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Kim Dotcom’s online music service Megabox plays legal roulette with its users

megabox roulette header kim dotcomOn Wednesday, renegade entrepreneur Kim Dotcom, founder of file-sharing service Megaupload, accused criminal, and Robin Hood of the Internet, released a preview video of his forthcoming music platform Megabox.

While the details surrounding Megabox are slim, Dotcom explained in a guest blog post on TorrentFreak earlier this year that the service will “allow artists to sell their creations direct to consumers and allowing artists to keep 90 percent of earnings.” Users will have the option to either pay for this music directly, or to download an application called Megakey. Doing so will make all the music “free,” while still generating revenue to pay artists (and Megabox).

“We have a solution called the Megakey that will allow artists to earn income from users who download music for free,” wrote Dotcom. “Yes that’s right, we will pay artists even for free downloads. The Megakey business model has been tested with over a million users and it works. You can expect several Megabox announcements next year including exclusive deals with artists who are eager to depart from outdated business models.”

[youtube http://www.youtube.com/watch?v=Kw04ckfO-yA]

Megakey generates income by replacing about 15 percent of advertisements displayed on Web pages visited by those who have it installed with ads hosted by Megabox. So rather than the website receiving income from these ads, Megabox reaps the rewards. It’s a technique long used in malware. But unlike malware, Megabox users would be consciously choosing to participate in what essentially amounts to a voluntary botnet.

So, how can Megakey possibly be legal? The short answer is that it probably isn’t — and Kim Dotcom’s likely going to get away with it.

Ad blocking goes Mega

A popular way to explain Megakey is to compare it to ad blocker plugins, which are readily available across the Web. After all, Megakey, in a sense, blocks the ads on a website — a functionality that, while controversial, is not clearly illegal. In turn, we more or less stopped debating the legality of ad blockers five years ago. And even though some websites still prohibit the use of these in their terms of service, ad blocker users need not fear lawsuits or night time raids by the FBI.

Of course, Megakey is not only an ad blocker, it’s also an ad giver — a distinction that may make all the difference in the eyes of the courts.

Megakey vs. copyright

Based on what we know about Megakey so far, the most obvious legal buttons the software will likely press appear in the realm of — you guessed it — copyright. Under copyright law, website owners have exclusive rights to their web property. And that means they alone decide how it looks, including which ads display on their Web pages. It is because of this copyright that Megabox may violate a website owner’s intellectual property rights through the use of Megakey.

“As a copyright owner, if Megabox came a long and decided to change up what I had approved of as my website — that includes any third-party advertisements, or approved pop-ups, or whatever — then essentially, I could claim that Megabox infringed on my copyright rights to create my own derivative work,” says Bhaveeni Parmar, an intellectual property attorney based in Dallas, TX. “Because now they’re taking the look of my website and changing it with their own ads without my permission. So they’re changing my derivative work, essentially, which I have the exclusive rights to, not them, unless they ask for my permission before hand.”

dice

The Megabox gamble

Unfortunately for website owners, suing Megabox over this form of copyright infringement may be easier said than done. Unlike a book, movie, or song, a website’s design can change on a regular basis. But in order for a website’s owner to make a substantial copyright infringement claim against Megabox, the owner of the website would have had to register the design of the site with the U.S. Copyright Office within 90 days of its launch.

“Ninety percent of all websites are dynamic, and they change all the time,” says Parmar. “So the odds of [Megabox] hitting a website that registered its design, and its design hasn’t substantially changed from that registration — yeah, [Megabox is] going to play the odds and do very well.”

Where you come in (and lose out)

Now, despite the fact that bringing a valid, substantial copyright infringement claim against Megabox could be extremely difficult, “it’s not impossible,” says Parmar. And if a website is able to make such a claim, users of Megakey could find themselves on the wrong side of the law.

“Say an end consumer downloads [Megakey],” says Parmar. “Now, because of their actions, advertisemts are being deleted. So could they be liable for contributory infringement because they’re allow it to happen because of their actions? That’s a possibility. So not only is it the company that’s doing this, but now it’s the end consumer; they’d be liable for their actions using someone else’s product.”

Legal soup

While Megabox might win on the copyright infringement gamble, other laws might not have the service in their favor. Website owners could potentially go after Megabox on other grounds, including trademark and tort law.

Registered Trademark

Back in 2002, 1-800-Contacts Inc. sued Internet adware company WhenU.com Inc. over something that sounds quite similar to Dotcom’s Megakey idea. WhenU offered a free software bundle called SaveNow. Part of this bundle was a piece of software that would serve users with pop-up ads based on keywords they type in. So when a Web user would search for contact lenses, and land on 1-800-Contacts’ website, WhenU would serve a pop-up for a competing contact lens retailer’s website.

1-800-Contacts claimed WhenU had violated its trademark by including its name in WhenU’s database — a claim upheld by a district court in New York. However, this decision was later thrown out in 2005 — so even here, Megabox may be in the clear. (It must be noted that WhenU and its parent company, Gator/Claria Corporation, have since gone far out of business.)

Another possible problem area for Megakey is what’s known as “tortious interference,” which occurs when a person (or other entity) purposefully damages another person or company’s contractual or business relationships.

So say, for example, that we here at Digital Trends have a business relationship with “Company A,” which has purchased ads on our website. If visitors to Digital Trends are seeing ads for “Company B” due to Megakey, Company A may decide to stop doing business with us. But once again, any website owner who claims that Megabox is screwing up its business dealings on purpose will likely face a tough challenge proving that the disruption was intentional.

A wide range of other factors could add to the legal gray area of Megakey, such as the jurisdictions of laws if Megabox is registered and hosted outside of the United States (as if that’s stopped the feds before…), or the exact functionality of Megakey, which remains unknown.

Moving along

Thanks to the ambiguity surrounding Megabox and Megakey, it’s impossible to say at this moment whether the service violates copyrights or any other U.S. laws — that’s something the courts will have to decide when the time comes. But if it works the way I currently understand it does, then Dotcom is likely far from his last run-in with the courts. Only instead of being attacked by the movie and music industries, he’ll find an enemy in the Web itself.

The next question is, of course, will Web users care whether Megakey violates the copyright of the websites they visit? My guess: Not a chance in hell.

We reached out to Dotcom for comment on this story, but he did not respond to our request. We will update this space if he does.

Images via Sergey Mironov/Eduard Härkönen/Shutterstock