Part 1: Situation Normal: The Sky’s Falling

I’ve put off blogging about MegaUpload (“MU”) for several weeks now–too long, really–for a few perfectly good reasons. I’ve been busy. I’ve been sick. Mostly, though, although I can talk about the DMCA at length, I’m not super familiar with criminal procedure. I do, however, have some experience with FBI investigations, since sometimes a lawyer has to ask the Department of Justice to intervene in a criminal matter, and the FBI is usually pretty good about keeping you informed.

In the meantime, the dramatic events of January 20, when New Zealand authorities descended on the multi-million dollar pad of Megaupload founder Kim Dotcom (and cutting him out of a “safe room”*), is old news now. The fall-out has shaken out, with several music-sharing/locker services radically altering their business practices.

* What’s the point of a “safe room” if the police can still cut you out?

But I have been given a reprieve, because just a few days ago, the Department of Justice filed a superseding indictment against MU (which you can access here). It’s honestly not that big a deal, but I can pretend it’s significant enough to write a couple of “timely” blog posts.

DOJ Doing its Job?

Looked at one way, the MU Indictment isn’t that strange or rare. The DOJ indicts wealthy people for white-collar crime all the time. Here in Nashville, we’ve had a rash of criminal indictments against companies and executives for financial and real-estate fraud, packaged together with charges of money laundering and racketeering. Nobody comes to the defense of these guys, alleges that there is a government conspiracy to destroy a line of business, and certainly nobody calls these guys “heroes.” It’s just the DOJ doing its job.

Looked at another way, the MU Indictment is breathtaking. Never before has the United States government brought its powers to bear against a file-sharing site* (that I’m aware of, anyway). Since there are so many competitors to MU, it didn’t look like just another white-collar indictment, but an attack on a whole industry. If what MU did was criminal, then a lot people who didn’t regard themselves as criminals felt they needed to reassess that assumption, and it’s not a nice feeling. It you’re not used to federal criminal practice, it is terrifying to see what the U.S. government can accomplish when it puts its mind to it–even before it puts anyone in prison.

* Let’s be clear about one thing. Calling MU a “locker” service is disingenuous, if by “locker” you mean a service whereby you store your own files so you may access them in multiple locations. Yes, you store files on its servers, but it’s not exclusively for your benefit. Vast majority of files stored with MU were accessible for download by the public and/or MU subscribers. Thus, comparing MU to DropBox, as many have, misses the legal point completely. It turns out, though, that DropBox is legally an interesting case for purpose of DMCA safe-harbor protections.

As it turns out, the MU Indictment was remarkable for another reason: the theories on which the DOJ is trying MU and its officers are, to a surprising degree (to me, anyway), untried and untested. In the past, the DOJ has gone after folks who actually make the copies, not merely those who facilitate copying. As we’ll discuss (next time), it’s not 100% clear the government can do that.

Just a Typical Extraordinary Investigation

So, even though the MU Indictment is extraordinary, it followed a fairly typical pattern for federal investigations into white-collor crimes.

The investigation took a long time. It started in March 2010. The indictment wasn’t unsealed until January 2012. That’s almost two years. It turns out, that’s pretty typical. Unlike the investigations we watch on TV, investigations into white-collar crimes take a long time. For one thing, there’s no hurry. No one is going to get killed, no drugs are getting distributed, no banks are getting robbed. For another thing, the FBI is keenly aware of the government’s burden of proof: proof beyond a reasonable doubt, the highest standard there is. The FBI isn’t going to waste the courts’ time with rushed, half-baked legal cases. They’re going to make sure they give the United States Attorney the best case they can.* When you factor in the complexity of many white-collar and cybercrime cases, this can take a long time.

* In other words, the investigation is necessarily going to be overdetermined.

One of the first things the FBI did was subpoena internet service providers, mostly for emails sent to, from and among the indicted MU executives.* If you read the MU Indictment, you’ll notice that emails play a starring role. With the emails in hand, the FBI then served a search warrant on MU’s U.S. Facilities, which it did on June 24, 2010. The search wasn’t secret: MU knew about it (after it started, of course). Again, this is typical.

* Outside the Sixth Circuit, the FBI must merely follow the procedures set out in the Stored Communications Act, which protect communications but not as well as the Fourth Amendment does. The Sixth Circuit has held that emails are to be treated just like regular mail and, thus, the full protections of the Fourth Amendment apply (i.e., the FBI has to get warrants to search your emails).

