Two weeks ago PayPal closed the account of cloud-storage service Mega, citing pressure from Visa and MasterCard. The ban has undoubtedly hurt Mega's business, and CEO Graham Gaylard is in Europe to discuss possible legal repercussions against a report that's partly responsible for the ban

September last year the Digital Citizens Alliance and NetNames released a report that looked into the business models of “shadowy” file-storage sites.

Titled “Behind The Cyberlocker Door: A Report How Shadowy Cyberlockers Use Credit Card Companies to Make Millions,” the report offers insight into the money streams that end up at these alleged pirate sites.

The research claims that the sites in question are mostly used for copyright infringement. But while there are indeed many shadowy hosting services, many were surprised to see the Kim Dotcom-founded Mega.co.nz on there.

For entertainment industry groups the report offered an opportunity to put pressure on Visa and MasterCard. In doing so they received support from U.S. Senator Patrick Leahy, who was also the lead sponsor of the defunct controversial Protect IP Act (PIPA).

Senator Leahy wrote a letter to the credit card companies claiming that the sites mentioned in the report have “no legitimate purpose or activity,” hoping they would cut their connections to the mentioned sites.

Visa and MasterCard took these concerns to heart and pressed PayPal to cut off its services to Mega, which eventually happened late last month. Interestingly, PayPal cited Mega’s end-to-end-encryption as one of the key problems, as that would make it harder to see what files users store.

The PayPal ban has been a huge blow for Mega, both reputation-wise and financially. And the realization that the controversial NetNames report is one of the main facilitators of the problems is all the more frustrating.

TorrentFreak spoke with CEO Graham Gaylard, who previously characterized the report as “grossly untrue and highly defamatory,” to discuss whether Mega still intends to take steps against the UK-based NetNames for their accusations.

Initially, taking legal action against NetNames for defamation was difficult, as UK law requires the complaining party to show economic damage. However, after the PayPal ban this shouldn’t be hard to do.

Gaylard is traveling through Europe at the moment and he notes that possible repercussions against the damaging report are high on the agenda.

“Yes, I am here to see Mega’s London-based legal counsel to discuss the next steps in progressing the NetNames’ response,” Gaylard informs TF.

Mega’s CEO couldn’t release any details on a possible defamation lawsuit, but he stressed that his company will fiercely defend itself against smear campaigns.

“Mega has been operating, and continues to operate a completely legitimate and transparent business. Unfortunately now, with the blatant, obvious, political pressure and industry lobbying against Mega, Mega needs to defend itself and will now cease taking a passive stance,” Gaylard says.

According to the CEO Mega is running a perfectly legal business. The allegation that it’s a piracy haven is completely fabricated. Like any other storage provider, there is copyrighted content on Mega’s servers, but that’s a tiny fraction of the total stored.

To illustrate this, Gaylard mentions that they only receive a few hundred takedown notices per week. In addition, he notes more than 99.7% of the 18 million files that are uploaded per day are smaller than 20MB in size, not enough to share a movie or TV-show.

These statistics are certainly not the hallmark of a service with “no legitimate purpose or activity,” as was claimed.

While the PayPal ban is a major setback, Mega is still doing well in terms of growth. They have 15 million registered customers across 200 countries, and hundreds of thousands of new users join every month.