Earlier this year the U.S. Government won its civil forfeiture case against Megaupload and Kim Dotcom.

As a result the authorities now claim possession of Kim Dotcom’s bank accounts, cars, art and other property worth dozens of millions of dollars.

Last month Megaupload’s legal team appealed the District Court’s decision, pointing out that the court denied the defendants’ basic rights and violated due process.

According to the defense team the court was wrong to label Dotcom and his colleagues as fugitives, an argument that received support from several prominent legal experts.

A few hours ago the U.S. Government responded to the claims. In a lengthy 59-page response brief United States Attorney Dana Boente argues that the District Court rightfully labeled Dotcom and his colleagues as fugitives.

The brief also explains why the Department of Justice decided to file a civil forfeiture case against Megaupload and Dotcom, while the criminal proceedings were still ongoing.

The U.S. feared that Dotcom would get his money back if the DoJ failed to file a civil case. Under New Zealand law foreign restraining orders are only valid for two years, with a possible one-year extension. This extension would have run out on April 18th of this year.

“Therefore, the United States had no realistic alternative to filing its civil forfeiture action if it was to obtain any financial relief for the victims of the Mega Conspiracy,” Boente writes.

Tucked away in a footnote United States Attorney Boente describes the case as a last resort to keep the money safe.

“…this civil forfeiture case was filed as a last resort, over two years after the Fugitive Claimants were indicted when it became clear that they would fight to delay any extradition proceedings, while depleting the proceeds of their crimes to the detriment of their victims and to their own unearned benefit”

“Had the defendants simply appeared to face the criminal charges, the civil forfeiture case would not have been necessary,” the footnote adds.

The crux of the appeal is whether or not the District Court’s order to forfeit an estimated $67 million in assets was right. According to the Government it was, as the defendants’ due process rights were not violated.

In the response brief the U.S. notes that Dotcom and his colleagues avoided the United Stated on purpose, which makes it proper to label them as fugitives.

Megaupload’s defense previously argued that they avoided the U.S. because they were exercising their legal right to fight the extradition. However, the U.S. Attorney noted that Dotcom his colleagues had their chance to get due process, if they’d decided to come to the United States.

It’s now up to the Appeals Court to decide whether the U.S. forfeiture order was indeed rightful, or if Dotcom and his Megaupload colleagues should regain control over their assets.

Even if the U.S. wins, the assets will not be available freely. Over in New Zealand, the court granted Dotcom interim relief from having the forfeiture order recognized locally.

Source: TorrentFreak, for the latest info on copyright, file-sharing, torrent sites and ANONYMOUS VPN services.

Just when some thought that Kim Dotcom might be running out of ammunition, the Megaupload founder has dropped another huge bombshell.

A recording of a discussion between the German and several Universal Music executives that took place in 2012 – just two days before the infamous raids – reveals a somewhat excited record label preparing to do business with Dotcom, in part at Google’s expense.

The 32 minute recording starts off mid conversation, with the one exec prompting Kim to talk a little bit more about Megakey, his system to monetize free music by replacing the ads that users normally see with ones supplied by Mega.

Megakey

As previously detailed, Kim explained that when Megakey users surf the Internet they see Mega ads instead of ads provided by other companies such as Google. In exchange, users are given credit to access free content. By Dotcom’s estimates it would be possible for Megakey to pay the labels 33 cents per track while enabling users to obtain 75 songs per year for free.

Soon the execs were asking questions, such as how Megakey could properly target users with appropriate ads. Kim explained that initially they would receive the ads at the bottom end of the market but once users began to experience high quality music provided by UMG, that would attract a better quality of ads worth up to twice as much.

Dotcom also offered to profile users to better understand them, with part of the Megakey deal being that users reveal information about themselves such as age, sex and location when they sign up. Dotcom said that the company could also cross reference user information made available on Facebook.

Start slowly and build

Due to the controversial nature of the Megakey ad replacement mechanism, both sides expressed a desire to start off slowly, initially by replacing just 10% of a user’s adverts.

“We need to be able – and this is also going to be one of the challenges – to be able to sell all of these impressions we will have. So to be able to fully sell out 10% of the ads that 100 million users would consume each day, that is a challenge and that would take time to build up, to have that kind of buying power from advertisers,” Dotcom said.

“We’re basically talking about a few billion dollars here and you need to, you know, create these relationships and so on.”

The caution over taking more than 10% was shared by the UMG execs.

“I can see what they’d say already,” said one. “It’ll be described as a parasite on other cyber services.”

Dotcom said that his legal team had already looked into it and concluded that each user is the king of their own computer and if he or she wants to replace ads, they are free to do so. Quickly, Kim suggested a target.

