D.C. Circuit Tackles Ex-Prosecutor’s Allegations of Privacy Violations

After a nearly decade-long legal battle, the Department of Justice (DOJ) is seeking to dismiss once and for all the privacy suit of Richard Convertino, a former federal prosecutor in Detroit who alleges that the DOJ illegally gave the press details of an internal investigation into his alleged misconduct.

In February 2004, Convertino filed a complaint in the U.S. District Court for the District of Columbia, alleging that DOJ officials provided information to a newspaper reporter about the internal ethics investigation. Convertino accused the DOJ of giving David Ashenfelter, a reporter for the Detroit Free Press, confidential information relating to Convertino’s alleged mishandling of a terror-related case.

In that underlying case, the convictions of the alleged terrorists were overturned amidst allegations that Convertino unlawfully withheld evidence from defense lawyers when he prosecuted the case. The ensuing internal DOJ inquiry into Convertino’s conduct was meant to be confidential, but was leaked to the press through unknown, anonymous sources at the DOJ. Ultimately, the allegations of prosecutorial misconduct against Convertino were not substantiated.

Convertino spent nearly eight years attempting to ascertain Ashenfelter’s anonymous sources, but the reporter consistently refused to name them and invoked his Fifth Amendment right to remain silent. The district court finally dismissed Convertino’s privacy case last year, saying “there is simply no reason to believe that yet another delay in this case will result in discovery of that information.” Convertino appealed to the U.S. Court of Appeals for the D.C. Circuit. Earlier this month, the DOJ asked the court of appeals to uphold the dismissal.

In this situation, Convertino’s right to pursue privacy violations by the DOJ sits squarely in opposition to Ashenfelter’s right to plead the Fifth Amendment. Although the DOJ’s Office of Inspector General performed an inquiry, it was unable to determine which DOJ employee was the source of the leak. As a result of his inability to confront the source, Convertino’s reputation and career will forever be tarnished by anonymous accusations of wrongdoing.

It is ironic that the department whose duty is to enforce the law and bring about justice has failed to do justice to Convertino. One of its employees disclosed confidential agency information to the press and will apparently go scot free. Unless the D.C. Circuit reverses the district court’s decision, the federal government will not be held accountable for violating Convertino’s privacy. The Court of Appeals should reverse and allow Convertino to continue his efforts to discover who leaked the information, and how the DOJ allowed it to happen.

The D.C. Circuit is scheduled to hear the Convertino case on March 12.

Better Anti-Piracy Bill Introduced in Wake of SOPA, PIPA

We previously wrote about the broad protests over two bills in Congress targeting online copyright infringement – the House’s Stop Online Privacy Act (SOPA) and the Senate’s Protect Intellectual Property Act (PIPA). We were pleased that the protests and other activities were effective in ending efforts to pass those versions of the legislation.

The protests were led by Internet businesses that argued that the bills would lead to censorship of the Internet and to the cutting off of useful, legal online content. Under these bills, websites such as Facebook and YouTube could have been found liable if they hosted infringing content. As a result of the massive protests, Congressional leaders were forced to table PIPA and SOPA for the time being.

Many critics of SOPA have instead announced their support for legislation sponsored by Sen. Ron Wyden (D-Ore.) and Rep. Darrell Issa (R-Calif.) as a means of preventing online piracy without threatening free speech. The Online Protection and Enforcement of Digital Trade Act (OPEN Act) would allow people or groups that own content on the Internet to ask the International Trade Commission (ITC) to investigate whether a foreign website is dedicated to piracy. The ITC would be given power to collect fees from complainants and to hire additional personnel for investigations. The website owner would be allowed to offer evidence to rebut the claim. If the ITC ruled in favor of the content owner, it could then direct payment firms and advertising networks to stop doing business with the site and require search engines to delete links.

SOPA and PIPA had contained language that would allow for the Department of Justice to “disappear” a website, meaning that it would require Internet service providers to disable the resolution of the site’s name by the Domain Name Service to an IP address. This would effectively eliminate the web site from the Internet. The OPEN Act would not give DOJ this power.

The OPEN Act would be able to deal with a primary concern of copyright holders — that the process would not be able to catch up with the speed that pirates are stealing intellectual property. Under the OPEN Act, copyright holders could request temporary restraining orders to protect their intellectual property in the short term, a provision that would be particularly important for websites seeking to protect live broadcasts over the Internet, such as sporting events.

