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In what authorities have called one of the largest criminal copyright cases ever brought, the Justice Department and the F.B.I. have seized the Web site Megaupload and charged seven people connected with it with running an international enterprise based on Internet piracy.

Megaupload, one of the most popular so-called locker services on the Internet, allowed users to transfer large files like movies and music anonymously. Media companies have long accused it of abetting copyright infringement on a vast scale. In a grand jury indictment, Megaupload is accused of causing $500 million in damages to copyright owners and of making $175 million by selling ads and premium subscriptions.

The arrests were greeted almost immediately with digital Molotov cocktails. The hacker collective that calls itself Anonymous attacked the Web sites of the United States Justice Department and several major entertainment companies and trade groups in retaliation for the seizure of Megaupload.

The case against Megaupload comes at a charged time, a day after broad online protests against a pair of antipiracy bills in Congress: the Stop Online Piracy Act, or SOPA, in the House of Representatives, and the Protect Intellectual Property Act, or PIPA, in the Senate. The bills would give United States authorities expanded powers to crack down on foreign sites suspected of piracy. But technology companies and civil liberties groups say that the powers are too broadly defined and could effectively result in censorship.

Four of the seven people, including the site’s founder, Kim Dotcom (born Kim Schmitz), were arrested Friday in New Zealand; the three others remain at large. Each of the seven people — who the indictment said were members of a criminal group it called Mega Conspiracy — is charged with five counts of copyright infringement and conspiracy. The charges could result in more than 20 years in prison.

As part of the crackdown, about 20 search warrants were executed in the United States and in eight other countries, including New Zealand. About $50 million in assets were also seized, as well as a number of servers and 18 domain names that formed Megaupload’s network of file-sharing sites.

The police arrived at Dotcom Mansion in Auckland on Friday morning in two helicopters. Mr. Dotcom, a 37-year-old with dual Finnish and German citizenship, retreated into a safe room, and the police had to cut their way in. He was eventually arrested with a firearm close by that the police said appeared to be a shortened shotgun.

“It was definitely not as simple as knocking at the front door,” said Grant Wormald, a detective inspector.

The police said they seized 6 million New Zealand dollars, or $4.8 million, in luxury vehicles, including a Rolls-Royce Phantom Drophead Coupe and a pink 1959 Cadillac. They also seized art and electronic equipment and froze 11 million dollars in cash in various accounts.

Mr. Dotcom and three others arrested in New Zealand appeared in court Friday afternoon and were denied bail. Extradition proceedings will continue Monday.

The police said the other three arrested in New Zealand were Finn Batato, 38, a German citizen and resident; Mathias Ortmann, 40, a German citizen who is a resident of Hong Kong; and Bram van der Kolk, 29, a Dutch citizen who is a resident of New Zealand.

The police said they were still searching Dotcom Mansion on Friday evening.

Ira P. Rothken, a lawyer for Megaupload, said by telephone Thursday that “Megaupload believes the government is wrong on the facts, wrong on the law.”

On Wednesday, Google and Wikipedia joined dozens of sites in political protests by blacking out some content and explaining their arguments against the antipiracy laws.

The group Anonymous, which has previously set its sights on PayPal, Sony and major media executives, was more blunt in its response. The group disabled the Justice Department’s site for a time, and it also claimed credit for shutting down sites for the Motion Picture Association of America and the Recording Industry Association of America, two of the most powerful media lobbies in Washington, as well as those of Universal Music Group, the largest music label, and BMI, which represents music publishers.

“Let’s just say, for #SOPA supporters their #SOPAblackout is today,” Anonymous wrote in a Twitter post. In an e-mail, a spokesman for the group said it was responsible for the Web attacks.

The Megaupload case touches on many of the most controversial aspects of the anti-piracy debate. Megaupload and similar sites, like RapidShare and MediaFire, are often promoted as convenient ways to transfer large files legitimately; a recent promotional video had major stars like Will.i.am of the Black Eyed Peas singing Megaupload’s praises. But media companies say the legitimate uses are a veil concealing extensive theft.

Mr. Dotcom has made himself a visible target. He splits his time between Hong Kong and New Zealand and casts himself in flamboyant YouTube videos. His role as one of the most prominent Web locker operators has earned him a half-joking nickname in Hollywood: Dr. Evil.

According to the indictment, he took in $42 million from Megaupload’s operations in 2010.

The indictment against Megaupload, which stems from a federal inquiry that began two years ago, was handed down by a grand jury in Virginia two weeks ago but was not unsealed until Thursday.

It quotes extensively from correspondence among the defendants, who work for Megaupload and its related sites. The correspondence, the indictment says, shows that the operators knew the site contained unauthorized content.

The indictment cites an e-mail from last February, for example, in which three members of the group discussed an article about how to stop the government from seizing domain names.

The Megaupload case is unusual, said Orin S. Kerr, a law professor at George Washington University, in that federal prosecutors obtained the private e-mails of Megaupload’s operators in an effort to show they were operating in bad faith.

“The government hopes to use their private words against them,” Mr. Kerr said. “This should scare the owners and operators of similar sites.”

