File-hosting services all around the world will have looked on in horror yesterday as MegaUpload, one of the world’s largest cyberlocker services, was taken apart by the FBI. Foreign citizens were arrested in foreign lands and at least $50 million in assets seized. So what exactly prompted this action? TorrentFreak read every word of the 72-page indictment so you don’t have to, and we were surprised by its contents.

Yesterday a massive operation took down MegaUpload, one of the world’s leading file-storage services and one of the world’s biggest sites, period.

While the timing came as a huge post-SOPA protest surprise, the fact the site was targeted was not – for many months there have been rumblings behind the scenes that something might be “done” about MegaUpload. Nevertheless, the manner in which the action was taken and the language used by the authorities in doing so was utterly unprecedented.

So the key question this morning is this – What made MegaUpload a rogue site which deserved to be completely dismantled and its key staff arrested? The answers lie in the 72-page indictment and show just how the authorities (with the massive assistance of the MPAA, no doubt) framed Mega’s activities in such a way as to strip it of any protection under the DMCA.

In the U.S., online service providers are eligible for safe harbor under the DMCA from copyright infringement suits by meeting certain criteria. However, the indictment states that member of the “Mega Conspiracy” (capital M, capital C no less) do not meet these criteria 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.

Let’s cover the last point first – the apparent non-removal of known copyright material from MegaUpload’s servers. First, a little background on how MegaUpload’s user uploading system worked because this is absolutely crucial to the case against the site.

Mega had developed a system whereby files set to be uploaded by users were hashed in order to discover if a copy of the file already exists on the Mega servers. If a file existed, the user did not have to upload his copy and was simply given a unique URL in order to access the content in future. What this meant in practice is that there could be countless URLs ‘owned’ by various users but which all pointed to the same file.

Megaupload’s “Abuse Tool” to which major copyright holders were given access, enabled the removal of links to infringing works hosted on MegaUpload’s servers. However, the indictment claims that it “did not actually function as a DMCA compliance tool as the copyright owners were led to believe.” And here’s why.

The indictment claims that when a copyright holder issued a takedown notice for content referenced by its URL, only the URL was taken down, not the content to which it pointed. So although the URL in question would report that it had been removed and would no longer resolve to infringing material, URLs issued to others would remain operational.

Furthermore, the indictment states that although MegaUpload staff (referred to as Members of the Conspiracy) discussed how they could automatically remove child pornography from their systems given a specific hash value, the same standards weren’t applied to complained-about copyright works.

In June 2010, it appears that MegaUpload was subjected to a something of a test by the authorities. The company was informed, pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing movies were being stored on their servers at Carpathia Hosting in the Eastern District of Virginia.

“A member of the Mega Conspiracy informed several of his co-conspirators at that time that he located the named files using internal searches of their systems. As of November 18, 2011, more than a year later, thirty-six of the thirty-nine infringing motion pictures were still being stored on the servers controlled by the Mega Conspiracy,” the indictment reads.

The paperworks goes on to accuse MegaUpload of running a program between September 2005 and July 2011 which rewarded users for uploading infringing material.

A citation from an internal MegaUpload email from February 2007 entitled “reward payments” claims to show that at least two key staff members knew that cash payments were being paid to users who uploaded infringing material including “full popular DVD rips” and “software with keygenerators (Warez)”.

Then the indictment starts to throw up some very interesting questions, specifically how the authorities managed to get hold of not just one but many of MegaUpload’s internal company emails (dating back to 2006) to use in the case against them.

It’s certainly possible that the authorities were monitoring MegaUpload’s correspondence but there are also at least two mentions in the indictment of an unnamed person described as “an unindicted co-conspirator”. While prosecutors sometimes use this term to describe people who have been excluded from an indictment on evidentiary concerns, they also use it to describe individuals who have been granted immunity from prosecution.

In any event, these emails are being heavily relied upon since many appear to indicate a knowledge among staff that copyright works were held on the company’s servers. Here’s a sample:

An email from 2006 claims to show how MegaUpload attempted to download large amounts of content from YouTube and appeared by April that year to have obtained 30% of the site’s content. A follow up email in 2007 claimed that “Kim [MegaUpload's founder] really wants to copy Youtube one to one.”

An email from August 2006 titled “lol” contained a screenshot of a MegaUpload download page showing a cracked copy of CD burning software Alcohol 120%.

Other correspondence quoted in the indictment appears to show key staff members sending each other links to copyright works hosted on MegaUpload.

