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Megaupload shut down by feds: Why do we need SOPA?

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File-sharing mecca Megaupload.com is dead, shut down at the hands of the US federal government. The Federal Bureau of Investigation has arrested four people, and charged three others, in the anti-piracy sting. The forced closure of Megaupload comes just one day after a mass online protest against two pieces of legislation that aim to increase the power of copyright holders to block access to websites that illegally distribute intellectual property, like music and movies.

Those arrested include Megaupload founder Kim “Dotcom” Schmitz, along with three others related to the site. The group was apprehended in New Zealand, with the help of that country’s authorities. Megaupload is officially a Hong Kong-based company, though according to the Justice Department, it also has servers in Ashburn, VA, Washington DC, the Netherlands and Canada. Schmidtz is a resident of both Hong Kong and New Zealand, and is a dual citizen of Finland and Germany.

The indictment against Megaupload, a site that allowed users to upload anything from a text file to a full feature film, then share a link to the file with others, says the site cost copyright holders more than $500 million in lost revenue by making their intellectual property free to download. It also says that Megaupload (aka “the conspirators”) earned $175 million in profits from advertising and premium memberships. Schmitz alone earned $42 million in 2010 from the site, the indictment claims.

In a statement posted to Megaupload, before its takedown, the company asserted that the majority of its content was legitimate, and the claims of lost revenue were “grotesquely overblown.”

“The fact is that the vast majority of Mega’s Internet traffic is legitimate, and we are here to stay. If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas. Please get in touch,” the company said.

Megaupload boasted “more than 150 million registered users, 50 million daily visitors and accounting for four percent of the total traffic on the Internet,” according to the Justice Department, whose website was also unable to load, at the start of this writing. According to Twitter user AnonymousIRC, a highly-popular account related to the hacktivist group ‘Anonymous,’ the DoJ’s website appeared to have been “besieged by pirates.” It is unclear at this time whether Anonymous had anything to do with the outage, which has since been resolved.

UPDATE: It is now glaringly clear that Anonymous was behind the DDoS attack that took down Justice.gov, along with the websites of Universal Music, the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA), the White House, the US Copyright Office and the FBI, among others. Needless to say, this isn’t going to go over well in Washington.

In addition to having been one of the most-widely-used file-sharing sites on the Web, Megaupload is also unique because of its endorsements from artists like Kanye West, Will.i.am, and Alicia Keys. Kim Kardashian, who is not an artist, also endorsed the site. Renowned rapper, producer, and NYU professor Kaseem “Swizz Beatz” Dean is listed as was negotiating to become Megaupload’s CEO. (Not coincidentally, Beatz is also Alicia Keys’ husband.) Judging by his recent tweets, the last of which came five hours ago, Beatz still appears to be free, and apparently just ate some Chinese food.

Federal authorities say that the timing of Megaupload’s takedown had nothing to do with Wednesday’s blackout protest against the “Stop Online Piracy Act” (SOPA) and the “PROTECT IP Act” (PIPA). And that’s most certainly true; this kind of sting doesn’t just happen overnight. But that doesn’t mean the two will remain unrelated in the minds of the public.

This case clearly proves that our government already has the ability to shutdown a website, whose company is based in Hong Kong, and have its employees arrested by the police of another foreign country. That isn’t exactly a compelling argument for giving copyright holders and the federal government more power to combat piracy from “foreign rogue websites,” which is the primary aim of both SOPA and PIPA.

Of course, it appears as though Megaupload isn’t actually considered a “foreign” rogue site, even though its base of operations is in China, due to the fact that it had servers housed in the US. SOPA and PIPA gives the power to block access to — but not entirely shut down — websites that operate exclusively outside the US. After this monstrous display of muscle flexing, however, we doubt many people will have sympathy for that distinction.

That said, combating the piracy of websites that operate outside the rule of US law really isn’t a matter of contention in the SOPA/PIPA debate. It’s all the “unintended consequences” and “collateral damage” that educated critics say the bills’ loose wording could lead to — things like the blockage of legitimate free speech, the squashing of online innovation, and the potential damage to the Internet’s infrastructure — that have the masses seething. The takedown of Megaupload merely shows that our anti-piracy laws aren’t as weak as some would like us to believe.