Internet and Intellectual Property Justice Clinic

The Seizure of Megaupload

Author: Copyright Law, Privacy Law

By Chris L.

In January of 2012, the United States Justice Department shocked the Internet community by seizing many website domains for the alleged facilitation of copyright infringement. One site in particular, Megaupload, has been seized as part of what may be one of the largest copyright infringement claims ever, with an estimated harm to copyright holders well in the excess of $500 million. Kim “Dotcom” Schmitz, the websites founder and majority shareholder, has made more than $42 million from subscription fees and advertising hosting in the year 2010. These figures make sense in light of Megaupload’s popularity: At the peak of its popularity, Megaupload claims to have represented 4 percent of all internet traffic, with 50 million visitors a day. Was all of that internet traffic being used for copyright infringement?

Mr. Kyle Goodwin, operator of OhioSportsNet, a website that makes available video footage of high school sporting events, argues that he used Megaupload’s data storage service for completely legitimate purposes. Megaupload’s primary business service is to provide a remote location to store data, described, in the industry, as data hosting. For a fee, Megaupload’s customers can upload large files onto a Megaupload server, and any time afterwards, can re-download the files by typing in the appropriate web address. When the Megaupload domain was seized, the over 25 petabytes of data, physically hosted by a third party company Carpathia, was also seized by the Department of Justice. Mr. Goodwin claims that he used the Megaupload service to remotely backup videos of high school sporting event recordings--a perfectly legitimate use of the service. Despite this, Mr. Goodwin does not have access to his data stored on the Carpathia equipment.

Over the course of 2012, the status of those 25 petabytes of data has changed. The Department of Justice’s original plan was to simply delete the data seized from Megaupload at the end of the investigation. Carpathia, the server host company that provides the physical equipment to store Megaupload’s data, is being burdened with the considerable costs, of about $9,000 daily, to store the Megaupload customer files. While Kim “Dotcom” Smitz has offered to pay Carpathia for the preservation of the data out of his assets seized by the Government as part of the investigation, the property and privacy issues surrounding the government seizure is what is grabbing everyone's attention.

The Electronic Frontier Foundation is representing Mr. Goodwin, and is pressing the court to “hold the government accountable” for its handling of the Megaupload seizure. The EFF has taken issue with several actions of the government in this case: That the government has denied Mr. Godwin, and other customers like him, access to their property, that the government has accessed and reviewed the content of Mr. Goodwin’s data despite Mr. Goodwin not being a target of the criminal investigations, and that the government claims Mr. Goodwin lost his property rights to his data by storing it on a internet data host. This assertion of the government, that a user who uploads their data to a 3rd party web host loses any property rights to that data, is troubling in light of the current trend towards cloud computing.

Just about everyone is using “the cloud” in some form or another. Millions of people use Google or Microsoft cloud based email services like gmail or hotmail. This very document I am writing was written on Google’s cloud based Google Docs service.

In the Megaupload case, The Department of Justice has asked the court to require a hearing process for the return of data to Megaupload customers. This process would require that an individual present arguments before the court, in Virginia, and could require testimony of expert witnesses. A policy like this could be problematic for a major cloud based service provider like Google or Apple’s iCloud, where many users do not have the resources that the Department of Justice requires for this procedure.

This case has attracted the attention of federal judges, privacy and consumer advocacy groups, and members of Congress. Abraham David Sofaer, a retired federal judge, has voiced his concern that the Department of Justice has failed to apply traditional standards of prosecution in the new digital world. The EEF has decided to take action in the Megaupload case, asking for a new hearing to return not only Mr. Goodwin’s data, but also all legitimate data of Megaupload users. The EFF has also asked the Court to unseal the search warrants surrounding the Megaupload data seizure. Some members of Congress have also voiced their concerns to the Department of Justice over the domain seizures, pointing out the fact that in a few cases of domain seizures no copyright infringement was found.

As of this writing, still links to the FBI takedown notice, and the court has yet to rule on the fate of the Megaupload data.