NetCoalition, a technology industry group that counts Google, Yahoo!, Amazon, eBay, PayPal, Expedia, Bloomberg LP, and Wikipedia among its members, has said that it supports the OPEN Act.

The Senate version of the OPEN Act has been referred to the Finance Committee, and the House bill has been referred to the Judiciary Committee.

It is good news for Internet entrepreneurs, and for free speech, that SOPA and PIPA were defeated. In addition to the chilling effect on the Internet that would have occurred under either SOPA or PIPA, it makes no sense to use scarce criminal resources to prosecute piracy cases. The OPEN Act would represent a much better approach to combating online piracy.

The dispute resolution process under the OPEN Act would provide both parties with the opportunity to present their positions before an experienced tribunal that could resolve the issues on the facts before them.

Does 5th Amendment Protect Computer Files From Decryption?

A U.S. District Court in Colorado recently considered whether the constitutional privilege against self-incrimination extends to the compelled production of decrypted computer files. It is beyond dispute that the government may not force a suspect to provide an encryption password if the password would provide a necessary link in the chain of evidence leading to the suspect’s indictment. A much more difficult question is whether the government may force a suspect to use the password to produce decrypted computer files that contain incriminating evidence.

In United States v. Fricosu, Judge Robert Blackburn held that the government can indeed force a suspect to use an encryption password if the testimony implicit in the use (i.e., the act of producing decrypted files) is already known to the government and/or the implicit testimony will not incriminate the suspect. The court ordered the defendant to produce decrypted files from her laptop because the government already knew (based on uncompelled testimony) that the files were on a computer that belonged to her and for which she had the password. Judge Blackburn’s decision is the most recent in a growing body of case law that attempts to thread the needle as to when the Fifth Amendment protects against the court-ordered production of computer data.

In 2010, FBI agents investigating a mortgage-fraud scheme executed a search warrant at the home of Ramona Fricosu. The agents seized six computers, one of which was a laptop that apparently belonged to Fricosu. When the agents turned it on, they were able to view the disk encryption screen, which identified the computer by Fricosu’s first name. But without Fricosu’s password, the agents could not access the encrypted files.

The next day, Fricosu’s ex-husband called her from the correctional center. FBI agents recorded the conversation. Several times during the call, Fricosu and her ex-husband referred to the laptop as hers. Fricosu also mentioned that the laptop contained encrypted documents related to the mortgage-fraud scheme. Based on that conversation, the government applied for a warrant to search Fricosu’s laptop, and the court issued a writ requiring Fricosu to produce a decrypted version of her computer files.

The Fifth Amendment guarantees that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” Generally, a person may invoke the privilege based on a showing that the government seeks to compel that person to give testimony that would incriminate him or her. If any of these three criteria are not met (compulsion, testimony, and incrimination), Fifth Amendment protections will not obtain.

The Fricosu court distinguished between statements that are not compelled and those that are. For example, statements in files created voluntarily before the investigation was underway were statements the court had not compelled. Thus, they were not protected. By contrast, implicit statements Fricosu would necessarily make by producing the files — statements regarding the existence, location and authenticity of the computer files, for example — were statements that would be compelled and, therefore, subject to constitutional protections.

Courts recognize a Fifth Amendment exception for implicit statements regarding the existence, location and authenticity of computer files. When the government can demonstrate that it already knows the existence and location of items to be produced, this exception precludes an individual from avoiding production based on the Fifth Amendment. In Fricosu, the taped conversation between Fricosu and her ex-husband included their voluntary statements about the existence, location and authenticity of mortgage-fraud documents on the laptop. Court-ordered production of the computer files would compel Fricosu to affirm statements made during the call, but the affirmation would not tell the government anything it did not already know.

Second, the court distinguished between non-testimonial and testimonial evidence. The Fifth Amendment does not protect against the production of non-testimonial evidence. Thus, a person may be required to provide blood samples or handwriting exemplars, appear in a line-up, or speak aloud for voice identification. However, the Fifth Amendment does protect against the production of evidence that discloses the contents of a defendant’s mind, including his or her beliefs and knowledge. Moreover, the amendment protects against any production that would compel a defendant to restate, repeat or affirm the truth of statements contained in documents sought. That is why, for example, a court may not require a criminal defendant to provide an encryption password. The act of producing the password requires the defendant to affirm that the password is correct. Thus, the act of production is deemed to be testimonial and subject to constitutional protections.

