Megaupload File Storage Site Closed By FBI For IPR Breaches

Megaupload, the online storage site has been closed down by the US Department of Justice (DoJ) as part of a multinational co-operative move against online intellectual property rights (IPR) infringements. Hackers have struck back with attacks on music industry sites.

The site has been taken off the Internet for infringing copyright and the key employees of the site have been arrested in New Zealand – although the site is registered in Hong Kong.

Dotcom seizure

The DoJ’s Federal Bureau of Investigation (FBI) applied for an indictment against the site and its operators from a grand jury in Virginia, USA. It was granted for racketeering, conspiracy to commit copyright infringement, and other charges, on 5 January and culminated in the closure and arrests yesterday.

Although the eccentrically-named founder of Megaupload Kim Dotcom and three of his employees were taken into custody by New Zealand police, there is no record of any action being taken against rapper Swiss Beatz (Kasseem Dean), husband of singer songwriter Alicia Keys. Dean is listed as CEO of Megaupload. The police said they are seeking to arrest three more members of the organisation.

According to the federal authorities, the site had over 50 million daily visitors and the operators of the site earned more than $175 million (£113m) which financed its leaders’ rock-star lifestyles. Between them they are said to own 14 Mercedes-Benz cars with personalised licence plates – one of which ironically reads “Guilty”.

The indictment estimates the damage caused by copyright infringement to amount to $500 million (£323m), making it one of the biggest criminal IPR cases to be brought to court. If found guilty, the penalty could be as high as 55 years in prison for the Megaupload team.

Attorney for Megaupload Ira Rotken was taken by surprise and said he only learned of the arrests in a press release. “Our initial impression is that the allegations are without merit and Megaupload is going to vigourously contest them,” he said. “We have deep concerns over due process and assets being taken without the opportunity for a hearing.”

Megaupload’s legitimate side

The blocking of the site may actually work against other IPR activity in the US because Megaupload has a legitimate side to its business. The site is a forerunner of cloud storage and allows members to upload any files in paid-for, secure, remote storage. It is not a traditional BitTorrent-based, file-sharing site as such but each file is given a unique address. This has led to many instances of customers publishing download details of copyrighted music, movies and commercial software stored on Megaupload.

There are many legitimate users and these innocent bystanders will suddenly find that their files are inaccessible – which could lead to class actions in the US courts.

The actions of the DoJ and other legal bodies from the UK, Hong Kong, the Netherlands, Germany, Canada, and the Philippines are being viewed as a practical enactment of  the principles which were encapsulated in the controversial Stop Online Piracy Act IPR legislation being considered by the US government.

Denial of service reprisals

Reactions to the moves are already being felt by organisations related to the Megaupload arrests. Websites of the DoJ, Universal Music Group (UMG), the Recording Industry Association of America (RIAA), Broadcasting Rights Incorporated (BMI), and  the Motion Picture Association of America (MPAA) were all targeted by the hacker group Anonymous with distributed denial of service (DDoS) attacks. After twenty four hours, the RIAA and UMG were still inaccessible but the others were back online.

This could be the start of a major battle between the US and Anonymous because the attack on the DoJ site may be classed as a terrorist act and will bump the hacker group up in the FBI’s most-wanted list.