Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
10 mins to read

DOJ releases new FBI evidence - and a lot of it's embarrassing for Dotcom

Some intriguing new detail on Megaupload's huge profits; its cash rewards programme, and an apparent attempt to build "plausible deniability"  | A Skype exchange where Dotcom's crew discuss the odds he'll leg it with the money.

Sun, 22 Dec 2013

The US Department of Justice has released a newly-unsealed 191-page summary of FBI evidence against Kim Dotcom and his co-accussed in the so-called Mega Conspiracy involving copyright violation, money laundering and racketeering.

The document is largely a rerun of the FBI's greatest hits, but it introduces a few juicy new morsels of information.

On Twitter, Kim Dotcom today called the summary of evidence a PR stunt iinvolving "cherry-picked, out-of-context & manipulated evidence." He has yet to details specific examples of out-of-context information.

Yesterday, shortly after the document's release, Dotcom US-based attorney, Ira Rothken, told The Wall Street Journal his client can't be prosecuted for the copyright infringement conducted by the site's users. Once that allegation falls, the other charges don't stand, Mr Rothken says. 

Dotcom and his crew continue to position themselves as new media innovators targetted by a complacent music and movie establishment, and politicians under their sway.

The DOJ and FBI continue to paint the Giant German and his colleagues as a gang of wideboys who encouraged piracy with the aim of reaping huge profits while (unlike YouTube et al) cutting artists out of the revenue sharing loop.

The summary says Kim Dotcom (who owned 68% of Megaupload, received $US42 million in the calendar year 2010. Chief technology officer Mathias Ortmann, who owned 25%  of Megaupload, made more than $9 million that same year and programmer Bram Van Der Kolk (who owned 2.5%) made more than $2 million.

Incentivising piracy?
On pages 17 and 18, the evidence summary quotes exchanges between the co-accused as they discuss Megaupload's cash rewards programme. The scheme is familiar to followers of the case from the Mega indictment, but the summary of evidence document offers new details about how it was allegedly policed.

Megaupload handed out between $US500 and $US1500 to members who uploaded files that attracted high volumes of downloads (bearing in mind you had to pay a $9.99 a month for a premium Megaupload subscription if you wanted to watch videos longer than 60 minutes - that is, full length movies).

The document quotes co-accused Mathias Ortmann and Bram van der Kolk discussing efforts to police the cash rewards system. This involves weeding out people, who've tried to cheat the system by setting up automated downloads, but van der Kolk also states at one point that a $US100 cash rewards recipient's file included "MP3z [music tracks], some copyrighted." Of another $US100 reward recipient, he says there are "some illegal files" including scanned magazines but that the member should be paid anyway. In a third email, van der Kolk says a lot of obvious copyright material has been disqualified from the cash rewards programme, but adds he has been "rather flexible" at times.

It all pretty small potatoes, but it does underline how Megaupload's cash rewards programme (unique among mainstream sites) potentially undermines the Dotcom crew's central argument that Megaupload was just like Dropbox or YouTube or any other file sharing service - largely used for good, but occassionaly used for ill.

There are shades of grey here. It could be argued that YouTube's system of cutting users in on ad revenue if they achieve a high volume of views also incentivises the upload of copyrighted material (or at least, not more or less than Megaupload's direct cash rewards). However, Dotcom's critics point out that Megaupload offered cash rewards to uploads only. YouTube splits it with the artist.  If, say, a wedding dance video with a hit song playing in the background goes viral, YouTube offers the musician concerned the chance to leave the video online, and split ad profits with the uploader. 

And while Google can argue that it polices YouTube content, Dotcom and co. say they also policed Megaupload and that, further, they gave rights holders unparalleled access to weed out infringing material. And will YouTube and other file sharing sites are searchable, Megaupload was not (although there was no shortage of third-parties indexing it).

Building plausible deniability?
Ars Technica notes prosecutors claim "Megaupload built a wall of plausible deniability, by disabling any internal search of files stored on Megaupload, meant as a 'cyberlocker' site. But its administrators, who include the men behind Dotcom's new site Mega, traded emails that show the real strategy. They monitored and drove traffic to third-party linking sites through which Megaupload beamed its advertisements. They guided users about how to use the site in emails that clearly reference movies. Finally, and critically, they provided cash rewards to their best uploaders; in their emails they negotiated how to control such awards and get the most bang for their buck."

The summary of evidence (page 112) quotes an exchange between Ortman and van der Kolk as they discuss moving some pornographic content from Megaupload to Megarotic, which was Megaupload's racier sister site. A partial transcript of the intercepted Skype exchange reads:

ORTMANN: “I am thinking about the MU->MR file move… we should definitely put up an informative page when a user clicks on a MR link via the MU domain.” [The acronym “MU” refers to, and the acronym “MR” refers to, according to the summary]. However, [we would] also be shooting ourselves in the foot with this, as it proves that we looked at the file and therefore are not the dumb pipe we claim to be ... copyright owners may use this against us.”

VAN DER KOLK:  “Dangerous move indeed.”

Pre-release piracy alleged
The summary of evidence also goes into a lot more detail about alleged movie piracy.

It says (page 32) that, "According to an e-mail obtained through the investigation, on or about October 25, 2008, van der Kolk uploaded an infringing copy of the copyrighted motion picture “Taken” to ... “Taken” would not be released in United States movie theaters until on or about January30, 2009, and would not be commercially distributed in the United States until on or about May 12, 2009."

