Megaupload and Protecting IP

The anti-intellectual property forces on the Internet are upset, as various governments around the world are doing exactly what they should be in protecting private property from theft.

On January 19, the U.S. Justice Department and FBI announced one of "the largest criminal copyright cases ever brought by the United States." The target? As described by the DoJ, it's "an international organized criminal enterprise allegedly responsible for massive worldwide online piracy of numerous types of copyrighted works through and other related sites."

All entrepreneurs and businesses that rely on and build value through IP, and the consumers that enjoy and want more IP-based products and services, should strongly approve of, even celebrate, such actions by law enforcement.

To say that this was an international effort is a bit of an understatement, as in addition to the U.S., law enforcement from New Zealand, Hong Kong, the Netherlands, the United Kingdom, Germany, Canada, Australia and the Philippines were involved to varying degrees.

The seven people charged in the indictment - four originally arrested in New Zealand - are charged with "engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering, and two substantive counts of criminal copyright infringement."

Federal authorities estimate that the harm to copyright holders is far in excess of $500 million, with $175 million in illegal profits being earned.

The DoJ explained: "According to the 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 indictment states that the conspirators conducted their illegal operation using a business model expressly designed to promote uploading of the most popular copyrighted works for many millions of users to download. The indictment alleges that the site was structured to discourage the vast majority of its users from using Megaupload for long-term or personal storage by automatically deleting content that was not regularly downloaded."

Again, if you operate a business or have a job in the movie, television, publishing and software industries, this case is a positive step forward.

Unlike lawful online storage sites, Megaupload is commonly known as allowing widespread and easy access to unauthorized copies of video and music. Large files can be accessed, shared and/or downloaded anywhere by anyone.

In a January 20 report, the New York Times highlighted the difference between Megaupload, for example, and legitimate services: Aaron Levie, chief executive of, a popular online storage company, "noted that his company and Dropbox, as well as the services from Google and Microsoft, were less likely prosecution targets because they depended to a large extent on legitimate corporate purchases of their storage. These services are more focused on sharing within organizations and small groups. While this can make it more difficult for an outsider or the authorities to see who is storing what, it makes it less likely that huge copyright violations are taking place. Lori Shen, a spokesman for YouSendIt, said any comparison between that site and Megaupload would be inaccurate. ‘YouSendIt is a private and secure business collaboration tool for business users. It provides a secure vehicle to share, send, sign and sync business content online,' Ms. Shen said."

And on January 23, another Times article pointed out steps being taken in response to these actions, including: "Filesonic, Fileserve, FileJungle and UploadStation now forbid users from downloading any content they did not upload themselves."

The Wall Street Journal also explained the recent shift in pirating and its international aspects: "Sites such as Megaupload, known as cyberlockers, have grown in popularity and shifted the technology and business of stealing content. Cyberlockers-so called because they offer virtual storage homes for files that can be accessed from any device with a Web browser-are often foreign sites that offer a smorgasbord of pirated movies, TV shows, music and e-books that people can download with a few clicks, say media companies, and now account for about half of all online pirate activity."

Unfortunately, nations like China and Russia serve as ideal hosts for such services given that government enforcement of intellectual property is weak, at best, in those nations. And that's exactly where assorted IP thieves are increasingly turning to operate.

The Megaupload case should not be a cause for concern or protest by IP creators or consumers. Instead, it should be highlighted as an example of government exercising its proper role of enforcing property rights, and international cooperation protecting IP in the integrated, twenty-first century economy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.