On Thursday, the US government unsealed a 72-page indictment against Megaupload. The file locker was one of the largest sites on the Web, and major copyright holders had accused it of facilitating widespread copyright infringement. The government argues that Megaupload founder Kim Dotcom and his lieutenants were less a legitimate business than a scheme to profit from the infringing activities of their users.

Of course, defendants are innocent until proven guilty. Dotcom and his co-defendants may still avoid extradition to the United States, and if they come to the US they'll have an opportunity to dispute the government's evidence or to argue that their actions were not, in fact, against the law. Indeed, Megaupload has long claimed that its purported compliance with the DMCA's notice-and-takedown requirements means that the site is immune from liability under US copyright law.

To help us understand the legal issues in the Megaupload case, Ars Technica spoke with three law professors: James Grimmelmann at New York Law School, Michael Carrier at Rutgers-Camden, and Chris Sprigman at the University of Virginia. All three agreed that Megaupload is not the world's most sympathetic defendant, but they offered divergent assessments of Dotcom's chance of a legal victory—and of the the case's possible implications for the future of copyright law and the file-locker industry.

All three professors emphasized that an indictment may include claims that are misleading, taken out of context, or even flat inaccurate. And they noted that not all the allegations in the indictment may even make it before a jury. But we asked the professors to assume that the indictment is at least accurate (full context is of course impossible to provide) when assessing the legal merits of the case.

Inducement

The most important issue in the case may well be "inducement." In the Supreme Court's landmark Grokster decision in 2005, the high court ruled that a company offering a product with the intent of promoting copyright infringement by others is liable for their resulting acts of infringement.

The government points to several factors as evidence that Megaupload actually promoted infringement by its users. The site offered financial rewards to users who uploaded files that proved popular to downloaders, and the government alleges that Megaupload "made payments to uploaders who were known to have uploaded infringing copies of copyrighted works."

For example, in 2007, one of the Megaupload employees sent an e-mail to his peers about users who had received payments. He described one of the uploaders, who got a $100 payment, as "Our old famous number one on MU, still some illegal files but I think he deserves a payment." Another user who got a $300 check was described as having "30849 files, mainly Mp3z, some copyrighted but most of them have a very small number of downloads per file." In another 2007 e-mail, a Megaupload employee wrote that some of the uploaders receiving payments "had very obvious copyrighted files in their account portfolio, but I was rather flexible."

In a 2008 incident, a user e-mailed Megaupload and wrote "I've been trying to watch Dexter episodes, but... the sound doesn't match up with the visual." Dotcom forwarded this e-mail to a subordinate, adding "...on many forums people complain that our video / sound are not in sync... We need to solve this asap!" Dexter, of course, is a popular, copyrighted television show.

"I think it's a pretty slam-dunk case on inducement," Grimmelmann told Ars. He said no one e-mail is damning, but the totality of the evidence in the indictment paints "a pretty clear portrait of a group that knows infringement is happening, knows it's a major source of revenue, trying to make sure that it happens."

Sprigman was less sure. "I suspect that they were paying people who uploaded and downloaded a lot," he said, and that they "didn't care" if the material was copyrighted or not. He said some of the examples cited in the indictment make the Megaupload staff look bad, but he said that it was hard to assess their significance without knowing the full context.

He stressed that an organization like Megaupload would have generated "hundreds of thousands of e-mails. A few incidents like that may not be enough to prove inducement," Sprigman said. "If it's a pattern and practice it may amount to inducement. But what's in the indictment is highly subjective."

The indictment faults Megaupload for failing to offer a way to search Megaupload for content, which the government contends would have made it obvious how much infringing material was on the site. But as Carrier points out, this amounts to a catch-22. After all, if Megaupload had included a search feature, the government likely would have argued (as plaintiffs did in the MP3tunes case) that the search engine was designed to help users find infringing content.

Direct infringement

Perhaps the most damning evidence in the indictment are the examples of direct infringement by Megaupload employees. The indictment says one Megaupload employee uploaded an infringing copy of a copyrighted Louis Armstrong song to the site in 2007. In 2008, another Megaupload employee uploaded copies of at least two copyrighted television programs to the site. Dotcom himself allegedly uploaded the 50 Cent song "Nah" to Megaupload in 2006. The government says all of these files were still available for download in 2011.

Employees are also alleged to have engaged in direct downloading of copyrighted files from Megaupload. In 2007, one Megaupload employee e-mailed another: "sorry to bother but if you would have a second to find me some links for the 'Grand Archives' band id be very happy." The second employee responded with a link and the message, "That's all we have. Cheers mate!"

The indictment also suggests that Megaupload engaged in extensive scraping of YouTube content. Grimmelmann argued that if Megaupload were creating an unauthorized mirror of the content on YouTube, this would be particularly damning.

The indictment suggests that "they wanted lots of content" to attract users, he said, and that they took content from YouTube "with utter indifference to what people wanted or whether it was infringing."

But again, Sprigman urged caution. "If it was really important, then wouldn't the indictment have been based on that?" he asked. He argued that, since the YouTube scraping was "not the headline in the indictment," the government probably did not believe it to be the strongest part of its case.

DMCA safe harbor doubtful

Megaupload has long claimed that it qualifies for the Digital Millennium Copyright Act's "safe harbor" for websites that comply with takedown requests. But Grimmelmann expressed skepticism that Megaupload was in fact safe.

To start with, he pointed out that the DMCA requires sites who wish to qualify for the safe harbor to register a "designated agent" with the Copyright Office. Megaupload didn't do this until 2009, several years after the site began operation. Grimmelmann said that this fact by itself could disqualify the site from the safe harbor for any infringements committed before 2009.

Also, the safe harbor doesn't apply to cases of direct infringement, such as the YouTube scraping and the exchanging of copyrighted files by Megaupload staff.

Beyond that, Carrier argued (and the others agreed) that the exact requirements to qualify for a DMCA safe harbor remain unclear. He said the courts are still wrestling with exactly that issue in the Viacom v. YouTube case.

"Keep your mouth shut"

One issue all three law professors agreed on is that most of the evidence of wrongdoing in the indictment was due to specific behavior on the part of Megaupload's management, rather than to any inherent illegality of the Megaupload business model. Grimmelmann and Sprigman both drew parallels to the case of Grokster, which was ultimately found liable because e-mails showed that employees had deliberately encouraged infringing activity by their users.

"I think the lesson of the Grokster case was, if you're going to run a P2P service, keep your mouth shut," Sprigman told Ars. "I don't think the people who run BitTorrent run around and say this is a place where you can get infringing content."

By the same token, Megaupload would be on much firmer legal ground if it had been more careful to color inside the lines—to promptly take down infringing material, to ensure employees do not trade infringing material themselves, to avoid paying known infringers for their uploads, and above all else not to have knowledge of specific infringing files.

Still, Sprigman expressed concern that the arrest of Megaupload's management would stifle the development of legitimate file-transfer services. Sprigman says that he has personally used services like Mediafire to share graphics-heavy documents with colleagues over the Internet. Some locker services have disabled the third-party downloading capabilities of their sites, which Sprigman worries will inconvenience legitimate users.

"Tons of people and corporations are uploading files to share with colleagues," Sprigman told Ars. He worried about the "chilling effect" the Megaupload indictment will have on innovation in online locker services.