Bloomberg News

Megaupload Files Ruling Deferred by Judge for Further Tal

April 13, 2012

A U.S. judge deferred a decision on whether millions of gigabytes of data belonging to users of Megaupload.com should be preserved or the data-storage company that owns the servers where it’s housed can delete it.

U.S. District Judge Liam O’Grady, at a hearing today in Alexandria, Virginia, told federal prosecutors they have two weeks to work out an agreement with parties claiming an interest in the massive cache of data that became inaccessible when law enforcement agents shut down Megaupload in January.

The parties include attorneys for the Motion Picture Association of America, who say the files contain the largest collection of copyright-infringed material in the world, as well as attorneys for Megaupload, who argue they need the data to defend the company’s directors against charges including criminal copyright infringement.

The parties also include an Ohio resident who says he used Megaupload for legitimate purposes and now has no access to data he stored on the website, which provided its services free to most users.

Prosecutors this month said in court papers they already had a large sampling of the data cache and will provide it to defense attorneys. They contend the data need not be preserved for purposes related to the criminal prosecution.

‘Meet-and-Confer’

“I think the meet-and-confer is a great idea,” O’Grady said, after the lawyers told him their clients were unwilling to pay the cost of preserving the data. Prosecutors said the cost of maintaining the files could run into the tens of millions of dollars.

Today’s hearing, the first in the criminal case against Megaupload and its founder, Kim Dotcom, provided a preview of the issues underpinning the potential loss of such a large amount of data, some of which belonged to innocent cloud- computing users.

Julie Samuels, an attorney for the Electronic Frontier Foundation, an Internet civil liberties group, argued that the government should establish a system through which those users could file affidavits and claim their data.

Such a system would be difficult. The more than 1,000 servers on which the data had been stored have been unplugged and shipped to a warehouse in Virginia, according to Marc Zwillinger, an attorney for Carpathia Hosting Inc., the Dulles, Virginia-based hosting company that Megaupload paid to store its users’ data.

Platform for Client

Carpathia was paid $35 million over several years by Megaupload, prosecutors said. Zwillinger said Carpathia simply provided a platform to its client, and should no longer be required to pay for the data’s upkeep.

Carpathia agreed to sell the servers to Megaupload for $1.2 million, a cost the company was willing to incur as part of the defense of Dotcom and other company directors, Zwillinger said.

Jay Prabhu, the chief of the cybercrime unit in the U.S. attorney’s office in Alexandria, told O’Grady that the MPAA objects to returning the copyright-infringed material to a company that helped illegally disseminate it.

“It’s trusting the thief with the money,” Prabhu said.

Investigators in January executed more than 20 search warrants in the U.S. and eight other countries and seized about $50 million in assets associated with Megaupload.com.

Copyrighted Works

Megaupload reproduced copyrighted works directly from other websites including Google Inc.’s YouTube for illegal sharing and to give the false impression that a related video-sharing website hosted user-generated, rather than copyrighted, content, prosecutors allege.

Since September 2005, the conspiracy -- dubbed “Mega Conspiracy” by Justice Department prosecutors --generated more than $175 million in criminal proceeds by distributing millions of copies of copyrighted works, including movies, television programs, music, books, video games and software, according to the indictment.

Of that, more than $150 million came from premium subscriptions and $25 million from online advertising. A lifetime subscription cost about $260, according to the indictment.

The case is U.S. v. Dotcom, 1:12-00003, U.S. District Court, Eastern District of Virginia (Alexandria).

To contact the reporter on this story: Michael Riley in Washington at michaelriley@bloomberg.net

To contact the editor responsible for this story: To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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