Since its launch in 2005, Megaupload has allegedly allowed users to download stolen work for free, generating millions of dollars in profits from ad revenue and subscription fees. It was a business model whose success depended on the pirated property of others.
Before it was shut down through an international law enforcement effort earlier this year and charged by the Justice Department with widespread online copyright infringement, the website boasted more than 1 billion total visitors. According to a grand jury indictment:
[For] more than five years the conspiracy has operated websites that unlawfully reproduce and distribute infringing copies of copyrighted works, including movies – often before their theatrical release – music, television programs, electronic books, and business and entertainment software on a massive scale. The conspirators’ content hosting site, Megaupload.com, is advertised as having more than one billion visits to the site, more than 150 million registered users, 50 million daily visitors and accounting for four percent of the total traffic on the Internet. The estimated harm caused by the conspiracy’s criminal conduct to copyright holders is well in excess of $500 million. The conspirators allegedly earned more than $175 million in illegal profits through advertising revenue and selling premium memberships.
But it isn’t the website itself that has attracted so much attention. Instead, the media hype surrounds the website’s founder, Kim Dotcom.
Worth an estimated $200 million, the audaciously self-named “300-pound-plus, 6-foot-7 German hacker-turned-web mogul who founded Megaupload,” Kim Dotcom, gained a reputation for flaunting the lavish lifestyle allegedly funded by content theft.
A recent expose by the Hollywood Reporter describes how Dotcom has become a poster child for extravagance:
Those searching for Megaupload online might come across pictures of Dotcom in dark sunglasses racing a tricked-out Mercedes-Benz coupe, eating a large hunk of meat off a spit, dancing aboard the yachts Amnesia and Golden Odyssey, wielding a shotgun on a duck hunt and sitting in an oversize bathtub fully clothed with scantily clad women at his side.
But Dotcom’s criminal rap sheet goes back much further. He has made a career out of ripping off investors and business partners. The Hollywood Reporter continues:
In January 2002, Schmitz was arrested in Bangkok and extradited to Germany, where he spent five months in jail while awaiting trial and was ultimately found guilty of insider trading. He was given a probationary sentence of one year and eight months and paid a fine. In November 2003, another of Schmitz’s ventures blew up in his face when he pleaded guilty to embezzling money from Monkey AG, an e-payment business he had started a few years earlier with German private-equity company BMP. Schmitz took about $300,000 from Monkey in the form of a loan; he was sentenced to two more years’ probation.
Now that he’s once again facing criminal charges, Dotcom is waging a charm offensive, claiming Megaupload did everything it could to remove infringing content, and that he’s been unfairly targeted by law enforcement. But internal communications reveal Dotcom’s business model depended on pirated materials and his resistance to proactively removing illegal content. The Hollywood Reporter writes:
In an April 2009 e-mail to three colleagues, Dotcom is quoted complaining about the deletion of links to infringing content: “I told you many times not to delete links that are reported in batches of thousands from insignificant sources. … And the fact that we lost significant revenue because of it justifies my reaction.”
Because Megaupload hosted some of the pirated content on servers in Virginia, the Justice Department was able to claim jurisdiction, which means Dotcom may soon be brought to justice for stealing and profiting off others’ creative works.
Unfortunately, many pirate sites are located entirely on foreign soil and continue to operate beyond the reach of U.S. law.