Megaupload fiasco may trickle down to other cloud storage providers

Prosecutors in the U.S. have accused Megaupload and seven people associated with the company, including founder Kim Dotcom, of copyright infringement, aiding and abetting copyright infringement, wire fraud and money laundering. The U.S. has started proceedings to extradite them from New Zealand to the U.S., where they hope to put the company on trial.

It would be the first time a provider of cloud storage services had been charged with criminal copyright infringement in the U.S., said attorney Ira P. Rothken, who will represent Megaupload if the case comes to trial.

The cases against the music file-sharing services Grokster and Napster were both civil cases, meaning they were brought by aggrieved parties, such as the record companies, as opposed to the state. Civil cases generally require a lower burden of proof, making them easier to prove.

The Grokster case went to the U.S. Supreme Court, which in 2005 found the company liable for "inducing" copyright infringement by its end users, or secondary liability for copyright infringement.

There is no statute for secondary infringement in criminal law, however. In a criminal case, prosecutors will have to prove primary copyright infringement, meaning the defendants knew what they were doing and willfully infringed, Rothken said.

He described the indictment against Megaupload as "breathtaking." It doesn't name specific works that were allegedly infringed, or name any individuals responsible for sharing those works. Instead, the indictment holds Megaupload and its operators responsible for the conduct of its users.

That position is incompatible with how cloud services work, Rothken contended. Privacy laws in the U.S. prevent cloud storage providers from looking at the content its users have stored, he said.