The document also reiterates the FBI's claim that despite Megaupload having no native search feature, it was used to share Hollywood movies in bulk. It says, for example (page 33) that Cloverfield was downloaded 506,535 times via Megaupload,. IP Man 2 (a Hong Kong martial arts film) 443,000 times and Kick-Ass 395,320 times.

Software piracy alleged
The FBI also alleges software piracy. Van der Kolk is quoted saying one of the cash reward recipients upload "some software with keygenerators (warez). The term “warez” commonly refers to infringing copies of copyrighted computer software, the FBI says.

And on page 107 of the evidence summary, there is testimony from a New Zealand software developer, referred to as  "JM". A one-man company working from home, JM made audio effects software, but found his or her business undermined when multiple URLs to free versions of their software appeared on Megaupload, accounting for 65% of all new user registrations at one point. JM testifies that they followed Megauploads take-down request process, but that nothing happened.

The evidence summary also makes reveals a workaround for Dotcom's file size limit argument over cash rewards - a geeky thing but something that will be a crucial point of argument should Dotcom and co. ever be extradited to the US and face trail.

At the January 20, 2012 launch of Mega, Dotcom told NBR that cash rewards were not paid for any file over 100MB.

Do you know any movie that would fit in 100MB file?, Dotcom asked.

That seemed like a killer argument at the time. Even a low resolution version of a movie would be several times that file size. Standard resolution would be close ot a 1GB (1000MB), high definition more than twice that again.

But in the evidence document, van der Kolk is quoted as saying in an email that one cash rewards recipient had "10+ Full popular DVD rips (split files)."

The FBI says "The term “DVD rips” commonly refers to infringing copies of copyrighted motion pictures and television shows contained on DVDs." Van der Kolk does not comment whether the contents of the DVD rips is copyright, or not. But the split file mention is intriguing, given it implies a way around the 100MB cash rewards limit. A popular movie could have been, say, spread across 10 separate files.

Dotcom's crew worried if he would skip off with money
Whaleoil has accused the Herald's David Fisher of being soft on Dotcom for not linking to the unsealed evidence document with his article about it's release (gentlemen, it's Chistmas - can't we all get along?)

But it's worth noting Fisher has already published what is perhaps the most personally embarrassing piece of evidence for Dotcom and co-accused Finn Batato, Bram van der Kolk and Mathias Ortmann.

It's a Skype chat recorded by the FBI, under warrant, in August 2007. Fisher included it in his book The Secret Life of Kim Dotcom, released last month, and it's repeated in the new FBI evidence document released yesterday.

The FBI originally released the exchange in a bid to prevent Dotcom being granted bail after the raid on Dotcom mansion January 20, 2012. The agency claimed the 2007 exchange showed Dotcom's inclination to try and escape custody.

Unsurprisingly, indirect speculation about Dotcom's state of mind five years ago did not prove a killer piece of evidence and Dotcom and the coaccused were duly granted bail. It's likely the FBI's real objective was to stir the pot. And Fisher writes that the release of the Skype exchange did cause friction, and had Dotcom, Batato, van der Kolk and Ortmann "confronting tensions - past, imagined or real" during their stay in Mt Eden prison (they were released at different times; Dotcom was granted bail on February 22).

If it was trying to cause friction, the FBI failed. Dotcom and his coaccused seem like a tight unit today; socially, and in terms of their coordinated legal strategy and in their collaboration on new file sharing service Mega.

In Secret Life, Dotcom told Fisher the 2007 Skype exchange reflected a time when Megaupload was under pressure from changes in the online world. Income through advertising was under threate, leading to speculation the business might be dissolved, leaving each to go their own way. An FBI transcription reads:

VAN DER KOLK to ORTMANN: I mean if Kim was a solid guy with a good financial background and being safe with his money I wouldn’t mind, but the current situation is a bit risky in my opinion.

ORTMANN: The good thing is, he is operationally dependent on us…He cannot sneak away with the money.

VAN DER KOLK: But what if the shit really hits the fan…would he grab the last little bit of money and take off?…He’s good at that.

ORTMANN: True…But with his spending nowadays, he will attempt to get the shit off the fan, and that’s what he needs us for.

Scraping content off YouTube, en masse
Elsewhere, the evidence reproduces lengthy exchanges between Ortmann and van der Kolk on a successful effort - under Dotcom's direction - to create a software tool for copying high-rating YouTube videos en masse, then placing them on Megaupload (see page 19).

It seems unlikely  Google's owner, YouTube, will be thrilled about that one. And it's a pretty low-rent tactic. But then again, assuming Google is and was a good corporate citizen, then none of the content being scraped for Megaupload should have been copyrighted. Still, it would no surprise if a Google civil suit lands on Dotcom's doorstep.

The document has plenty of other exchanges that simultaneously catch out the Dotcom crew, and essay potential legal defences.

One example:

VAN DER KOLK: We have a funny business . . . modern days pirates :)

ORTMANN: We’re not pirates, we’re just providing shipping services to pirates :)


ORTMANN: We’re pretty evil, unfortunately ...but Google is also evil, and their claim is ‘don’t be evil.’

VAN DER KOLK: Yes “and the world is changing, this is the internet, people will always share files and download their stuff for free, with or without Megaupload.

ORTMANN:  “Yes… the content providers should just get a producer account and sign up for rewards.

Wry humour, and observations on where the content industry is heading, or proof of criminal intent?

With the extradition case, including appeals all the way to the Supreme Court, set to take years, we're a long, long way from a possible trial in the US that could yield an answer.

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DOJ releases new FBI evidence - and a lot of it's embarrassing for Dotcom