Megaupload Drops Lawsuit Against Universal Music Over Viral Video (Exclusive)

Kanye West Runway - H 2011

In the aftermath of the Justice Department's crackdown on Megaupload, the company has dropped its lawsuit against Universal Music Group over an allegedly unlawful takedown of a video showing many superstars endorsing the troubled file-sharing service.

However, the lawsuit is not quite over just yet. On Friday, Megaupload's lawyers filed a notice in California federal court to dismiss the claims against UMG without prejudice, but also told the judge that that the claims against anonymous John Does who participated in the takedown of the viral video continues. Megaupload also wants to pursue further discovery in the case and is attempting to get Google to cooperate on this front by preserving records.

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A lawsuit that was strange from the very beginning has just taken another twist.

As you'll recall, Megaupload shocked many observers last month by releasing the "Megaupload Mega Song," from, Sean "Diddy" Combs, Kim Kardashian, Alicia Keys, Snoop Dogg, Chris Brown, Kanye West, Lil John, Jamie Foxx, Mary J Blige, Floyd Mayweather, The Game and more. Over a simple electro-beat, the various stars sing how much they love the service. (Some celebrities later denied they had endorsed the site.)

Soon thereafter, just as the video was going viral, the music video was yanked off of YouTube over an apparent takedown notice. Megaupload blamed UMG and sued the company for copyright misrepresentation. For a company that's faced repeated allegations of unlawful behavior, Megaupload had suddenly gone on the legal attack and hired two law firms including giant Fenwick & West to protect its own rights.

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UMG did indeed cause the video to be taken off of YouTube, but the record company said it wasn't a takedown notice that was sent, but rather the exploitation of a contractual agreement with YouTube that permitted use of a "Content Management System" to remove videos from the site, "based on a number of contractually specified criteria."

Megaupload wanted a peek at this agreement.

The video was soon back up on YouTube, which expressed displeasure at the way UMG used its piracy filters, but Megaupload grew increasingly unhappy at YouTube nevertheless.

Just weeks before Megaupload founder Kim Dotcom was arrested in New Zealand, he sent us a message that attacked YouTube for allegedly censoring the video's view count. "UMG knows that the next round of stories will start when the video becomes an online sensation," Dotcom told us. "So the question is, is Youtube helping UMG to keep the view count a secret?"

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Meanwhile, UMG hit back against Megaupload, blasting its "notorious" reputation as a big pirate.  In a declaration on Jan. 10, UMG added that it "fully intends to take discovery regarding these matters, which all go to Megaupload’s claimed ‘reputation,’ the harm it says it has suffered, and the types of users it aims to reach, including with its video posting.”

UMG and Megaupload argued about the scope of the discovery process. The latter claimed it needed  to figure out which corporate entity within UMG should be the proper defendant. UMG responded that it wasn't necessary and that the plaintiff's lacked "good cause."

On Friday, Megaupload dropped its claims against UMG without prejudice, meaning that it could revive a lawsuit against the company at a later date if it so chose. But on the same day, Megaupload's attorneys told the court that the "dismissal in no way reduces the need for limited discovery."

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In particular, Megaupload's lawyers have singled out Google, which owns YouTube, for not providing assurance that documents would be retained.

To battle criminal charges brought by the government, Megaupload has reportedly hired Hogan Lovells attorney Robert Bennett, one of the top lawyers in the nation who has previously represented Bill Clinton, Enron, and KPMG. Bennett will soon be in court in an effort to defeat one of the largest copyright cases in U.S. history.

But first, Megaupload makes its first appearance in court on Monday in the Oakland courthouse of Judge Jacqueline Scott Corley in the ongoing , strange case concerning the "Megaupload Mega Song." A hearing is scheduled on the issue of discovery and the proceeding could provide some clues about the company's future legal efforts.


Twitter: @eriqgardner