Online Piracy Allegations Follow Megaupload Shut Down

When Megaupload executives arrive in court to answer charges that they orchestrated a massive online piracy scheme, they’ll be backed by a prominent lawyer who has defended Bill Clinton against sexual harassment charges and Enron against allegations of corporate fraud.

Washington attorney Robert Bennett said Friday that he will represent the company, which was indicted in federal court in Alexandria Thursday on copyright infringement and other charges.

The U.S. government shut down Megaupload’s file-sharing website on Thursday, alleging that the company facilitated illegal downloads of copyrighted movies and other content. Seven individuals – including the company’s founder, who had his name legally changed to Kim Dotcom – were also charged. Dotcom and three others were arrested in New Zealand; three others remain at large.

New Zealand police raided several homes and businesses linked to Dotcom and seized guns, millions of dollars and nearly $5 million in luxury cars, officials said.

In Hong Kong, where Megaupload is based, customs officials said they seized more than $42.5 million in assets. They said the company operated out of luxury hotel space costing more than $12,000 a day, and they seized high-speed servers and other equipment from the offices.

The shutdown and indictment generated headlines around the world in part because of the size and scope of Megaupload’s operation. Sandvine, Inc., a Canadian company that provides equipment to monitor Internet traffic, said the website alone accounted for about 1 percent of traffic on U.S. cable and DSL lines. The site is even more popular in many foreign countries.

Bennett said that “we intend to vigorously defend against these charges” but declined to comment on the case in detail.

Bennett is best known for serving as President Bill Clinton’s attorney when he was accused of sexual harassment by Paula Jones. He has also represented Defense Secretaries Clark Clifford and Caspar Weinberger.

Megaupload was no stranger to accusations that its website existed for the sole purpose of mass copyright breach. Before its website was taken down, Megaupload offered a more detailed defense of its operations, claiming in a statement that such accusations are “grotesquely overblown.”

The company said it had a clear, easy-to-follow procedure if movie studios or other copyright holders saw that their products were being illegally shared on Megaupload, and said that it responded to those “takedown notices” as required by law.

“Of course, abuse does happen and is an inevitable fact of life in a free society, but it is curbed heavily and efficiently by our close cooperation with trusted takedown partners. It is just unfortunate that the activities of a small group of `black sheep’ overshadows the millions of users that use our sites legitimately every day,” the statement said.

Indeed, sites like megaupload.com, known as cyberlockers, can fulfill legitimate needs and are used every day by people looking for an efficient way to share or transfer large files that can’t easily be sent by email.

In their indictment, however, federal prosecutors offered a detailed glimpse of the internal workings of the website. They allege that Megaupload was well aware that the vast majority of its users were there to illegally download copyrighted content.

According to the indictment, in a 2008 email chat session, two of the alleged coconspirators exchange messages, with one saying “we have a funny business . . . modern days pirates :)” and the other responds, “we’re not pirates, we’re just providing shipping services to pirates :)”.

In another instance, one of the defendants allegedly laments in colorful language that an episode HBO’s “The Sopranos” has been uploaded to site, but the dialogue is in French, limiting its appeal.

In fact, prosecutors allege that the entire website was specifically designed to encourage piracy. The website provided cash bonuses to users who uploaded content popular enough to prompt mass downloads – such content was almost always copyrighted material.

Stefan Mentzer, an intellectual property partner with the White and Case law firm in New York, said it’s likely that Megaupload will try to argue at least two defenses: One is that its service qualifies as a so-called “safe harbor” under Digital Millennium Copyright Act – the federal law governing copyright infringement – if they can show, for instance, that they had no actual knowledge that infringing material was on their system. Another possible defense would be jurisdictional – specifically, that a case can’t be brought in the Eastern District of Virginia against a Hong Kong-based company like Megaupload without evidence that they directed criminal activity related to the district.

But Mentzer said both defenses would be a challenge, given the evidence that prosecutors appear to have collected.

“The Department of Justice doesn’t just cavalierly file these lawsuits,” Mentzer said.

Federal prosecutors have made Internet piracy a priority in the last decade, especially in the Eastern District of Virginia, which can claim jurisdiction over many such cases because large portions of the Internet’s backbone – servers and other infrastructure – are physically located in northern Virginia’s technology corridor.

The vast majority of those cases have resulted in guilty pleas and prison time. On Friday, a day after announcement of the Megaupload case, a federal judge sentenced Matthew David Howard Smith, 24, of Raleigh, North Carolina, to 14 months in prison for his role in founding a website called NinjaVideo. That site was one of many shut down in 2010, at a time when it facilitated nearly 1 million illegal downloads a week.

NinjaVideo was what prosecutors called a “linking site” to Megaupload. Casual users of Megaupload would be unable to find popular movies and TV shows on the site without the proper links. Sites like NinjaVideo allowed users to easily search for the desired movies or music and provided the links that enabled them to download the content from Megaupload.

The other co-founder of NinjaVideo, Hana Beshara, was sentenced earlier this month to 22 months in prison. While she admitted guilt, she portrayed herself as a sort of Robin Hood of the online world, stealing from greedy movie studios to provide entertainment downloads to the masses in the form of free films, TV shows, videogames and music.

While the legal defense for piracy may be difficult, accused Internet pirates clearly have their supporters, as evidenced by the millions of people who use their sites as well as the response to Thursday’s Megaupload shutdown. Within hours of the indictment being unsealed, the loose affiliation of hackers known as Anonymous caused temporary shutdowns of the Justice Department website as well as the websites of the Motion Picture Association of America and other industry groups that support a tougher piracy laws.

It could be months before the criminal case against Megaupload gets underway. The four defendants arrested in made an initial appearance in a New Zealand court Friday and are scheduled to make a second appearance on Monday. Authorities have said it could take a year or more to bring them to the U.S. if they fight extradition.

(AP Business Writers Daniel Wagner in Washington and Kelvin Chan in Hong Kong contributed to this report.)