Target: Google

“If we were to enter a partnership with UMG, we would advise to only, for example at the start, to only replace ads being served from Google. Because Google, frankly, is benefiting the most of all Internet companies from piracy,” the Megaupload founder said.

“They host the world’s largest piracy index and if you want to find a song that belongs to UMG you just go to Google and you find a thousand links on a hundred different sites. These guys are probably not sending you the ad dollars that they are making, so I think that replacing ads from Google would be a fair thing. You are basically now charging a little tax for the benefits that they have with your content.

“I completely agree,” said one exec.

Kim later asked whether there would be any commercial agreements with other labels that would get in the way of a Megakey deal?

“We probably would need to agree a whitelist of where you could replace ads, just to avoid deliberately antagonizing,” said one.

“But Google will not be on that list!” laughed another.

“It’ll just be open season!” “Fire in the hold!” chimed in two others.

Don’t use the ‘T’ word

By now the conversation was starting to warm, but at least one of the UMG execs had taken issue with Kim’s use of the word ‘tax’.

“Isn’t that the worst analogy you could make? Isn’t that the worst possible way of phrasing it?” he said.

Dotcom disagreed.

“You are trying to get legislation in place and get governments to do that for you but they won’t do that. They want to be reelected. They will not have a culture tax, ok? So we can make that happen for you, the culture tax,” Dotcom said.

The label exec preferred to frame it differently

“I’d argue that what you are trying to do is not imposing a tax on anybody, it’s that you are giving users a chance to control their own destiny when it comes to how ads are served and to participate in the revenue generated from it. Because anything that has the word tax in it is immediately ‘Oh God!”

“Let me add that we would never say that in any public forum,” Dotcom responded. “So I use this term in this closed round here but at the end of the day, that’s what it is.”

This thing has potential….

Soon the UMG execs were coming up with the ideas.

“If Universal decided to work with you guys, rather than replacing ads everywhere we could replace a much higher percentage when it came to any page connected to a Universal artist,” said one. “If we choose to work with you guys, Megakey replaces [the ads], and that then makes it less parasitic. There’s a bunch of spins we could take, we could replace them with Vevo ads.”

“I like you guys, why didn’t we talk years ago?” asked Dotcom.

“We are dealing with everyone who just hates us and wants to kill us but I think we really have a solution that can solve the problem of the content creators. We are very proud of it and would love to work with you guys as you seem to be really getting it and i’m so happy that we have had this meeting now.”

How soon can we start?

Complaining about the music business being run by lawyers after the Napster era, one UMG exec told Dotcom that things are changing.

“So, if we were to do a deal with [Megakey], how quickly could you [move]? This technology is live and in place now?”

“Yes, that’s correct,” Kim confirmed.

“So all we have to do is work out a deal, plug you guys into our legitimate feed of repertoire, and we could go live this side of the summer,” an exec responded.

“We need to have a commercial conversation about the deal making process and I’ll keep the lawyers at bay as long as I possibly can. When we come to paper the deal I’ll have to bring in a lawyer but I’ve got a lawyer I can trust who can do this.”

Dotcom and the UMG guys agreed to meet up in March 2012, but first there was a thorny issue to raise.

The Mega Song Controversy

“Have you guys heard about this Mega Song video that happened between UMG and us?” Dotcom asked.

UMG had previously angered Dotcom by wrongfully taking down his wildly successful video from YouTube and legal action was still pending.

“So the thing is because of that takedown we had to take some legal action and we’re basically now in court with UMG and if you guys feel like this is something interesting to talk about I think we should diffuse that a little bit,” Dotcom told the meeting.

“I agree,” came the response. “I think that in the wider conversation at some point it would be very helpful if that just disappeared.”

Interestingly, the execs then provided a surprise reason for the problems, partially laying the blame on Google.

Google had a point to prove on SOPA?

“The Google [YouTube] filters which are normally very inefficient got miraculously efficient. We could not understand why. We’d withdrawn the claim yet the filter was taking down stuff that in a million years it wouldn’t normally catch. So we were sat in the background going ‘What the fuck is going on here?'” one exec said.

“We did something that we thought was in good faith, we then took back the takedown and then the filters went mad in a way that if they’d done so on a normal day, we’d be happy.”

Then the conversation got a little bit dark, to say the least.

“Between you and I, please never repeat any of this conversation – because I’d be sacked – but there was a lot of weird shit going on in that very brief period where we had to wonder whether the people running the [YouTube] filters were running the business to their ends,” one exec explained.

“It was a perfect political football,” said another. “And they kicked it very hard.”

“Because of the SOPA thing, we got fucked. Which is fine.”

Moving on to the size of the market and Universal’s dominant share, one exec told Dotcom what he was waiting to hear.

“I will happily do a deal with you guys.”

