Behind the BUST: What MegaUpload Means for Internet Business

The recent clash between U.S. prosecutors and Kim Dotcom, the brash entrepreneur behind the file-sharing website MegaUpload.com, represents a new front in the digital war currently raging over control of the Internet. [EDITOR’S NOTE: Get the background on that story here.]

On the surface, this case is about criminal copyright infringement on a massive scale. Over the course of five years, prosecutors allege that MegaUpload denied copyright holders upwards of $500 million, and pocketed $175 million in fees from users of its site. Along the way, Kim Dotcom and his co-conspirators paid users for uploading copyrighted material, and profited off of advertisements on their site. The company’s defense attorney counters that MegaUpload did not knowingly facilitate the infringing activities alleged in the government’s indictment.

But this case is about more than simply whether or not Kim Dotcom and his accomplices will be exonerated, or face prison time for their conduct. Kim Dotcom’s arrest and the decision to shut down MegaUpload will have far-reaching consequence for the Internet. Approximately 180 million people registered to use MegaUpload.

While some users uploaded movies, music, and other copyrighted media onto the site, many other innocent users relied on MegaUpload to store and share personal documents and other non-infringing materials. Now, these innocent bystanders have been denied access to their data, and the government has directed users to contact two web hosting companies to retrieve lost information. One of those companies has made it clear that it neither had access to MegaUpload’s content, nor is it in a position to retrieve those materials at this time.

So, what does this mean for the average Internet user? Unfortunately, there’s not much that individual users can do at this point.

As a practical matter, anyone using a file-sharing website should assume that their information is not safe. If the sole repository for your documents and other important materials is a single site like MegaUpload, then you’re running the risk that your data may be confiscated and potentially lost. If the government shuts down a website, it will not expend the resources to cull through the data to help you retrieve what belongs to you. And, as we can now see, web hosting companies are not likely to help users retrieve their lost information.

And don’t think that you’ll be able to go after the web hosting company. Web hosts enjoy broad protections, usually as a result of detailed contracts, that absolve them of all liability vis-à-vis their contractual partners. A third-party claim against a web hosting company would likely be even weaker, given the lack of a direct relationship between the web host and internet user who relied on a single, file-sharing site to store important information.

These challenges make clear the need for important policy innovation. Recent efforts by the U.S. legislature to protect intellectual property rights have failed. Laws like the Stop Online Privacy Act (SOPA) and the Protect IP Act (PIPA) were met with such strong opposition from the likes of Google and Wikipedia, that the legislations’ sponsors ultimately withdrew their bills. (Editor’s note: Get clued in on the SOPA and PIPA kerfluffle here.)

While many companies acknowledge that digital piracy is a problem, they also understand that the ability to freely share information over the web is essential to the Internet’s continued viability. The question now is, how do policymakers balance competing interests? While Kim Dotcom may not have the right to profit from the illegal distribution of copyrighted material, the law should not be allowed to sweep in innocent bystanders who did not engage in any infringing activities.

The internet has revolutionized how content is created and distributed. And, for all of the claims of piracy and copyright infringement, the fact remains that new content is appearing every day. This is the yawning gap in policy that must be bridged if the Internet is going to reach its full potential.

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Carlos F. Gonzalez is a Certified Anti-Money Laundering Specialist (CAMS) and partner at Diaz Reus & Targ, LLP, an international law firm serving U.S.-based and global clients, where he concentrates on trial and appellate litigation with an emphasis on international civil and commercial disputes and white collar criminal defense. Contact him at cgonzalez@diazreus.com.

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