Usually, at this point, the target of an investigation will hire some white-collar defense counsel and start negotiating. It doesn’t appear that MU did that. MU must have honestly believed it was a legal operation, that the DOJ wouldn’t pull the trigger on the Indictment (not all investigations result in indictments, after all), or that the DOJ wouldn’t go to the trouble to shutting down a business as diffuse and foreign-based as MU.

Exciting Indictments!

Indictments are like civil complaints, in that they aren’t proof. In other words, just because something is in the MU Indictment doesn’t mean that it’s true. It’ll be up to the U.S. Attorney to prove those facts.

Having said that, indictments are considerably more reliable than civil complaints because they are the result of a lengthy, in-depth investigation conducted by a grand jury. Grand juries are comprised of 16-23 ordinary people (just like regular juries, only, you know, grander), who investigate whether there is enough evidence to bring charges (“indictment”) against a criminal defendant. They have extraordinary and sometimes scary powers. They can subpoena virtually anyone, and there’s almost no way avoid testifying. Testimony is given in secret Many of the privileges we take for granted in a lawsuit simply don’t apply in a grand jury setting. Witnesses who refuse to testify can spend a long, long time in jail.*

* Remember Susan McDougal?

The upshot is that criminal indictments are the result of investigation, so there’s going to be some basis for the allegations.

Indictments are also not legal theories. They are a collection of legal allegations that, taken together, satisfy the legal elements of the crimes being lodged against the defendant. They do not need to be particularly well-organized.* There is virtually no reason for the U.S. Attorney to leave out any fact that might be even remotely relevant: you get indictments thrown out for not having enough facts, not for having too many. (Remember how much effort went into the investigation, so blowing the indictment is NOT an option for the U.S. Attorney!) Also, there are a lot of facts that serve only to give the main allegations context and background. It is, therefore, difficult to tell which factual allegations are really significant.

* People are naturally attracted to the first couple dozen paragraphs, where the government tells its story in rather dramatic fashion. I found those paragraphs to be pretty useless, though, since they lacked much in the way of actual factual allegations. They don’t even really lay out legal theories (and the government has no obligation at this stage to do so). This might be cynical, but I think those early paragraphs are sort of the equivalent of a press release, i.e., more for consumption in the court of public opinion.

Thus, there’s no point in reading the MU Indictment and comparing the allegations therein against your own behavior. Just because a certain act is described in the MU Indictment doesn’t mean that it’s an especially important fact. Thus, folks who combed through the MU Indictment exclaiming, “Hey, how could that possibly be illegal?” are sort of missing the point.

I’m Having a Seizure!

I’ve always stood in awe and wonder at the government’s ability to seize stuff. The government has a right to collect and preserve evidence, and it has the right to make sure that money and goods don’t get frittered away by a potential wrongdoer while the criminal case is pending. So this is why bank accounts are seized, as well as computer equipment.

But sometimes what gets seized is crucial to someone’s business–like someone’s computer system–and so the government’s actions can destroy someone’s livelihood, even if that someone is eventually acquitted. This gives the government leverage that, it seems to me, it has no business having.

To be clear, I want the government to put away wrongdoers, and I want it to have a lot of tools at its disposal. And, usually, by the time an indictment is unsealed, the government has correctly identified the wrongdoer. But sometimes it’s mistaken, overzealous or whatever. And sometimes somebody is totally screwed.

If you don’t believe me, read this bizarre tale about how the U.S. Secret Service (!) raided the offices of Steve Jackson Games back in the early 1990’s. Steve Jackson Games had done nothing wrong, yet it was nearly destroyed.*

* And incidentally gave us one of the seminal cases in construing the Stored Communications Act. One thing I love about the page I’m linking to is that it looks like it was prepared in 1992….

Why Megaupload?

The FBI, DOJ and the industry groups (such as the MPAA and RIAA) that were pressuring the FBI and DOJ to take action had their pick of file-sharing sites to target. Why Megaupload? The inescapable conclusion is that MU was too prominent. To the industry groups, it was flaunting its wrongdoing, like a gangster who had pretensions of being a “businessman.” Dotcom’s flamboyant, fantastic lifestyle just added to the perception.

This leads me to a controversial prediction: this is the only indictment of a file-sharing site we’ll see for quite some time. Indicting a company as high-profile as MU is meant to send a message and get its competitors to change their practices. In addition, for reasons we’ll discuss next time, the government will probably want to see which, if any of their theories, they can get to stick against MU before trying them against another file-sharing site. And by then, everything will be different.

Next time, we’ll look at the government’s main legal theory against MU and wonder whether the DMCA safe harbors have any role to play.

Thanks for reading!