Copyhype

In a new “white paper” released today, Kim Dotcom’s lawyers come to the surprising conclusion that Kim Dotcom is not guilty.

Shocking, right?

Taking your case to the court of public opinion could be a sign that your case in a court of law is not going well. But ever since the US government charged Kim Dotcom, 6 other defendants, and 2 companies, including Megaupload, for charges relating to massive copyright infringement in January 2012, Dotcom has been on a full court press to convince the public that multi-millionaries (like him) should be allowed to rip off working class creators (like Ellen Seidler).¹ The latest move is the “white paper”, titled Megaupload, the Copyright Lobby, and the Future of Digital Rights (with the self-aggrandizing subtitle, “The United States vs. You (and Kim Dotcom)”). Part of this public relations campaign has involved an attempt to characterize Dotcom as some kind of hacker hero — the white paper places Dotcom in the same pantheon as Steve Jobs and Steve Wozniak. Really? Kim Dotcom is to hacking what the 1995 movie Hackers is to hacking.

And the conspiracy theories described in this white paper seem one relic shy of a Dan Brown novel.²

But what about the legal arguments presented in the paper?

The citations to case law may lead the casual reader to the conclusion that there are valid legal arguments within the paper. But for the most part, the arguments are legal sleight of hand, a series of court quotes that, while true, are inapplicable and immaterial to the point being argued. There is little here that Dotcom hasn’t argued in public or in court (unsuccessfully, so far) before.

No Criminal Liability for Secondary Copyright Infringement

The basic premise of this argument is that in the civil context, liability for indirect infringement derives from the common law, not the Copyright Act. Since criminal law as a rule derives entirely from statute, there can be no criminal liability for indirect infringement.

This argument is a red herring.

First, Dotcom and the Megaupload defendants simply are not being charged under any of the tort-based indirect liability standards — which include contributory infringement, vicarious liability, and inducement. They are being charged with direct infringement, aiding and abetting infringement, and conspiracy to commit infringement.³ The latter two could be considered forms of secondary liability, but they are criminal, not tort forms, and they are provided for by statute.

Next, the white paper wholly skips over the fact that Dotcom has been charged with two counts of direct criminal copyright infringement. Among the allegations supporting these charges is at least one instance where one of the defendants himself uploaded an infringing copy of a film that had not been commercially released yet to Megaupload.⁴

But the indictment also alleges multiple instances where copyrighted works were made available to the public through the Megaupload sites. Many courts, and the leading copyright treatise, view making a work available to the public as an infringement of the distribution right.⁵

Also conveniently left out of the white paper is that a federal court has already stated, in a separate, civil lawsuit, that Megaupload exercises the requisite volition to be held liable for direct infringement. In Perfect 10 v. Megaupload, the Southern District Court of California said:

Drawing all reasonable inferences in Perfect 10′s favor, Megaupload serves as more than a passive conduit, and more than a mere “file storage” company: it has created distinct websites, presumably in an effort to streamline users’ access to different types of media (e.g., megaporn.com, megavideo.com); it encourages and, in some cases pays, its users to upload vast amounts of popular media through its Rewards Programs; it disseminates URLs for various files throughout the internet; it provides payouts to affiliate websites who maintain a catalogue of all available files; and last, at a minimum, it is plausibly aware of the ongoing, rampant infringement taking place on its websites. Taken together, Perfect 10 has adequately alleged Megaupload has engaged in volitional conduct sufficient to hold it liable for direct infringement. [Emphasis added].

(The lawsuit settled before proceeding much further.)

Substantial Non-Infringing Uses

The White Paper next argues that “the U.S. government cannot even argue that the conduct of Megaupload and its executives gives rise to civil liability for secondary infringement, much less criminal liability” under the Supreme Court’s 1984 holding in Sony Corp v. Universal City Studios. The problem with this argument is that it has thoroughly and repeatedly been rejected by courts in cases involving similar services.

The Ninth Circuit rejected it in 2001.⁶ The Seventh Circuit rejected it in 2003.⁷ And, most importantly, the Supreme Court rejected it in 2005. In MGM v. Grokster, Justice Souter explained, “Sony‘s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law.”

Other courts have pointed out that Sony only applies if you’re focusing on liability for the design of a product rather than conduct⁸ or if there is no continuing relationship between the maker of a product and the user.⁹ But whatever the case, the fact remains that courts have consistently found Sony inapplicable to online service providers like Megaupload for over a decade. It’s telling that this was the strongest argument the white paper could muster.

Rewards Program Not a Contributor to Infringement

Next, the white paper says that the argument that its rewards program encouraged or contributed to infringement is a “glaring falsehood.” Megaupload claims that its program that paid uploaders depending on the popularity of the files they uploaded didn’t encourage infringement because someone’s family photos could just as likely be as popular as a copy of the latest blockbuster film. That’s silly.

More to the point, Megaupload’s rewards program was previously found to support a contributory infringement claim. Again, from Perfect 10:

Tellingly, in its motion to dismiss, Megaupload does not dispute Perfect 10′s allegation that it induces, causes, or materially contributes to infringing conduct. Nor could it, given the allegations that Megaupload encourages, and in some cases, pays its users to upload vast amounts of popular media through its Rewards Programs, disseminates URLs that provide access to such media, and has provided payouts to affiliates who catalogue the URLs for all available media.