‘Notorious Market’ lists are bad for business

But of course, an elephant remained in the room. Megaupload was out of favor with not only the record labels but also the MPAA and United States Trade Representative. Dotcom decided to point out what everyone in the meeting almost certainly had in the back of their minds.

“We have gotten a lot of fire from RIAA, MPAA, everyone in the content industry, for you know, Megaupload,” Dotcom said.

“We don’t have a rewards program, we are one of the cleanest guys. I mean you guys, UMG, RIAA, everyone has direct access to our servers. We remove content swiftly, we try our best to be the best player in our industry but we’re getting all the heat because of our size.

“What would also be nice is if we could try and defuse that whole situation and if you can make an effort to help us with that because, you know, putting us on all sorts of nasty lists and how bad we are and all of that, that doesn’t help either.”

The suggestion was well received.

Allow us to improve your standing, Mr Dotcom

“Yeah, I agree. In exchange for the litigation disappearing there are certain people I can have conversations with where you will be moved onto a different list as opposed to a bad list,” an exec told Dotcom

“We want to be on the friends list!” he responded.

“Yeah, well you get on to the friends list once we’ve signed a deal. And then the rules of engagement change completely. In the short-term I can downgrade your status from ‘evil’ to ‘bad’ and as the process goes on it will be from ‘bad’ to ‘good’ to ‘exceptional partner’.”

Never one to miss a point of negotiation, Dotcom persuaded the execs to change his designation from “evil to bad” to “evil to neutral” and they agreed, noting that companies can be easily removed from the notorious markets list if they so desire.

But sadly for all involved, none of that came to pass.

“They wanted to reduce my status from ‘evil to neutral’ if I partnered with them,” Dotcom told TorrentFreak this morning.

“This call was two days before the raid. They were excited about Megabox and especially my Megakey innovation. It clearly shows that I was trying to help artists to create more income from the Internet.”

And then the raid happened, and the rest is history.

Source: TorrentFreak, for the latest info on copyright, file-sharing, torrent sites and ANONYMOUS VPN services.

Last month the MPAA sued several popular movie streaming websites which all operated under the MovieTube flag.

As part of the lawsuit the major movie studios asked for a preliminary injunction ordering several third-party companies to stop linking or providing services to the sites.

For several tech companies this request went too far. Last week Google, Facebook, Twitter, Tumblr and Yahoo explained to the court that it could result in broad Internet censorship, similar to the blocking provisions that were listed in the controversial SOPA bill.

The filing appeared to be the start of a new standoff between Hollywood and the tech companies, but a letter submitted by the MPAA yesterday puts it on hold.

The MPAA informed the court that a preliminary injunction is no longer required as the MovieTube sites have been offline for several weeks already.

“Plaintiffs are no longer seeking preliminary injunctive relief at this time but will seek permanent relief as soon as possible,” the MPAA’s lawyers write.

The decision to drop the request may very well have been triggered by the Amici Curiae brief of the tech companies. After all, the MovieTube sites were already offline when the MPAA submitted the injunction request weeks ago.

In their letter to the court the MPAA stress that the opposition brief should no longer be considered now that they have pulled their request for an injunction.

“…because Plaintiffs have withdrawn their motion for preliminary injunctive relief, the arguments offered by Amici Curiae in opposition to that motion are not ripe for consideration and are otherwise inapplicable.”

“To the extent Amici are requesting what amounts to an advisory opinion, such a request is improper and should not be entertained,” they add.

It appears that it’s a strategic move from the MPAA not to challenge the tech companies, for now. However, the movie industry group has made it clear that website blocking is one of their main anti-piracy priorities so we can expect this battle to reignite in the future.

Source: TorrentFreak, for the latest info on copyright, file-sharing, torrent sites and ANONYMOUS VPN services.

There are millions of Internet users grabbing content from file-sharing networks each and every day. These mainly BitTorrent bandits cost copyright holders millions in lost revenues but with a little trickery it’s possible to make them pay.

We’re paraphrasing, but this is the basic marketing message of anti-piracy outfit Rightscorp, the company that tracks down file-sharers and demands up to $30 compensation to make supposed lawsuits go away.

It’s meant to be a profitable little number but the company simply cannot make it work. After going public two years ago, the company lost $3.4 million in 2014. In the first quarter of 2015, things hadn’t improved. While generating revenues of $307,904 in the first three months of the year, Rightscorp still managed to lose $929,768.

Now the company has published its results for Q2 2015 and the financial picture is bleaker than ever before. First up (and despite claiming to represent increasing numbers of clients and copyrights) Rightscorp revenues are down.

In the three months ended June 30, the total amount Rightscorp was able to squeeze out of millions of file-sharers was down to just $233,816. That represents a 7% decrease when compared to the same period in 2014 but a 24% drop in revenues when compared to Q1 2015. The company blames the revenue decrease on the “disproportionate amount of time” it spent “supporting clients in legal matters”.

