The Federal Bureau of Investigation shut down one of the world's most popular file-sharing websites as a debate rages in Washington over whether to give the government new powers to crack down on Internet pirates.
Authorities claim Megaupload Ltd., based in Hong Kong, and its collection of websites generated more than $175 million in criminal proceeds and caused more than half a billion dollars in harm to copyright owners. Police on Thursday arrested four employees of the company in Auckland, New Zealand, charging them with conspiracy to commit racketeering and criminal copyright infringement.
The raid heats up a growing political debate that has pit Internet liberties against copyright enforcement. In response, the Anonymous hacker group said Thursday that it had brought down the U.S. Justice Department's website and several others. Thursday evening, the department said its Web server was experiencing "a significant increase in activity, resulting in a degradation of service." Officials said they were treating it as a malicious act and were investigating.
The FBI's indictment named Kim Dotcom, 37 years old, as the founder and until last year chief executive of Megaupload. He was among the four people arrested Thursday. It wasn't immediately clear if the suspects had retained criminal defense lawyers, and none could be reached Thursday.
Ira P. Rothken, a lawyer for Megaupload in Novato, Calif., said "the allegations do not appear to have support in the law, and the company is going to vigorously defend against them." In a post on Megaupload's website before it was taken down, the company wrote that "the vast majority of mega's Internet traffic is legitimate."
Megaupload is already engaged in a legal fight with Vivendi SA's Universal Music Group over a promotional video featuring UMG artists Kanye West, Mary J. Blige and others, in which they appear to endorse Megaupload as a way to send large files to specific recipients—not for pirating content.
Megaupload sued Vivendi, claiming a "takedown notice" Vivendi served to YouTube demanding that the video be removed constituted "misrepresentation of copyright claims." The case is pending.
Representatives for Mr. West and Ms. Blige didn't immediately respond to requests for comment.
Sites such as Megaupload, known as cyberlockers, have grown in popularity and shifted the technology and business of stealing content. Cyberlockers—so called because they offer virtual storage homes for files that can be accessed from any device with a Web browser—are often foreign sites that offer a smorgasbord of pirated movies, TV shows, music and e-books that people can download with a few clicks, say media companies, and now account for about half of all online pirate activity.
FBI officials said the timing of the arrests was unrelated to the debate over antipiracy legislation known as the Stop Online Piracy Act in the House and Protect IP [Intellectual Property] Act in the Senate. The arrests were done Thursday in large part at the recommendation of the authorities in New Zealand, one official said.
The proposed legislation, known as SOPA and PIPA, would stop U.S. companies from providing funding, advertising, links or other assistance to foreign sites involved in piracy, and would give the Justice Department controversial new powers to prevent pirate sites from getting U.S. visitors and funding.
SOPA and PIPA have riled Internet companies and some users. Much of that controversy came to a head this week, when some of America's most popular websites, such as Wikipedia, protested against the proposed legislation on Wednesday by turning their homepages into virtual protest banners. Following that, the bills lost some support in Congress, where some lawmakers in both parties began backing away from them.
Cyberlockers emerged as a big new source of piracy as an older technology, called peer-to-peer file sharing, has slowed down. Peer-to-peer programs split up big media files into many small parts, which people download from multiple locations using special software. But with cyberlockers, pirates upload and share files from a single website, often based outside of the U.S.
With many of the companies behind cyberlockers often based in foreign countries, they "are beyond the reach of what we can do legally unless we want to send our lawyers to Russia," said Maja Thomas, a senior vice president of Hachette Digital, a unit of Lagardere SCA's Hachette Book Group.
Megaupload bills itself on its website as a place where people can store large quantities of data, but prosecutors said internal emails and other evidence gathered during the probe show company officials deliberately designed the system around uploading the most popular types of files, which tended to be copyrighted material.
The indictment claims Megaupload took in more than $110 million over five years in membership fees and other payments via a PayPal account. It also leased capacity on more than 1,000 servers in North America and another 630 in the Netherlands.
The U.S. is moving to seize a great deal of property, including $175 million, or as much of that as they can find, and the funds in dozens of bank accounts. They are also looking to seize some of the perks of the charged executives' lavish lifestyle, including a 2010 Maserati, a 2008 Rolls Royce, and a number of Mercedes Benzes."
Officials declined to say if they were eyeing other large cyberlocker sites for similar practices, but one said the Megaupload case should be viewed as a deterrent to anyone who might engage in large-scale illegal file-sharing.
Some media companies point the finger at search engines for making it easy for consumers to find the pirated content on the cyberlockers, including Google Inc.
A Google spokeswoman said, "When infringing uses of cyberlockers appear in our search results and copyright owners let us know, we promptly remove those links." In 2010, it removed three million links to infringing websites; in 2011, it took down five million.
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