Safe Harbor and Beyond

The white paper finally argues that Megaupload should not be liable for the massive infringement it caused and contributed to because it is eligible for safe harbor under the DMCA. That begs the question that DMCA safe harbors are even available for criminal defendants — I’ve written previously that the language of the statute doesn’t support such a conclusion. What’s more, even in the unlikely case a court finds that safe harbors are available in the criminal context, it is difficult to see the service being able to show it complied with the statute’s requirements that protect good-faith, passive service providers.¹⁰

Procedural Arguments

The white paper next turns from making substantive arguments to procedural arguments. It argues that “U.S. federal court lacks jurisdiction over Megaupload” because it “is a wholly foreign corporation; it is not incorporated in the United States, and it has no agents or offices in the United States.” Chief among the support for this argument is that the U.S. cannot serve Megaupload under Rule 4 of the Federal Rules of Criminal Procedure.

Note how this argument begins with such a broad statement about a lack of jurisdiction but ends up being really about a minor procedural point. Note too that this argument has no impact on the case against Kim Dotcom himself, his holding company, or any of the other personal defendants. This argument only involves the corporate entity of Megaupload Limited. So the suggestion that we should be concerned about some breach of the rule of law is a bit disingenuous. The dismissal of charges against Megaupload would have little effect on the case against the other defendants except that it might free up assets to pay for the defendants’ attorneys (and even that is not a foregone conclusion).

Last July, I briefly looked at this argument; its substance has evolved very little since then. Megaupload essentially takes the position that corporations who operate within the United States and violate U.S. laws should get a free pass so long as they don’t have a mailbox in the U.S. Note that this argument isn’t limited to criminal copyright laws — corporations would be able to commit financial crimes, environmental crimes, fraud, and more with impunity. This result defies common sense and the rule of law — I’d imagine quite a few people would disagree with Megaupload’s argument that corporations deserve a free pass from obeying the law.

The court rejected this argument last October, stating that even if Megaupload doesn’t have a “last known address” within the district or a “principal place of business” within the U.S., there are several alternatives available to the U.S. to perfect service. In its most recent filing, the U.S. notes additional alternatives available to serve Megaupload, a company that leased thousands of servers in the United States to operate a service that allegedly violated U.S. laws within the U.S. harming U.S. creators, regardless of where Kim Dotcom picks up his mail.¹¹

This hasn’t prevented Megaupload from continuing to make the argument in court, despite the fact that less than two months ago, a court in the very same district rejected the idea that the mailing requirement in Rule 4 is a jurisdictional requirement.¹² So now Megaupload persists in making the argument in its white paper here.

The remaining claims made in the white paper follow the same pattern as those discussed above, full of red herrings, already rejected arguments, and faulty logic. No doubt that matters little to those who worship Dotcom as a hero, buying completely into his celebrity-esque posturing.

Footnotes

1. A study released in March demonstrated that the Megaupload shutdown caused a 6-10% increase in digital film revenues, revenues that not only help fund the continued creation of films but also that directly go to union members in the form of residuals. [↩]
2. Even Techdirt describes them as a “massive exaggeration.” [↩]
3. See Superseding Indictment. [↩]
4. Superseding Indictment, pg. 44. [↩]
5. See Nimmer Changes his Tune: “Making Available” is Distribution. [↩]
6. A & M Records v. Napster, 239 F. 3d 1004, 1020; “Napster claims that it is nevertheless protected from contributory liability by the teaching of Sony Corp. v. Universal City Studios, Inc. We disagree. We observe that Napster’s actual, specific knowledge of direct infringement renders Sony‘s holding of limited assistance to Napster.” [↩]
7. In re Aimster Copyright Litigation, 334 F. 3d 643, 651; “We also do not buy Aimster’s argument that since the Supreme Court distinguished, in the long passage from the Sony opinion that we quoted earlier, between actual and potential noninfringing uses, all Aimster has to show in order to escape liability for contributory infringement is that its file-sharing system could be used in noninfringing ways, which obviously it could be. Were that the law, the seller of a product or service used solely to facilitate copyright infringement, though it was capable in principle of noninfringing uses, would be immune from liability for contributory infringement. That would be an extreme result, and one not envisaged by the Sony majority.” [↩]
8. Perfect 10 v. Amazon, 508 F. 3d 1146, 1171 (9th Cir. 2007). [↩]
9. CoStar Group v. Loopnet, 164 F. Supp. 2d 688, 697 (D. Md. 2001). [↩]
10. See, for example, Megaupload, the DMCA and Lockers in General; Megaupload’s DMCA Shell Games; Why Megaupload Doesn’t Have a DMCA Shelter. [↩]
11. The U.S. says in its May 2nd filing “As discussed in prior pleadings, Defendant Megaupload has had at least two addresses within the Eastern District of Virginia — a constructive address at the Commonwealth of Virginia’s State Corporation Commission and an address at the Carpathia datacenter where the company maintained its U.S.-based nerve center.” [↩]
12. United States v. Kolon Industries, 2013 WL 682896, *5–6 (ED Va. Feb. 22, 2013). [↩]

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