The indictment the Justice Department obtained this month against MegaUpload, a popular online locker and file-sharing service, includes allegations that company executives personally uploaded and downloaded copyrighted content -- a familiar accusation in online piracy cases. But it adds a couple of intriguing twists that blur the distinction between actions that promote piracy and those that discourage it. And it echoes the argument by major labels and movie studios that content-sharing platforms have a duty to monitor their users for infringements, an assertion that U.S. courts have largely rejected.

The core allegations against Kim Dotcom and his colleagues at MegaUpload, if true, make the case that company officials knew about the infringing activity and, rather than honoring requests from copyright holders to stop it, encouraged it. In addition to accusing executives (the indictment refers to them collectively as the "Mega Conspiracy") of personally infringing, the indictment contends that the company copied videos wholesale from YouTube without permission, made duplicate links to content that would stay live after copyright holders forced the original link to be removed, and paid repeat infringers instead of banning them.

The indictment also describes MegaUpload's business model as inconsistent with the legitimate uses of a conventional locker service, such as file backup, storage and consolidation. To boost revenue from ads shown on its downloads page, the company encourages MegaUpload users to upload files that are popular with other MegaUpload customers, the indictment asserts, adding, "Because only a small percentage of Megaupload.com users pay for their use of the systems, Mega Conspiracy’s business strategy for advertising requires maximizing the number of online downloads (i.e., distributions of content), which is also inconsistent with the concept of private storage."

So it may be that MegaUpload is, in fact, a big, lucrative conspiracy to profit off of Internet users' love of free (and illegal) downloads. Still, I was struck by how far the indictment goes to find something nefarious in steps MegaUpload took to make it harder for users to infringe. Examples include the following allegations:

MegaUpload provided no index or search function to the public, and sister site MegaVideo filtered its search results to remove copyrighted content. That seems like a good thing from an anti-piracy standpoint, but the indictment contends that it's a bad thing because it made it harder for copyright holders to see how much piracy was occurring on the service. (Other, unaffiliated sites provide the ability to search MegaUpload lockers. The indictment contends that company executives knew about and relied on those sites to generate the traffic it monetized through advertising sales.)

The list of the "Top 100" files at MegaUpload is edited to exclude copyrighted works. You might interpret that as an effort to avoid alerting users to infringing files available in the lockers. The indictment, however, asserts that it "makes the website appear more legitimate and hides the popular copyright-infringing content that drives its revenue."

Users could not stream a file on the affiliated MegaVideo site for more than 72 minutes unless they were paid subscribers to MegaUpload. Although that's a lengthy segment, it's not long enough to watch a typical Hollywood movie. The indictment contends that the point wasn't to discourage illegal movie viewing, but rather to monetize it.

The indictment also alleges that MegaUpload executives furthered their conspiracy to violate copyrights through actions they didn't take, including the following:

[T]he Conspiracy made no significant effort to identify users who were using the Mega Sites or services to infringe copyrights, to prevent the uploading of infringing copies of copyrighted materials, or to identify infringing copies of copyrighted works located on computer servers controlled by the Conspiracy.

In other words, the company is being faulted for not monitoring what each of its users did on its service, not inspecting content as it was being uploaded for copyright violations, and not combing through its servers for infringing material. But that's inconsistent with the rulings from several federal courts, which have held that online companies have no duty to police their services to prevent infringements or detect them after they occur. Instead, it's up to copyright owners to alert them to infringing files, at least until a company has been found liable and ordered to stop the piracy.

In its Grokster decision, the Supreme Court held that a company's decision not to monitor or filter users' uploads could be a factor in determining whether it intended to induce infringement. But in a footnote to the majority opinion, Justice David Souter wrote, "in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses."

An online locker service has obvious "substantial noninfringing uses," including the sort of collaboration that some music and movie industry luminaries tout in a promotional video (shown above) for the site. But the Justice Department will no doubt argue that it has plenty of evidence that company executives intended to promote infringement, starting with those cash rewards.

RELATED:

MegaUpload shut down by feds for piracy

Should the feds have more power to seize domain names?

Dueling story lines for PIPA, SOPA and 'foreign rogue websites'

-- Jon Healey

Credit: MrKimDotcom via YouTube