Nicole Perlroth and Jonathan Hutchison contributed reporting.

7 Charged as F.B.I. Closes a Top File-Sharing Site, NYT, 20.1.2012,
https://www.nytimes.com/2012/01/21/
technology/megaupload-indictment-internet-piracy.html

Facebook to Offer Path to Media

September 18, 2011

The New York Times

By BEN SISARIO

For cloud-based digital music services like Spotify and Rhapsody, which stream millions of songs but have struggled to sign up large numbers of paying users, being friended by Facebook could prove to be a mixed blessing.

This week, according to numerous media and technology executives, Facebook will unveil a media platform that will allow people to easily share their favorite music, television shows and movies, effectively making the basic profile page a primary entertainment hub.

Facebook, which has more than 750 million users, has not revealed its plans, but the company is widely expected to announce the service at its F8 developers’ conference in San Francisco on Thursday.

By putting them in front of millions of users, Facebook’s new platform could introduce the music services to vast new audiences. “If it works the way it is supposed to, it would be the nirvana of interoperability,” said Ted Cohen, a consultant and former digital executive for a major label.

But the new plan will ratchet up the competitive pressure on these fledgling services, forcing them to offer more free music as enticements to new users.

According to the media and technology executives, who spoke on condition of anonymity because the deals were private, Facebook has made agreements with a number of media companies to develop a way for a user’s profile page to display whatever entertainment he is consuming on those outside services. Links that appear on a widget or tab, or as part of a user’s news feed, would point a curious friend directly to the content.

Spotify and Rhapsody, along with their smaller competitors Rdio, MOG and the French company Deezer, are said to be among the 10 or so music services that will be part of the service at its introduction; Vevo, the music video site, is another. A Facebook spokesman declined to comment, and media executives cautioned that details of the plan could change.

Spotify is the largest of these services with more than 10 million users, according to its most recent reporting. The service began in Europe in 2008 and arrived in the United States in July, after protracted negotiations with the major record labels over its “freemium” structure, which lets people listen to music free, with advertising, or pay $5 or $10 a month for an ad-free version.

Rdio and MOG, which charge $5 and $10 a month for subscriptions, announced free versions last week in an effort to compete with Spotify. And Rhapsody, whose service costs $10 and $15 a month, has just introduced an array of social features centered on Facebook.

The companies declined to answer questions about Facebook’s media platform. And David Hyman, MOG’s founder and chief executive, said that the development of his company’s free tier far predated Spotify’s entry into the United States.

But Mr. Hyman said that the change was being made to reduce the “friction” a nonsubscriber experiences when following a link posted by a paying user. Instead of hearing the song, the nonsubscriber would reach a page asking to sign up with a credit card — an annoyance for many potential customers.

“In the Internet world, any minuscule piece of friction blows people’s minds,” he said.

MOG provides new users with a “gas tank” of free music — supported by advertising — that increases with that user’s social activity on the site, like sharing playlists or inviting friends. Rdio’s free music will come ad-free.

Neither company would say exactly how much free music would be made available.

“We don’t want to force you to look at or listen to ads that will distract you from enjoying music,” said Carter Adamson, Rdio’s chief operating officer, “and we don’t want you to spam your friends to get more free.”

But even free music requires royalty payments to record companies — typically some fraction of a cent per stream — and some investors and technology executives are concerned that Facebook’s platform may bring in large numbers of users who are willing to listen to some free music but are not being given much incentive to subscribe. That might make success more difficult for services that have less favorable deals with record companies.

David Pakman, a partner in the venture capital firm Venrock and a former chief executive of the digital service eMusic, also said that instead of giving smaller companies a boost, the mathematics of Facebook’s hundreds of millions of links might simply allow the largest service to dominate all the others.

“It favors the big over the small,” Mr. Pakman said. “It’s a good thing for all services in that it lets them all participate. But the small guys will lose network effects, and the big guys will gain it.”

Spotify has not updated its user numbers since arriving in the United States, but music executives say it quickly drew more than 100,000 customers to its paid service alone.

MOG and Rdio have not reported their numbers, but music executives say their tallies are well under 100,000.

Not all the services involved in the Facebook platform are going free. Rhapsody, which was founded 10 years ago and has 800,000 subscribers, is sticking to its monthly subscription rate, said Jon Irwin, the company’s president.

“Our belief is that the cost of the content cannot be fully offset by the advertising dollars you can generate,” Mr. Irwin said, “and that the subsequent conversion of somebody to a paying subscriber because they’ve been able to listen to content for free on a desktop is not at a level that supports the losses you’ll incur on the advertising side.”

Mr. Irwin also believes that Facebook will further intensify the competition among the cloud services, and that Spotify and his own company will have the advantage.

“It’s going to be hard for the players not at scale to survive,” he said. “You’re looking at a two-horse race.”

Facebook to Offer Path to Media,
NYT,
18.9.2011,
https://www.nytimes.com/2011/09/19/
business/media/facebook-is-expected-to-unveil-media-sharing-service.html

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