U.S. Authorities Shut Down Megaupload for Piracy

Megaupload Logo - H 2012

Megaupload Logo - H 2012

Hollywood has had a rough week in its fight to pass new anti-piracy legislation. But amid the SOPA political backlash comes a huge announcement by federal authorities that Megaupload, one of the world's biggest file-sharing sites, has been shut down and some of its key leaders arrested on charges of violating copyright laws.

Prosecutors unsealed the indictment against Hong Kong-based Megaupload today, which reveals one of the biggest copyright enforcement actions in the country's history.

According to the indictment, Megaupload claims more than 1 billion visitors in its own history, representing 50 million visitors daily, to account for approximately 4 percent of all Internet traffic. The government says the site rakes in more than $150 million in subscription fees and an additional $25 million in advertising.

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Its founder, Kim Dotcom, who was arrested on Thursday in New Zealand along with three other individuals at the request of U.S. authorities, is said to have made $42 million in 2010 alone. Police seized many of his possessions, including dozens of luxury cars, artwork, numerous large LCD televisions and more. Additionally, $175 million was seized and dozens of bank accounts from Megaupload executives have been frozen.

Megaupload appears to have had advance word that this action was coming.

According to AP, before the site was taken down, it issued a statement on its website, calling allegations that it broke copyright laws "grotesquely overblown" and adding, "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."

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The company had previously maintained that it is in compliance with U.S. laws, and though many of its operations were previously done underneath the radar, Megaupload has emerged from the shadows in recent months.

Last month, the company released a video featuring many recording superstars, actors and other celebrities seemingly endorsing the file-sharing platform. The video was removed from YouTube after a takedown notice was registered, leading Megaupload to sue Universal Music Group in open federal court. The development surprised many industry insiders who figured Megaupload wouldn't want to subject the workings of its company to legal inspection.

The U.S. government has decided to now get involved in the fight against the popular file-sharing website.

According to the indictment, while Megaupload might claim to be in compliance with the notice and takedown provisions of the Digital Millennium Copyright Act, the government says that simply isn't true. Megaupload's "abuse tool," which purports to allow copyright holders to file an objection whenever their work is uploaded to the site, is deemed by prosecutors to "not actually function as a DMCA compliance tool as the copyright owners were led to believe."

Federal authorities say that Megaupload can't avail itself of any safe harbor from copyright liability because:

"they are willfully infringing copyrights themselves on these systems, have actual knowledge that the materials on their systems are infringing (or alternatively know facts or circumstances that would make infringing material apparent); receive a financial benefit directly attributable to copyright-infringing activity where the provider can control that activity; and have not removed or disabled access to known copyright-infringing material from servers they control."

The government says it contacted Megaupload on June 24, 2010, to inform the company that 39 infringing motion pictures were on the website. As of Nov. 18, 2011, 36 of those films were still on the site, the government says.

The indictment goes on to charge the company and its leaders with not only hosting illicit copyright materials, but also child pornography and terrorism propaganda videos.

The MPAA's Chris Dodd issued a statement, saying, "This criminal case, more than two years in development, shows that law enforcement can take strong action to protect American intellectual property stolen through sites housed in the United States. Similar tools are needed to go after foreign-based websites that threaten the livelihoods of the 2.2 million hardworking Americans whose jobs depend on the motion picture and television industry, and the millions of others who produce creative content in this country. We applaud the U.S. Justice Department, the FBI and the National Intellectual Property Rights Coordination Center and the U.S. Immigration and Customs Enforcement Agency at the Department of Homeland Security for leading this investigation."

In recent days, some Hollywood studios reportedly have been upset that the White House backed away from full-throated support of anti-piracy legislation they maintain is needed to crack down on "rogue" foreign websites. Today's announcement of a major crackdown could be a sign that the Obama administration intends to make it up to Hollywood in other ways.

On Thursday, the collective known as Anonymous successfully hacked into websites for the Department of Justice, RIAA, Universal Music Group and the Motion Picture Association of America in response to the takedown of Megaupload.

Messages to Megaupload's headquarters for comment have gone unreturned.

E-mail: eriqgardner@yahoo.com

Twitter: @eriqgardner