Clumsy arrests did little good and a lot of damage.
It has all the makings of a good movie. An international task force tracks down a pudgy, shaven-headed IT mastermind to his multi-million dollar mansion hidden in the New Zealand countryside and brings him to justice for theft on a global scale.
Maybe it was this screenplay that convinced the New Zealand government to arrest Megaupload’s Kim Dotcom, less glamourously known as 37-year-old Kim Schmitz, on the FBI’s behalf two weeks ago. Unfortunately it seems that no-one has thought much about how this movie might end.
The movie studios are absolutely entitled to protect the copyright of their works. But the way they have gone about it has severely damaged the reputation of the nascent cloud industry, particularly cloud storage vendors.
Let’s see how this looks from the perspective of a business owner who is considering moving his files to the cloud.
- A cloud-storage company based in Hong Kong is alleged to have illegally shared copyright-protected data uploaded by its customers onto US-based servers.
- The FBI files copyright infringement charges in a US criminal court and seizes control of Megaupload’s US servers.
- New Zealand police arrest the company owner, a German and New Zealand citizen, on criminal charges filed in the US. No charges have been laid against the owner or company in New Zealand or Hong Kong.
- The US and supporting countries freeze global financial assets of the New Zealand company and seize personal assets of the company owner (his house, cars, etc).
- US authorities prevent the accused company of letting its 50 million customers access and download data stored on Megaupload.
- The company faces losing all its customers’ data (25 million gigabytes worth) because it can’t pay the estimated $1.4 million per month in rent for its servers since its funds have been frozen.
Not a particularly attractive scenario for the prospective cloud-storage customer, is it? Let’s say the files weren’t movies and music but customer databases, business plans and financial information. How would a business customer react to losing access permanently to these files?
The Megaupload case fans three burning concerns for businesses looking at cloud services.
- Will the US government and its spy agencies be able to read a company’s files stored in US-based cloud services?
- Will US authorities be able to lay charges against a company based on the content or usage of its files stored in US-based cloud services?
- Can the company retrieve their data easily at any time, even if the cloud vendor goes into administration or has its assets seized?
If the US government had been acting in the best interests of the cloud industry rather than the movie lobby it should have considered addressing these issues first. It wouldn’t have been hard.
A New Zealand film director could have publicly claimed copyright infringement by Megaupload users. The New Zealand police could then have laid charges for copyright infringement against Kim Dotcom in a New Zealand court. And the US government could have put in place measures to keep the servers running until Megaupload’s users had made copies of all their data without deleting the files, which would be retained for forensic examination.
And to be honest the same questions should apply. While it is highly unlikely that a similar incident will happen to Box.net, it’s not impossible. The US has shown with the Megaupload case that cloud services using servers based in the US will be subject to US law, regardless of where the business is domiciled.
For some excellent analysis on the Megaupload affair check out this story on itnews.com.au. Apparently, none of the charges levelled at Kim Dotcom and his associates are included in New Zealand’s extradition agreement with the US. Will New Zealand make an exception in this case?
So what did the movie and music studios achieve by shutting down Megaupload so hamfistedly, at such high cost to the cloud industry?
The Megaupload arrests would have no impact on levels of piracy but will harm the development of legitimate online distribution methods, reported global news service Reuters.
A class action in Spain aims to sign up thousands of legitimate users who lost their own projects and files stored by Megaupload.
A music industry executive claimed that people who were deterred from using locker services like Megaupload would baulk at using more complex peer-to-peer services such as BitTorrent, even though twice as many people use BitTorrent-type services as Megaupload-type services.
Perhaps the movie and music moguls were less afraid of losing sales to pirates than a mass defection of their best talent.
Witness this line from the Reuters report: Rapper Busta Rhymes signaled his support on Twitter even after the arrests last week, tweeting that Megaupload “could create the most powerful way 4 artist 2 get 90% off of every dollar despite the music being downloaded 4 free.”