Piracy in the Cloud: Collateral Effects of Criminal Investigation Sparks Legal Action by Hosting Service

     In one of the largest Internet piracy actions brought by the federal government to date, Megaupload and its founders have been charged with massive copyright infringement and facilitating a criminal enterprise aimed at infringing copyrighted movies, music, and television shows.  According to Megaupload, the company merely provided online storage and is not responsible for uploaded content or user conduct. 

     The FBI raided Megaupload back in January and arrested its founder, Kim Dotcom, and other executives.  At that time, a search warrant for Megaupload’s over 1,100 servers was executed so that federal prosecutors could mine the data for evidence to use in its criminal proceeding against the alleged wrongdoers.  Carpathia, the company that originally leased Megaupload its over 1,100 servers, is currently paying $37,000.00 a month to maintain the servers.  Carpathia filed an emergency motion seeking relief from the Court on March 20, 2012.

     After a Friday hearing in Alexandria, Virginia, U.S. District Judge Liam O’Grady ordered five different parties— including the Federal Government, the Motion Picture Association of America (MPAA), Carpathia Hosting Inc., and Megaupload— to spend the next two weeks working towards a resolution as to who will be footing the bill to keep Megaupload’s servers running. 

     Each of the parties involved has competing interests and seek alternative outcomes.  Carpathia wants to delete the data and re-lease the servers, or have another party bear the hosting costs.  Megaupload wants to purchase the servers, and has already made an offer to do so, because it believes that data on the servers will exonerate the company and its executives, some of whom are currently fighting extradition from New Zealand and the Netherlands.  Megaupload’s offer was rejected by U.S. prosecutors, who are fearful that the data, including copyrighted movies, television shows and music, will be illegally downloaded again if released back into Megaupload’s hands.  

     Although the federal government and the MPAA assert that the majority of the data on the servers is copyrighted materials, other Megaupload subscribers disagree.  Subscribers, such as Kyle Goodwin, claim that they have been impermissibly denied access to their own data.  Goodwin subscribed to Megaupload to expand his business, OhioSportsNet, which records high school sporting events and makes these recordings available over the Internet.  Goodwin used Megaupload to facilitate the sharing of the large files created by the recordings.  Goodwin filed a brief in support of Carpathia’s motion for a protective order and raised issues such as violation of his First Amendment right to free speech and impermissible interference with his possessory interest in his own property.

The case is U.S. v. Dotcom et al., case number 1:12-cr-00003, in the U.S. District Court for the Eastern District of Virginia.