Of course, the selling point of the entire Rightscorp operation is to monetize file-sharing by generating revenue for copyright holders. However, in the past three months the company paid just $116,908 to its clients, that’s down on the $125,740 it paid out during the same period in 2014.

But if falling revenues represent a headache for Rightscorp, its operating costs are an unrelenting migraine. In Q1 2015 Rightscorp’s operating costs exceeded $1.2m but in Q2 things really got out of hand with the company burning through almost $1.96m.

General and administrative fees for the three months ended June 30, 2015 totaled almost $1.8m, uncomfortably close to a million more than the $832,334 spent during the same period in 2014. Two main factors are behind this huge bill.

In Q1 2014, Rightscorp spent $241,347 on wages and related expenses but in the same period this year those costs had increased to $335,073. In the most recent quarter the company spent $674,885, despite dwindling revenues and paying less to copyright holders than before.

However, the big shock comes from the money being burned on legal action. Rightscorp is currently being sued over the methods it uses to collect cash from alleged pirates and that appears to be taking its toll.

“Legal Proceedings totaled $579,780 for the three months ended June 30, 2015, compared to $122,190 for the three months ended June 30, 2014, related to certain legal actions taken against the Company,” Rightscorp explain.

The bottom line is that the company made an operating loss of $1,722,507, close to a million more than the $743,599 it lost in the same period last year. That brings Rightscorp’s 2015 losses thus far to a little over $2.65m.

Should it continue to perform at the current rate, Rightscorp will make an operating loss of more than $5m this year, $1.6m up on the $3.4m it lost in 2014. However, there are at least some signs that the company is taking measures to improve revenue.

Firstly, reports suggest that Rightscorp is now seeking $30 from alleged infringers, up from the $20 it charged previously.

There are also indications that the company is becoming more aggressive with alleged pirates who refuse to settle for relatively small amounts of money.

After teaming up with a law firm, Rightscorp says that its data is now being used to take repeat infringers to court, such as the handful of Comcast users targeted earlier this year.

While this may bring in some additional revenue, the action could also be useful to scare more Rightscorp targets into settling for small amounts rather than becoming tangled in expensive legal action. But whatever the results from these tweaks, Rightscorp clearly needs to do something soon.

“The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable,” Rightscorp writes.

“If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.”

Source: TorrentFreak, for the latest info on copyright, file-sharing, torrent sites and ANONYMOUS VPN services.

Copyrights and trademarks are an important tool for rightsholders to ensure that their content is not being abused.

Unfortunately, they can also be used to censor other content creators. Just last week we showed how legitimate videos were pulled offline simply because they used the word pixels.

Today another example of an overbroad content protection effort has surfaced. Darebee, a service offering free fitness programs, was recently targeted by a takedown request sent by Twentieth Century Fox.

Fox’s legal department complained to the fitness service about various programs referencing popular film and TV-titles including “Buffy,” “Fight Club,” “Archer” and “Avatar.”

Fox’ takedown request

Darebee admits that some programs are indeed inspired by popular films but stresses that it doesn’t profit from them.

“When we have knowingly used a film name to one of our workouts or a film or comic book character we have done so within the homage, inspiration and fan-created content framework. We don’t sell anything. Our workouts are free and always will be,” Darebee notes.

While Darebee doesn’t agree with the request, they decided to remove most of the ‘infringing’ programs to avoid further problems. However, the “Avatar Upgrade” workout remains online.

According to Darebee the Avatar reference has no connection with the popular Fox movie. Instead, it refers to the avatars people use online.

“The program is based upon the fact that we each have avatars in the digital world and try to improve them any way we can. We can now do the same thing in real life by going through a program with the same name, focused on our real-life avatars.”

“Fox or any other corporation do not own the rights to the English language and every word in its dictionary,” Darebee adds, explaining why they’re keeping the Avatar workout program online.

In a detailed response Darebee notes that some rightholders go too far in their protection efforts. Motivated by greed, these efforts are hurting other content creators, they claim.

“Every company has a right to make a profit. That we totally understand and we do not dispute. But no company has any right to see people solely as dollar signs, or use its apparent size to railroad everyone’s rights in the mistaken belief that it will help it become more successful,” they write.

With the help of many volunteers Darebee will continue to publish free fitness workouts. The “Archer,” “Buffy,” “Die Hard” “Predator” and “Fight Club” programs are gone, but the “Avatar Upgrade” remains online.

Also, perhaps not totally coincidentally, a new “Fighters Club” program has just appeared online.

Source: TorrentFreak, for the latest info on copyright, file-sharing, torrent sites and ANONYMOUS VPN services.