The Man Behind the ‘Mega Conspiracy’ - Fordham Intellectual Property, Media & Entertainment Law Journal
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The Man Behind the ‘Mega Conspiracy’

The Man Behind the ‘Mega Conspiracy’

It’s a plot straight out of a James Bond film.  There is a super villain called “Dr. Evil,” fast cars, exotic locations, beautiful women, and an international criminal enterprise.  Only 007 is missing.

On Friday, January 20, police in Auckland, New Zealand, arrested Kim Dotcom (formerly Kim Schmitz), founder of the popular file-sharing website Megaupload.com, at his birthday bash.  The police discovered Mr. Dotcom hiding in a safe room inside his barricaded mansion with a sawed-off shotgun.  Meanwhile, the FBI shut down the Hong Kong based website.  Visitors to Megaupload.com are now greeted by a Notice of Seizure.

According to the 72 page indictment, unsealed on Friday in the Eastern District of Virginia, Mr. Dotcom and his confederates are being charged with conspiracy to commit racketeering, conspiracy to commit copyright infringement, conspiracy to commit money laundering, and criminal copyright infringement.  All together, Mr. Dotcom could be facing over twenty years in prison.

It has been estimated that at one point Megaupload.com had 50 million daily visitors, was the thirteenth most frequently visited website on the Internet, and to had accounted for about four percent of total Internet traffic.  The site allowed users to upload any file to its servers, providing a unique Uniform Resource Locator (“URL”) link to anyone who wished to download the file.  If the same file was uploaded twice, only one copy would be kept on the server but two unique links to the file would be created.  Many of the files shared on Megaupload.com were copyrighted materials such as movies, songs, and TV shows.

Indeed, according to the indictment, not only did Mr. Dotcom facilitate copyright infringement but “[o]n or about December 3, 2006, [Mr. Dotcom himself] distributed a Megaupload.com link to a music file entitled “05-50_cent_feat._mobb_deep-nah-c4.mp3.”

After many complaints from Hollywood, Megaupload.com created a DMCA compliant “Abuse Tool” which copyright holders thought they could use to terminate access to a copyright-infringing file.  In fact the tool only terminated one link to the file.  The file still existed on Megaupload’s servers and any other links were still viable.  There were over two thousand links for some very popular files.

Megaupload generated income primarily from advertising revenues and by charging premium subscription fees.  In 2010 alone Mr. Dotcom allegedly raked in $42 million from Megaupload.com, or the ‘Mega Conspiracy’, as the Department of Justice has dubbed the affair.

Mr. Dotcom used his share of the profits to fund an absurdly lavish lifestyle.  New Zealand authorities seized $5 million in cars alone.  Aside from bank accounts too numerous to count, the indictment lists the following vehicles as subject to forfeiture:

2010 Maserati GranCabrio
2009 Mercedes-Benz E500 Coupe
2005 Mercedes-Benz CLK DTM, License Plate No. “GOOD”
2004 Mercedes-Benz CLK DTM AMG 5.5L Kompressor, License Plate No. “EVIL”
2010 Mercedes-Benz S65 AMG L, License Plate No. “CEO”
2008 Rolls-Royce Phantom Drop Head Coupe, License Plate No. “GOD”
2010 Mercedes-Benz E63 AMG, License Plate No. “STONED”
2010 Mini Cooper S Coupe, License Plate No. “V”
2010 Mercedes-Benz ML63 AMG, License Plate No. “GUILTY”
2007 Mercedes-Benz CL65 AMG, License Plate No. “KIMCOM”
2009 Mercedes-Benz ML63 AMG, License Plate No. “MAFIA”
2010 Toyota Vellfire, License Plate Nos.“WOW” or “7”
2011 Mercedes-Benz G55 AMG, License Plate No. “POLICE”
2011 Toyota Hilux
2010 Mercedes-Benz CL63 AMG, License Plate No. “HACKER”
2005 Mercedes-Benz A170
2005 Mercedes-Benz ML500
1957 Cadillac El Dorado
1959 Cadillac Series 62 Convertible
2006 Mercedes-Benz CLK DTM
2011 Mercedes-Benz ML63

The Rolls-Royce Phantom Drop Head Coupe alone costs more than $400,000.  In 2011, Megaupload spent $2.4 million on yacht rentals.  Mr. Dotcom personally sponsored Auckland’s $500,000 New Year’s Eve fireworks show. And Mr. Dotcom’s home, called the ‘Dotcom Mansion’, was a $24 million, 25,000 square foot monstrosity.  Authorities are seeking the forfeiture of at least $175 million in assets.

This is not the first time Mr. Dotcom has had a run-in with the law.  According to MSNBC, Mr. Dotcom was arrested in Germany in 1994 for selling stolen credit cards.  In 1998 “[h]e was convicted of fraud and other hacking charges, including embezzling hundreds of thousands of dollars.  He was sentenced to two years of probation, and fined 20,000 marks.”  Finally, in 2001, after purchasing “a mountain of shares in a nearly bankrupt [German] company called LetsBuyIt.com,” Mr. Dotcom announced that he would invest $100 million in the company.  Shares climbed 300% and Mr. Dotcom dumped the stock, earning him a cool $1.5 million and a five year suspended sentence for insider trading.

But despite his ‘Dr. Evil’ moniker, Mr. Dotcom was not completely evil.  He set up a website called Kill.net dedicated to searching for accounts of terror organizations, identifying money transactions, financial supporters, and capturing and delivering the data to officials.  As a practical joke he once changed German Chancellor Helmut Kohl’s credit rating to zero.

Over the weekend Mr. Dotcom retained Robert Bennett, who has represented Bill Clinton, Enron, among other high profile defendants.  But Mr. Bennett announced on Sunday that he would have to withdraw from the case because of a conflict within his firm, Hogan Lovells.

On Monday morning, January 23, a bail hearing was held in New Zealand where the prosecutor argued that Mr. Dotcom should be denied bail because he is an extreme flight risk.  The prosecutor noted that Mr. Dotcom holds several passports, has a private jet, and “a helicopter sitting on his front lawn.”

Currently, no decision has been made on whether to grant Mr. Dotcom bail, but the FBI is working to have him extradited to the United States.

Mr. Dotcom’s arrest highlights the debate over SOPA and its counterpart in the Senate, PIPA.  Indeed, some in the blogosphere are saying “the timing of the Megaupload arrests was no accident. The federal government… was spoiling for a fight after the apparent defeat of SOPA/PIPA and not a little humiliation at the hands of the Web.”

Many Internet users are saying that “the legal action against Megaupload.com should be all the evidence needed to demonstrate that SOPA and PIPA are not needed.”  But in fact, under the current legal framework the DOJ would probably not have been able to get their hands on Mr. Dotcom had Megaupload been based solely overseas.  They were only able to indict him because he hosted thirty-nine copyright-infringing files on his servers in Dulles, Virginia.  SOPA would still be necessary “to give the Justice Department and copyright owners the legal reach and muscle to thwart overseas theft of American intellectual property.”

Either way, if Mr. Dotcom’s license plates are any indication, he certainly is GUILTY.

Stuart Alter