Megaupload allegedly took the practice to a new level of criminality. Federal prosecutors said the firm paid users to upload illegal movies and music and tried to hide the practice. The investigators said its executives used their ill-gotten gain for a lavish lifestyle, adding that they confiscated dozens of luxury autos, including a Rolls-Royce with the plate “GOD” owned by site founder Kim Schmitz, who also goes by the name Kim Dotcom.
The indictment charges Megaupload’s executives with making $175 million from charging users subscription fees and advertisements while robbing movie producers, authors, musicians and other copyright holders of about $500 million.
A lawyer for Megaupload.com has denied that the company did anything wrong. But on Twitter, an account apparently run by the firm’s executives sent out a farewell tweet: “Sorry guys, it was good while it lasted!”
For other Web companies, the controversy may only be beginning.
The FBI’s action raises many questions about who oversees copyright on the Web and how far the government can go. Web organizations questioned whether the government has the right to shut sites down for hosting pirated content, as it did in the case of Megaupload, without allowing companies to defend themselves in court first.
“They will wonder if they have done anything different from Megaupload, and does that mean the Feds will come through their door,” said Eric Goldman, a professor of intellectual property law at Santa Clara University.
“Keep in mind the DOJ’s indictment is actually a sales document; it is their interpretation of things, and they are throwing spaghetti on the wall with their claims and seeing what will stick,” Goldman said.
Many Web firms such as YouTube have pledged to respect copyright laws, but users still post pirated material on their sites, triggering legal battles between media companies and Silicon Valley.
Even before it was shut down, Megaupload had its legal troubles. It was in a fight with Universal Music because celebrity artists such as Jamie Smith, Kanye West, P. Diddy and Will.i.am endorsed the Web site. Some of those musicians had close connections to a leader of Megaupload, Swizz Beatz, and his wife, Alicia Keys.
Web companies are also tangling with powerful lobbyists who represent Hollywood and other traditional media companies.
On Friday, lawmakers delayed action on legislation that would have given law enforcement more power to shut Web sites down. Leading Internet firms had used their most prominent sites to protest the bills.
But advocates for the measures signaled that they were far from giving up on the fight.
Former Connecticut senator Christopher J. Dodd, now head of the Motion Picture Association of America, made a candid rebuke of the lawmakers that his industry financially supports.
“Those who count on Hollywood for support need to understand this industry is watching very carefully,” Dodd said in a Fox News interview Friday. “Don’t ask me to write a check for you when you think your job is at risk and then don’t pay attention to me when my job is at risk.”
While acknowledging the problem of pirated content, companies say that the ability to freely share ideas and content over the Web is critical for the future of the Internet. Some said that legitimate uses of locker sites and social networks will be disrupted as Washington clamps down on piracy.
A question for ordinary users is what happens to their content if authorities shut a site down.
Charles Alexander, a digital-music consultant in Nashville, said he regularly relies on similar storage services, such as Dropbox and YouSendIt, to transfer music files between clients and customers.
Last month, he sent a high-resolution music clip to a music director to use in an online soap-opera series. Too big to send via e-mail, Alexander has relied on cloud-based services — sites that let people store information on the Web and access that content while on the go.
He also regularly sends videos of his 8-year-old daughter to his mother in Malaysia through the locker services.
“The Web provides so many opportunities for discovery and sharing of music,” Alexander said. “If the FBI can seize Megaupload, they can seize any foreign-based service, and we have to be careful what kinds of information we are giving up.”