Having struck a plea bargain with US authorities, Kim Dotcom’s lieutenants Mathias Ortmann and Bram van der Kolk were jailed in New Zealand on a raft of charges for conspiracy to commit copyright fraud. Evidence at sentencing highlighted how Dotcom’s Megaupload set out to defraud not only film and video copyright holders but also Megaupload’s own customers.
Megaupload was launched in 2005, ostensibly to provide locked cloud storage facilities. By late 2010 it had fifty million daily users accessing pirated movies and videos. At that time, it commanded four per cent of global internet traffic. Over a decade, it was estimated to have garnered revenues of US$175 million from both user subscriptions and advertising inserted in and around pirated product. Kim Dotcom is alleged to have snaffled most of this income for himself; a total of some US$100 million. Ortmann, as chief technical officer, admitted to getting approximately US$19 million; talented coder and lead programmer van der Kolk, US$3 million.
After nearly a decade of legal manoeuvring to avoid extradition to the United States on charges of copyright fraud, Ortmann and van der Kolk struck a deal with US authorities. They would not stand trial in the US. They would plead guilty in the New Zealand courts, serve whatever sentence a New Zealand court imposed, surrender any remaining cash received from Megaupload and assist US authorities in their prosecution of Kim Dotcom.
Evidence was given of Megaupload’s attempts to mask the extent of copyright infringement; what Ortmann described as an ‘innocent front end’ with ‘private back-end access.’ Each movie or video uploaded to the site was identified with its discrete URL. Copyright holders issuing takedown notices did so by reference to the specific URL. Megaupload dutifully complied with a takedown request for that URL, leaving in place multiple copies of the same product sitting behind a different URL. For copyright holders, it became a fruitless game of whack-a-mole.
Megaupload customers were rewarded for uploading frequently viewed product with payment in either cash or subscription privileges. This encouraged further copyright infringement and increased the number of paying users. At least three million dollars were paid out in cash rewards. A policy decision was made to reduce the cost of paying cash rewards by denying payment on grounds that product uploaded was in breach of copyright, with Megaupload cynically still hosting and distributing this same material.
The High Court was told ninety per cent of Megaupload’s registered users had never uploaded a file; they paid for access to view and download content.
Pleading guilty to participating in an organised criminal group, deception and dishonesty: Ortmann was sentenced to two years and seven months imprisonment; van der Kolk two years and six month’s imprisonment. After Megaupload was shut down, the two established their own cloud storage service: Mega, offering end-to-end encryption for customers.
R.v Ortmann & van der Kolk – High Court (15.06.23)
23.092