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January 6, 2014

Kim Dotcom Bought His Bling At The Cost Of A Whole Lot of American Jobs

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Last night, CBS’s 60 Minutes news magazine did a profile on Kim Dotcom, the infamous personality behind the now-shuttered Megaupload file sharing site.

I watched out of curiosity to see whether 60 Minutes would accurately portray Kim as the serial criminal that he is, or whether they’d allow him to get away with his “I’m just the happy elf of the Internet” persona that he tries to convey.

Within the time available, 60 Minutes actually did a pretty balanced job. Of course, the SWAT-like raid on his compound got considerable attention during the piece, and frankly even critics like me have to admit that was probably overkill—seems to me you don’t bring in an armed assault team unless you’ve been given some reason to think you’ll need it. Of course, Kim’s extensive criminal career (see below) might well have suggested to law enforcement personnel that more than a courtesy call was in order. But the details of the raid are a distraction from the facts of the case, given the rest of the details of the 60 Minutes story, and especially after considering some of the facts that 60 Minutes omitted.

After the story I had an interesting discussion with my son about the situation—a son who is a child of the Internet generation and thus whose expectations are calibrated more with what is technically possible than with traditional law and economics. The discussion helped isolate the specific problem with Kim Dotcom and Megaupload:

  • There’s nothing wrong with getting rich.
  • There’s nothing wrong with living a flamboyant lifestyle (though your father doesn’t want you to live that way!).
  • There’s nothing wrong with being German (!).
  • There’s nothing wrong with Internet storage.
  • There’s not even anything wrong with file sharing technology.
  • But there IS something wrong with inducing others to break the law and to make a profit from criminal activity.

It’s important to stress that Megaupload was not simply a cloud based storage system. The magic dust that made Megaupload successful and that made Kim Dotcom rich was rewarding users for uploading infringing content. In other words, you weren’t compensated for storing your digital pictures on Megaupload, but you were compensated if you uploaded a copy of a feature film.

Documents recently released by the Justice Department on the Kim Dotcom case prove Kim and his team at Megaupload knew exactly what they were doing—inducing massive copyright infringement.

In one Skype exchange, an employee says “We do have legit users,” to which a top employee replied, “yes, but that’s not what we make $ with :).” Later in that conversation the same employees said, “we’re modern pirates :-)”, and “we’re pretty evil, unfortunately.”

In another discussion about implementing content filtering technology, they observe, “anything that’s legit will then be unblocked permanently, the rest will go to deleted,” but then that, “yeah, but 99.99% will be deleted then.”

They further assert, “If copyright holders would really know how big our business is they would surely try to do something against it,” and that “they have no idea that we’re making millions in profit every month.”

Now, of course, there were legitimate users of the site. That’s why we observe above that there is nothing wrong with the technology itself. Technology is neutral. It’s what you do with technology that determines whether it’s right or wrong, and the standard is pretty clear that inducing others to commit copyright infringement is criminal. After all, how often do you get unanimous Supreme Court verdicts?

I’m not sure 60 Minutes succeeded in driving home the extent to which Kim is a career criminal. It takes some effort to compile a rap sheet like Kim’s. If you still think Kim is just an Internet entrepreneur who is being persecuted by Hollywood, consider:

  • Early 1990s: Kim was pirating and distributing software as part of the Chaos Computer Club hacking group in Berlin.
  • 1994: Arrested in Germany for trafficking in stolen calling card numbers. Arrested and spent 3 months in prison for hacking Pentagon computers. Arrested and spent 6 months in prison for insider trading.
  • 1998: Spent 2 years in prison in Germany on 11 counts of fraud, 10 counts of data espionage, and embezzlement.
  • 2001: Convicted (again) in Germany on insider trading, but not after first fleeing to Bangkok. Required extradition to get him back to Germany (sound familiar?).
  • 2003: Sentenced to two years probation in Germany for embezzling money from Monkey AG.
  • 2010: Convicted in Hong Kong for various securities trading offenses.

This is no “businessman,” despite the fact that Kim describes himself as such in the 60 Minutes interview. And the prosecution of Kim Dotcom has nothing to do with attacking “Internet freedom.” Oh, please.

There’s a final point that needs to be made. The 60 Minutes segment was entitled “Hollywood’s Villain.” The connotation of the word “Hollywood” is the rich and famous, so anytime we end up defending copyright, we end up fighting against this stereotype that copyright infringement is either a victimless crime, or that the victims are making plenty of money and thus are not particularly sympathetic.

But the people hurt most by copyright piracy are not the moguls—they are the carpenters, caterers, trade workers and support staff who would have had jobs, or who would have worked more hours, if an additional marginal film would have gotten the green light from the studio but didn’t because of the losses due to piracy. In other words, if the studio had received all the earned profits from its products instead of seeing a substantial part of its profits stolen, it would have green-lighted several more projects. It’s the folks who would have worked on those projects who are most harmed by piracy, not the stars and directors and producers.

And with an estimated loss to the content industry of more than half a billion dollars, Kim Dotcom purchased his bling at the cost of a whole lot of largely American jobs. 

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