One contained 100 MegaUpload links to content by recording artist Armin Van Buuren. Another, allegedly sent in December 2006 by Kim Dotcom to another staff member, carried a link to a music file hosted on a MegaUpload server entitled “05-50_cent_feat._mobb_deep-nah-c4.mp3”. No context for the sending of these links is given in the indictment.

Other emails show staff asking each other to help locate copies of infringing content including TV series The Sopranos and Seinfeld, and music from a band called Grand Archives. Again, no context is offered in the indictment.

An email sent in July 2008 shows a key staff member reporting an earlier conversation with another entitled “funny chat-log.”

“We have a funny business . . . modern days pirates,” the exchange begins. “We’re not
pirates,” came the reply. “We’re just providing shipping services to pirates.”

But aside from exchanging links to copyright works, the indictment claims that key staff members also uploaded material themselves including a TV show from the BBC and a copy of the movie Taken.

The indictment lists several other examples which are supposed to demonstrate that the admins of MegaUpload knew that their service was being used for the storage and distribution of illegal material.

Emails from customers are cited where they complain that for various reasons they’re unable to watch named copyrighted works. Others ask how to find pirate movies on Mega and are told to go to sites that index Mega-hosted material, such as the ThePirateCity.org, a site seized as part of Operation in Our Sites.

On at least two occasions the indictment reports key MegaUpload staff discussing TorrentFreak articles on seizure operations being carried out by the US authorities.

In one email, Kim Dotcom reportedly stated: “This is a serious threat to our business. Please look into this and see how we can protect ourselfs [sic],” adding, “Should we move our domain to another country, Canada or even HK?”

The indictment separately lists several movies being distributed from MegaUpload’s servers in the United States, all of which were not yet commercially available. There is no indication, however, that MegaUpload’s operators knew they were there.

On face value it would seem that in a handful of cited instances staff at the company did indeed link each other to copyright works, but when the massive scale of the MegaUpload operation is set beside them, their significance is put into a different perspective.

The issue of not taking down content is a fascinating one. MegaUpload is not on its own when it hashes content then allows users to access already-stored versions of the same files. Nevertheless, will taking down a specific URL and not the content itself be enough to appease the courts?

Finally, and despite the assertions of the MPAA, RIAA and the authorities, MegaUpload carried a huge amount of non-infringing content, giving the service itself “substantial non-infringing users”. Nevertheless, all content has now been seized, leaving millions of people and companies without their personal data.

Cyberlocker services and potential startups all around the world will be watching this case like hawks. Seismic doesn’t really come close.

Sorry maar ergens toch niet normaal meer of wat?

Ik denk niet dat hij lang vast zit en ook niet dat hij erg arm zal worden.

According to the Department of Justice, the individuals named in the indictment face a maximum penalty of 20 years in prison on the charge of conspiracy to commit racketeering, five years in prison on the charge of conspiracy to commit copyright infringement, 20 years in prison on the charge of conspiracy to commit money laundering and five years in prison on each of the substantive charges of criminal copyright infringement.

In another astonishing development in the Megaupload saga, a judge in New Zealand’s High Court has declared the order used to seize Kim Dotcom’s assets as “null and void”. The blunder, which occurred because the police applied for the wrong type of court order, means that the Megaupload founder could have his property returned.


Just when it seemed that the handling of the Megaupload case couldn’t get any more controversial, a development from New Zealand has taken things to the next level.

Following the raids on Kim Dotcom’s mansion in January, police seized millions of dollars worth of property belonging to the Megaupload founder. But thanks to a police blunder, he could now see all of those assets returned.

On Friday, Justice Judith Potter in the High Court declared the order used to seize Dotcom’s property “null and void” after it was discovered that the police had acted under a court order that should have never been granted.

The error dates back to January when the police applied for the order granting them permission to seize Dotcom’s property. Rather than applying for an interim restraining order, the Police Commissioner applied for a foreign restraining order instead, one which did not give Dotcom a chance to mount a defense.

According to New Zealand Herald, on January 30th prosecution lawyer Anne Toohey wrote to the court explaining that the wrong order had been applied for and detailed five errors with the application.

Justice Potter said that police commissioner Peter Marshall tried to correct the error by applying for the correct order after the raids were completed and retrospectively adding the items already seized.

Although the correct order was eventually granted albeit on a temporary basis, Potter said she will soon rule on whether the “procedural error” will result in Dotcom having his property returned.

