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Megaupload’s Legal Quandary

Almost a year after prolific founder of Megaupload, Kim Dotcom, was arrested and the site’s domain seized, recently disclosed court documents have illuminated the underlying legal complexity of the copyright infringement case. Multiple sources have reported that it was well before Dotcom’s eventual indictment that the site was served with a warrant targeted not at Megaupload itself, but at a website called NinjaVideo, which had been piggybacking off of Megaupload’s file hosting network to upload content.

In compliance with the furtively issued warrant, Megaupload offered up data on NinjaVideo, its users, and its content, including 39 pirated movies that were linked to the smaller site. Yet, much to the surprise of Dotcom and Megaupload’s counsel, Ira Rothken, the very same pirated movies were used as evidence 18 months later to seize  Megaupload’s site and to prosecute Dotcom and his associates. To further complicate this legal chicanery, the defendant  has pointed out that the site did not remove the infringing content—as is typically the protocol for avoiding lawsuits when copyrighted materials are identified—because this could have been considered intentional spoliation of evidence.

Perhaps the most novel attribute of this case lies in the assumed relation between Megaupload and NinjaVideo. As the proprietor of the infrastructure through which NinjaVideo operated, Megaupload appears to be acting as a service provider. It is this that the defending counsel notes as he makes the claim that the government, in issuing its warrant much in the way service providers are issued subpoenas (or warrants), treated Megaupload as such. If this tacit assumption holds true, then Megaupload may be protected by a safe harbor clause in the DMCA (Digital Millennium Copyright Act), which protects internet service providers from legal culpability with regard to pirated materials, provided the content is promptly removed upon receipt of an infringement notice.

Of course, the dilemma for Dotcom and his counsel is that they did not remove the infringing content and 18 months later found themselves the target of a federal investigation that was using the content discovered in the June 2010 inquiry to now take down Megaupload. While it is clear that the materials remained on their server well after they were identified (it was reported that at least 36 of the 39 files could still be found on the site as of November 18, 2011), the legal analysis in the case against Megaupload is by no means straightforward.

Megaupload’s defense relies on the following proposition: Because Dotcom and their U.S. server host, Carpathia, requested clarification from the FBI on how to treat the flagged files and received no response, it became their legal prerogative to retain the materials both to comply with the government’s request and to avoid claims of spoliation. In doing so, Megaupload was effectively forced to waive the liability protection provided in DMCA’s safe harbor provision for service providers. The issue for  the defending counsel, therefore, is whether Megaupload can satisfy the legal obligation to maintain a litigation hold—to retain the relevant data in the government’s case against NinjaVideo despite their request for secrecy—while also keeping themselves within the immunity of the DMCA safe harbor provisions in order to defend themselves from a copyright infringement lawsuit.

The federal case against Megaupload.com is one of the largest in U.S. history, seizing 18 domains affiliated with the site, about $50 million dollars in assets and involving 20 search warrants. Yet, the case’s real significance could be the way in which the lawsuit clarifies potential conflicts between DMCA provisions and litigation hold requirements. It seems certain that this will be an interesting and perhaps precedential case to follow, as the federal crusade against online copyright infringement continues.

 

Michael chew is a Bard College graduate and an advisory services consultant with Complete Discovery Source, Inc., an award-winning, global eDiscovery services provider. Michael has expertise in linguistics and data analytics and consults clients on issues related to advanced document search and retrieval.

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Comments (2):

  1. Very useful and informative. Thank you. Dave

  2. concise and clearly written. i hope to hear more from this author

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