and prosecuting Dotcom were significant. Under the U.S. Digital Millennium Copyright Act, “takedown” procedures have been found by courts to shield digital video services. Additionally, unlike Pirate Bay, another site on Hollywood’s hit list, Megaupload refrained from the more brazen model of allowing users to directly search its network; instead it relied on other websites to provide such services. In the Campbell Live interview, Dotcom said that in terms of copyright infringement, his company was a “lamb” compared to websites such as Google-owned YouTube, which is far bigger and more powerful. The video-sharing service has become a tool for studios and record labels to promote and distribute content, though it does remain locked in a $1 billion copyright infringement lawsuit brought against it by Viacom. “I’m an easy target,” Dotcom said. “I’m not Google; I don’t have $50 billion in my account.”
But anti-piracy lawyers believe Megaupload’s takedown procedures were all just a shell game designed to mollify content owners while doing little to curb copyright infringement. According to the indictment, in September 2009, after a Warner Bros. representative e-mailed Megaupload asking for the ability to flag more infringing files, Dotcom told a colleague in an e-mail to allow Warner Bros. a maximum of 5,000 removals a day but “not unlimited.” Warner Bros. had been requesting removal of about 2,500 files a day. In an April 2009 e-mail to three colleagues, Dotcom is quoted complaining about the deletion of links to infringing content: “I told you many times not to delete links that are reported in batches of thousands from insignificant sources. … And the fact that we lost significant revenue because of it justifies my reaction.”
The cavalier attitude displayed in such messages has led some observers to question Dotcom’s stance that he has done nothing wrong. “Dotcom might have thought himself on safe ground, but I have a hard time thinking that he believed himself to be innocent,” says Steven Fabrizio, a lawyer at Jenner & Block who represented the entertainment industry in the Grokster matter.
Adding to the legal issues, not all of Megaupload’s users trafficked in pirated material — and some, quite simply, want their stuff back. On April 13, an attorney representing Megaupload user Kyle Goodwin, a video journalist, asked O’Grady to grant access to his data and to resolve issues related to stewardship of the company’s servers. And Dotcom’s lawyers are promising to call government witnesses to testify about their own use of Megaupload. “Many members of the military used Megaupload to share photos with loved ones back home, Rothken says. “There are countless ways that people used it for socially beneficial uses, including the people who used it to store copyrighted materials they purchased and owned.”
While legal experts say jail time is a serious possibility, it is unlikely Dotcom would serve the maximum 50-year term he faces. And given his knack for quick rebounds, it is likely that Dotcom will get another shot at going mainstream, if that is what he still desires. The question is whether the entertainment business would embrace him. “He’s been able to figure how to aggregate large audiences, and for me, that is of the utmost importance in this business, to be able to connect with the consumer,” says Logan Mulvey, head of video-on-demand distribution company GoDigital. “He may have done it in an illegal way, but he was still able to do it.”
Cooper doesn’t doubt that his old friend will be back, writing on his blog that he hopes to have drinks with Dotcom on his yacht this summer. And Dotcom appear to think so, too. When asked in the March Campbell Live interview about what his future held, at first Dotcom could only laugh. His steel-gray eyes flitted about and he stammered before responding: “I am a fighter. … So, I will fight it. It’s all I can do.”
Eriq Gardner contributed to this report.
THE RAID: Uploading Dotcom’s Mega-Booty Trove
The early morning Jan. 20 raid on Dotcom’s $24 million countryside mansion wasn’t short on dramatics. Helicopters swarmed the property, special forces armed with machine guns descended upon it, and the eccentric former hacker was ultimately found ensconced in a hidden safe room. More than 70 New Zealand police officers carted away many of Dotcom’s assets, including an array of luxury and sports cars, artwork, televisions and computer equipment. His indictment outlines details of the bounty, including property that was not taken in the raid, such as web domain names, bank accounts and money. Among the highlights of the cache carted from Dotcom’s house were a $400,000-plus Rolls-Royce with a “GOD” license plate, Mercedes-Benz SUVs with “MAFIA,” “GUILTY” and “POLICE” license plates and two 108-inch Sharp LCD televisions.
HOLLYWOOD’S MOST WANTED: Megaupload’s predecessors
Napster: The pioneer file-sharing site was founded in June 1999 by Shawn Fanning, John Fanning and Sean Parker. At its peak in February 2001, Napster boasted 26.4 million users swapping mostly music (videos were too large for the slower Internet speeds of the time). Metallica, Dr. Dre and A&M Records separately sued Napster in 2000 for contributory and vicarious copyright infringement. Napster lost the case brought by A&M, which was joined by other labels through the RIAA. When an appeals court affirmed the ruling, Napster was forced to block access to infringing content; when it couldn’t, the service was shut down in July 2001. It was later sold and relaunched as an online music store, and it merged with Rhapsody in December. Shawn Fanning and Parker are now working on Airtime, a live video sharing service expected to launch this year.
Grokster: Along with Morpheus and Kazaa, Grokster was more sophisticated (and more difficult to shut down) than Napster because it facilitated the direct exchange of files between users and not from a centralized server. In October 2001, Grokster was sued by the RIAA and MPAA for copyright infringement. In April 2003, a federal judge ruled in favor of Grokster, saying the service could be used for legitimate means and was not illegal. The case was appealed to the U.S. Supreme Court, which in June 2005 sided with content owners in determining that Grokster could be sued for infringement. The decision meant technology service providers couldn’t merely deflect responsibility for infringement onto users. “The Supreme Court got it right,” says Viacom general counsel Michael Fricklas. Grokster was shut down Nov. 7, 2005.
The Pirate Bay: Touting a slogan of “The galaxy’s most resilient BitTorrent site,” The Pirate Bay is a file-sharing service started in 2003 by Swedish anti-copyright organization The Pirate Bureau. Like Grokster, Pirate Bay operates without a centralized server system and is instead a guide to links to content that can be downloaded from users across the Internet. In May 2006, Swedish police raided Pirate Bay, shutting down the service and confiscating its servers. Two years later, criminal and civil copyright charges were brought against four individuals tied to Pirate Bay. In 2009, the defendants were found guilty and ordered to serve a year in prison and to pay fines. However, Pirate Bay continues to operate on new servers outside Sweden, and its continued resilience to legal action has proven a thorn in the side of content creators.
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