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Mega, still frozen out by PayPal, calls in lawyers

"Mega needs to defend itself and will now cease taking a passive stance," says the chief executive of the Kim Dotcom-founded file sharing site. Pressure from NetNames, a US denator, Visa and MasterCard has left it high and dry, without a payment

Fri, 13 Mar 2015

Mega chief executive Graham Gaylard is in London consulting lawyers about possible legal action of his site's payment processing crisis.

The Kim Dotcom-founded file sharing site has been unable to charge its paying subscribers since February 27 when payment processing company PayPal pulled the plug. Mega says PayPal stopped the service because of pressure from MasterCard and Visa, who had in turn been pressured by US Senator Patrick Leahy, who approached them on behalf of music and movie lobby group NetNames.

“Mega has been operating, and continues to operate a completely legitimate and transparent business. Unfortunately now, with the blatant, obvious, political pressure and industry lobbying against Mega, Mega needs to defend itself and will now cease taking a passive stance,” Mr Gaylard told TorrentFreak overnight.

The Mega chief executive did not say who the legal action would be aimed at.

But speaking to NBR this morning, Mega chief compliance officer Stephen Hall implied lobby group NetNames was the logical target.

"It is obvious that the harm has originated from the publication of the incorrect  and biased NetNames report. NetNames is apparently backed by MPAA [the Motion Picture Association of America, an old nemesis of Kim Dotcom, who founded Mega]," he says.

"PayPal terms of service allow it to decline service to any customer for any or no reason, so action against it would be unlikely," he says.

Late last year, the London-based NetNames named Mega as one of a group of "cyberlockers" it says facilitate music and movie piracy. 

NetNames then lobbied Patrick Leahy, a Democrat who represents Vermont in the US Senate and serves as a ranking member on its Judiciary Committee (Hall notes Leahy has received campaign donations from several Hollywood studios).

Senator Leahy in turn pressured MasterCard and Visa, Mr Hall says.

And the credit card companies in turn leaned on PayPal to stop processing payments for Mega, which it did on February 27.

MasterCard and Visa declined to comment. Senator Leahy's office sent copies of his letters to the chief executives of Visa and MasterCard, which urges their companies not to do business with the "cyberlockers" identified by NetNames which, he alleges, "exist to unlawfully store and disseminate infringing files around the world." 

Mega does promote its customer-controlled encryption as a point of difference with rivals, but denies this privacy or secrecy feature (depending on your point of view) encourages copyright infringement (read more on the debate over how it sits with New Zealand's Telecommunications Interception Capability and Security Act in NBR's earlier story here. Short story: NBR thinks it could well cause problems for Mega).

Hall says Mega is in compliance with US and New Zealand law, and in fact does more than rival services to remove pirated files from its site.

He says Mega has several PayPal alternatives lined up but won't name them, or say whether they support Visa and MasterCard payments.

After a series of push-backs, Mega's reverse listing on the NZX is currently scheduled to make place by March 31.

Hall, who would not name the London law firm consulted by Mega, says the current situation is not a crisis for his company because it is in growth mode and emphasising its free service over its paid products. But there's a gap between being a startup with little revenue and simply having no means to process revenue. Mega will want to close it.

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Mega, still frozen out by PayPal, calls in lawyers