The Crown is arguing that since the new order was granted the earlier error no longer matters, but Dotcom’s legal team framed it rather differently by describing the seizure of assets as “unlawful”.

Whether the assets are returned will rest on Dotcom’s legal team showing a lack of “good faith” in connection with the blunder. A hearing to decide if the assets will be returned will take place next week.

A US judge has put a bomb under the Megaupload case by informing the FBI that a trial in the United States may never happen. The cyberlocker was never formally served with the appropriate paperwork by the US authorities, as it is impossible to serve a foreign company with criminal charges.


kim dotcomThe US Government accuses Kim Dotcom and the rest of the “Mega Conspiracy” of running a criminal operation.

Charges in the indictment include engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering and two substantive counts of criminal copyright infringement.

While the prosecution is hoping to have Megaupload tried in the US, breaking news suggests that this may never happen.

It turns out that the US judge handling the case has serious doubts whether it will ever go to trial due to a procedural error.

“I frankly don’t know that we are ever going to have a trial in this matter,” Judge O’Grady said as reported by the NZ Herald.

Judge O’Grady informed the FBI that Megaupload was never served with criminal charges, which is a requirement to start the trial. The origin of this problem is not merely a matter of oversight. Megaupload’s lawyer Ira Rothken says that unlike people, companies can’t be served outside US jurisdiction.

“My understanding as to why they haven’t done that is because they can’t. We don’t believe Megaupload can be served in a criminal matter because it is not located within the jurisdiction of the United States,” Rothken says.

Megaupload’s lawyer adds that he doesn’t understand why the US authorities weren’t aware of this problem before. As a result Judge O’Grady noted that Megaupload is “kind of hanging out there.”

If this issue indeed prevents Megaupload from being tried in the US, it would be a blunder of epic proportions. And it is not the first “procedural” mistake either.

Last month the New Zealand High Court declared the order used to seize Dotcom’s property “null and void” after it was discovered that the police had acted under a court order that should have never been granted.

The error dates back to January when the police applied for the order granting them permission to seize Dotcom’s property. Rather than applying for an interim restraining order, the Police Commissioner applied for a foreign restraining order instead.

The exact ramifications of the failure to serve will become apparent in the near future.

Update: Megaupload founder Kim Dotcom responds, and he’s not happy.

The US judge handling the Megaupload case noted today that it may never be tried due to a procedural error, a comment that has sparked the anger of Megaupload’s founder. Kim Dotcom is furious with the US Government for destroying his businesses and rendering hundreds of people unemployed. According to Dotcom the case is the result of “corruption on the highest political level, serving the interests of the copyright extremists in Hollywood.”

dotcom freeEarlier today the news broke that a Megaupload trial may never happen because the US Government failed to serve the now defunct file-hosting company.

While some defendants might respond with relief upon hearing such news, Megaupload founder Kim Dotcom is only becoming more furious at the people who destroyed his businesses.

“The US government has terminated Megaupload, Megavideo and 10 other subsidiaries, including a company called N1 Limited that was developing a clothing line,” Dotcom told TorrentFreak.

“They destroyed 220 jobs. Millions of legitimate Mega users have no access to their files.”

If Judge O’Grady is to be believed all this damage could very well have been for nothing because the authorities simply can’t serve foreign companies. This could lead one to wonder whether the whole setup was to simply destroy Mega’s businesses.

This is certainly a theory Dotcom subscribes to, and it’s not the only dirty trick Megaupload’s founder believes the US Government is playing. The US is structurally denying Megaupload the chance to put up a fair fight.

“We are refused access to the evidence that clears us, we are refused funds to pay our lawyers, we are refused to pick the lawyers we want to represent us and have any chance for a fair trial,” Dotcom says.

For Megaupload the worst part is that the damage can’t be undone. The site has been completely destroyed as well as the plans to become a publicly traded company.

“We have already been served a death sentence without trial and even if we are found ‘not guilty’ which we will, the damage can never be repaired,” Dotcom says.

And why?

According to Megaupload’s founder it is quite clear that the Mega investigation was a ‘gift’ to Hollywood, facilitated by corrupt forces.

“This Mega takedown was possible because of corruption on the highest political level, serving the interests of the copyright extremists in Hollywood,” he says. “Mega has become a re-election pawn.”

Nevertheless, Dotcom is confident that these forces will eventually be exposed.

“It is just a matter of time until the truth comes out. We are working on that and we are making good progress,” Dotcom concludes.