More on Kim Dotcom and the Fight Over Cyberlockers

In late January, Law of the Game took a look at Kim Dotcom and Megaupload. Bloomberg Businessweek released a superb profile of the file-sharing baron. It is worth checking out. The authors fill in Dotcom’s back story, and what a story! For example, the piracy bug bit him young: he was selling copies of computer games to friends before he reached junior high school. This was also not his first encounter with the wrong side of the law: he was convicted in 2002 of insider trading.

The article does not limit the narrative to Kim Dotcom’s, brazen, bizarre antics, although there are enough for a novel. They also include a discussion of whether or not the shutdown was overboard. The parties take the positions you would expect. Cary Sherman, Chairman & CEO of the RIAA calls the story a “powerful message” to infringers. Julie Samuels of the EFF says that creators are seeking to “stem the growth of new business models instead of using their time and energy to compete. They’re working to harm innovation and consumers and artists who are trying to find new ways to connect with those fans.” The authors also point out that there has never been a case of inducing copyright infringement reaching the level of criminal liability. To dig deeper, we will begin by examining one of the most famous inducement liability cases, consider how the available facts compare, and then comment on whether this case really is an attack on cyberlockers.

In 2005, the Supreme Court considered inducement liability for copyright infringement in MGM v Grokster. Grokster was a file-sharing utility, but unlike its predecessor Napster, it was built on a decentralized architecture where no central list of the files was kept. The software acted as a link between you and the user with the songs you wanted. Grokster, playing this passive role, did not have actual or constructive knowledge that infringement was taking place, nor did they materially contribute as users searched for the files. Grokster attempted to claim the Betamax defense, arguing that if the product was capable of substantial non-infringing uses, it could not give rise to contributory liability. Grokster is capable of non-infringing uses, and so the developers claimed they were not liable.

In rejecting that argument, the Court discussed inducement liability. If you distribute a product promoting that it can be used to infringe copyrights, it can be enough to show liability. Promotion of infringement has to be by either clear expression or other steps showing you meant to encourage it. Considering Megaupload, the indictment provides plenty of emails and more that scream inducement, like the incentive program. People have pointed out, that there is a big difference between civil and criminal cases. Jennifer Granick notes that secondary liability has never been enough to create criminal liability. [The pending Rojadirecta case has the Second Circuit considering that very issue. Can linking to an infringing stream be enough for a criminal offense?] The counterpoint to Ms. Granick, Derek Bambauer, says the principals look very guilty, but agrees an expansion of criminal liability is troubling. Ms. Granick also admits that there may be enough proof that Dotcom and his compatriots directly infringed enough to make secondary liability less of a problem.

We also must remember, a money laundering count was included in the indictment, but not fleshed out. The federal government has repeatedly (online poker shutdown, new pre-paid access rules, etc.) made clear they are concerned about technology supporting criminal enterprise. There may be evidence not yet public showing Megaupload “washing” dirty cash, providing heavy ammunition for the prosecution. Beyond that, there is no indication that the government has the intention or appetite for a broad offensive on cyberlockers. It is safe to assume that most companies offering cloud storage are not an insane, self-aware scam run by a James Bond villain. It is good that people are concerned and talking. Emphasizing the civil liberties at play is very important. The issue of what happens to the non-infringing files still on the Megaupload servers raises legitimate questions about the rights of people who were not using the service improperly.

It is possible that this is part of a large push against cloud services. But there is still a great deal we do not know about the Megaupload case. Until things become clear, we will be following closely.


Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.