The Megaupload Bust: Lessons for Entrepreneurs, Small Business

The case of embattled Megaupload founder Kim DotCom was one of the top stories that entrepreneurs watched unfold since late last week.

The man: Kim Dotcom, a 38-year-old German national living in New Zealand, who changed his name from Kim Schmitz to emphasize his tech prowess.

The accusation: The FBI has accused Mr. Dotcom of illegally earning $175 million via his file-sharing site Megaupload.com, which was shut down last week.

The details: Dotcom was arrested by New Zealand authorities on the FBI’s request over the weekend. He’s being charged with racketeering, copyright infringement and money laundering in a Virginia court.

He’s also been released on bail, even after prosecutors argued that he was a flight risk “at the extreme end of the scale” because of his funds. Authorities say he’s also believed to use multiple identities and have a record of fleeing criminal charges.

It’s being claimed that “he and a group of co-conspirators caused $500 million of harm to copyright holders,” reports The Guardian.

“The FBI estimates that Dotcom personally made around $115,000 a day during 2010 from his empire,” the report says.

Dotcom is denying the charges, and plans to put up a fight. Meanwhile, in another high-profile file-sharing crackdown, website Grooveshark is also under fire. The popular music service is being sued by all four major music labels.

“Unlike competing services that license their music from the start, Grooveshark built its music library through users, who can upload their own tracks and listen to any songs that other users have uploaded,” explains PC World. “Grooveshark says it responds to takedown requests, but would rather pay artists through licensing deals than remove music.”

As these stories play out, the Internet is abuzz over Dotcom’s lavish life. He was a New Zealand media mogul, helping to fund civic events and generally keeping a high profile. And many websites have offered photo tours of his estate to illustrate his lavish life. Read Fox News’ report on that here.

So, what are the lessons here for entrepreneurs?

Lesson No. 1: The U.S. government still considers file-sharing to be against the law if the sites violate any copyright or IP law whatsoever — or even jeopardize national security. Consider past examples like Napster and WikiLeaks. So, while file-sharing seems to be one of the most powerful things the Internet offers, online entrepreneurs interested in exploring this area must tread with care.

Lesson No. 2: In cases like Dotcom’s, the “you just don’t understand my high-tech business” argument seems to be the go-to defense:

“Dotcom’s lawyer countered that the sites were shuttered and would not be immediately reopened,” Fox News explains. “He argued that the U.S. government and the FBI completely misunderstood the entrepreneur’s business.”

This topic and more are included in the Vistage Connect™ peer advisory sessions. Learn more.

7352 views