Movie Studios Demand Millions From Megaupload in New Lawsuit

Hollywood's major movie studios have filed a lawsuit against Megaupload and several of its former employees, demanding millions of dollars in damages. In their complaint the studios describe the file-hosting service as a business that was set up to encourage piracy, which a nonsense claim according to Megaupload's legal team.

megauploadA few months ago the U.S. Department of Justice released a summary of its evidence against Megaupload, to assist civil parties who would want to start their own cases against the defunct file-hosting service.

Previously there have been some rumors that the MPAA was working on a lawsuit and this has now been confirmed. Twentieth Century Fox, Disney, Paramount Pictures, Universal, Columbia Pictures and Warner Bros. have teamed up and filed a complaint in a Virginia District Court.

The lawsuit is filed against Megaupload, Kim Dotcom and the former employees Mathias Ortmann and Bram Van Der Kolk. The same defendants are also part of the ongoing criminal proceedings by the U.S. Government, and the complaint itself raises many of the same allegations that were put forward in the indictment.

The movie studios describe Megaupload as a business that was designed to facilitate copyright infringement and are looking for millions of dollars in damages. One of the problems they describe is that, after a DMCA notice was received by Megaupload, it would only remove the URL while the actual file and other URLs pointing to that file would remain intact.

The movie studios claim that this was done to ensure that the most popular infringing files remained available. However, they fail to mention that removing the actual files would be overbroad and wrong in some instances. For example, if an artist stores his files on Hotfile but wants to take unauthorized copies offline, he or she would not want Megaupload to delete the original as well.

Megaupload’s reward program is also cited as a piracy promoting tool by the studios. According to the complaint it was set up to reward people who shared popular content, which would often be pirated movies. The rewards therefore served as an incentive to share links to Megaupload in public and advertise these through other sites.

This point is also raised by MPAA’s Steven Fabrizio, who notes that Megaupload wasn’t a cloud storage service but an “unlawful hub for mass distribution.”

“Megaupload was built on an incentive system that rewarded users for uploading the most popular content to the site, which was almost always stolen movies, TV shows and other commercial entertainment content. It paid users based on how many times the content was downloaded by others – and didn’t pay at all until that infringing content was downloaded 10,000 times,” Fabrizio explains.

TorrentFreak spoke to Megaupload lawyer Ira Rothken who believes that this new case might show that Hollywood and the U.S. Government have little faith in the criminal proceedings.

“Megaupload believes that the suit lacks merit and we will vigorously defend against the claims,” Rothken tells TF.

“The MPAA is apparently concocting a civil claim out of desperation two years after the indictment because it is likely that they and Department of Justice believe the pending criminal allegations lack merit, as there is no such thing as secondary criminal copyright infringement”

Rothken stresses that Megaupload was predominantly used for backup, and not for file-sharing as the complaint suggests. The movie studios paint a distorted picture of Megaupload according to the lawyer, who notes that the money paid out to uploaders was minimal, and that terminating the rewards program didn’t affect the number of visitors.

“The amount of money paid out in the rewards programs was tiny and a rounding error compared to revenue. The rewards program was halted about six months before the indictment with no resulting drop in traffic – it was copyright neutral,” Rothken explains to TF.

The case promises to be a vital one for the future of cloud hosting services in the United States, and a backup plan for when the criminal case fails.

The MPAA previously settled its lawsuit against Hotfile, and hopes for another win against Dotcom and his colleagues. Megaupload, however, believes it is protected by the DMCA safe harbor and is determined to show that the movie studio’s allegations are meritless.

In addition to the lawsuit filed this week, Megaupload has also been sued by Microhits in 2012. This case has been frozen pending the outcome of the criminal proceedings.

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