Wednesday afternoon at World Hosting Days, internet lawyer and frequent WHIR contributor David Snead discussed the Megaupload indictment, and what it could mean for web hosting companies.
Back in January, the FBI shut down Megaupload, one of the largest file sharing sites on the Internet, following a two-year investigation involving the IPR center, which coordinates the US government’s copyright policy.
There was a significant amount of political cooperation in the shutdown, which included the seizure of $50 million in assets, including domain names.
To put it in terms really relevant to web hosting, Snead says the company represented 25 percent of Carpathia Hosting’s revenue, and 30 percent of LeaseWeb’s revenue.
In February, we reported that Carpathia was working with the EFF to help legitimate users of Megaupload get access to their files.
The key lessons for web hosts, says Snead, have to do with understanding how the US government handles copyright cases. A key point in the indictment is the allegation of both copyright infringement and conspiracy to commit copyright infringement. In addition to allegedly ripping and uploading the material themselves, the company is charged with specifically requesting that certain material be uploaded.
The “conspiracy” charge is scary, because it basically suggests that every time the Megaupload founders got together to work on their business, they were committing the conspiracy. It also charges them with “laundering” money though their hosting providers (though Carpathia and LeaseWeb were not charged with any crimes).
Snead says his clients are concerned about the Megaupload rewards program, which looks a lot like the referral programs operated by a lot of hosting companies.
Important fact – if you’re operating a locker service, and somebody points out some infringing material stored on your service, you’re required to delete the material, not just the links.
Another important fact is that, according to the indictment, Megaupload was following the efforts of law enforcement, not in order to better comply with law, but to better conceal its illegal activities.
The key factors that hosts need to understand about the indictment, says Snead, are the allegations that:
- The company knew its rewards program was likely to result in copyright infringement - It failed to delete the infringing files, and instead deleted the link - That it concealed the true nature of the site - That Megauplod failed to “mend” its ways when faced with complaints - That it failed to terminate repeat infringers - That it encouraged its service providers to provide it with leeway around their TOS (Carpathia and LeaseWeb did not, incidentally) - It Laundered money
The lessons for hosts, says Snead, are:
Lesson one, that you need to find a line in the sand to draw with customers. First of all, don’t build a business model that relies on infringing content. Secondly, develop a lawyer-vetted process for deleting infringing content. And follow legal developments that relate to your business, and respond to them by tuning your business model, not hiding it.
Lesson two, that you need to understand where jurisdiction lies. In the Megaupload case, the jurisdiction was based on the location of the servers, and in other countries based on the flow of data. Snead says every government looks for ways to impose its laws outside its borders. The exercise of jurisdiction is an increasing global trend. You need to develop strategies for complying with important laws in places where you do business. And Jurisdiction may not be where the servers are.
Lesson three, find out how to deal with “rogue” technologies. Understand how the companies that went before you failed. Police your users and enforce your TOS. And understand the legal basis for the complaints you’re going to receive.
Internet Lawyer David Snead’s Quote About MegaUpload Gets Censored. WHIR Author Liam Eagle Doesn’t Say What Percentage Of Carpathia’s and Leaseweb’s Revenue Had Been Generated By The MegaUpload Operation
Internet Lawyer David Snead Comments On MegaUpload & Carpathia / Leaseweb Revenue Stats. New “Single Digit” Claim Highly Unlikely