The Fricosu court avoided Fifth Amendment issues by ordering the defendant to produce decrypted versions of her laptop files instead of the encryption password. The production of decrypted files was not testimonial because it did not convey any information in the defendant’s mind that the government did not already have, nor did the act of production require the defendant to restate, repeat or affirm statements contained in her files. The Supreme Court has explained that a testimonial act is akin to revealing a combination or password to a wall safe because the combination or password is in the suspect’s mind. A non-testimonial act is like surrendering the key to a strongbox. The act of surrendering gives no indication of the person’s thoughts or knowledge.

Finally, the privilege against self-incrimination applies only if the compelled testimony incriminates the defendant. Testimony is deemed to be incriminating if it would furnish the government with a necessary link in the chain of evidence leading to the suspect’s indictment. The government can (and very often does) preclude a showing of incrimination by offering use and derivative use immunity. This ensures that that the government will not use compelled testimony to further its investigation against the source of the testimony.

In Fricosu, the government sought to avoid any possible Fifth Amendment issues with the writ application by offering Fricosu use immunity. As the court noted, this offer protected Fricosu against self-incrimination by guaranteeing that it would not use her act of producing decrypted computer files against her, whether directly or indirectly.

Repeal May Not Be End of Story for Online Gaming in D.C.

On February 7, 2012, the D.C. Council voted 10-2 to repeal the city’s iGaming program, which would have made the District of Columbia the first U.S. jurisdiction to permit the playing of online poker for money.

In April 2011, the District had become the first U.S. jurisdiction to enact a law that permitted online poker wagering.  The amendment was part of a larger budget bill passed by the D.C. Council in December 2010 and was enacted after passing through Congress unblocked.

The process by which the bill was approved drew fire from many critics, who said that many council members didn’t know that they were voting to approve online poker when they voted for the budget bill, nor were most city residents informed about the bill.

Those procedural concerns played a major role in the repeal. On February 1, 2012, however, the Council’s Committee on Finance and Revenue voted 3-2 to repeal the bill, sending it to the full council for a repeal vote. Council Chairman Kwame Brown asked that the repeal bill be placed on the legislative agenda for a quick vote, which occurred on February 7. Mayor Vincent Gray had formerly indicated that he thought the iGaming program had been given a proper vetting before passage but changed his mind in favor of repeal this week.

The law would have allowed anyone over the age of 19 who registers on the site and is physically located in the District to play from a verified IP address. Players would not have been allowed to wager more than $250 a week.

One major hurdle the law faced was the belief of some lawmakers that intrastate online gaming was forbidden under the federal Wire Act. D.C. Attorney General Irvin Nathan testified in a hearing last June that in his opinion the iGaming law would be legal under federal law if the District stuck to its plan of implementation.  In December, the Department of Justice issued an opinion stating that intrastate online gaming was in fact legal under federal law.

Economic projections from the city’s finance officials projected that iGaming would have brought in about $13.1 million in revenue through September 2015. The District is required by Congress to balance its spending three years into the future, and that $13.1 million has already been used in the city’s future financial planning. Now city lawmakers will have to find $13.1 million in new revenue or spending cuts to account for the lost revenue from iGaming.

Previously, Council Member Michael Brown, who spearheaded efforts to bring iGaming to D.C., said that if the iGaming bill was repealed that he would reintroduce a stand-alone bill to revive the program. A spokesman for Mayor Gray said that he is “not necessarily opposed” to the Council taking up new legislation authorizing Internet gambling. Other council members have indicated that they are open to further exploring online gaming if it is introduced in a standalone bill.

It is unfortunate that the bill to allow the District to become the first U.S. jurisdiction to legalize online gaming was repealed before any games were even played. We hope that the bill is reintroduced with a more transparent process. Given the potential to generate revenue for the city and the support that existed among many city residents, this is an issue that the Council should continue to explore.

Private Suits Under FCPA — An Ill-Advised Idea

Late last year, Rep. Ed Perlmutter (D-Colo.) introduced a bill in the House of Representatives that would amend the Foreign Corrupt Practices Act (FCPA) to permit private suits against certain foreign companies and individuals. The bill, entitled the “Foreign Business Bribery Prohibition Act of 2011,” would significantly alter the landscape of FCPA enforcement, and not for the better.

Perlmutter proposed similar versions of the bill twice before, in 2008 and 2009, and the bill did not make it out of committee either time.

The FCPA prohibits bribing foreign government officials. The proposed bill would amend the statute to allow for private lawsuits against foreign concerns for alleged violations of the statute’s anti-bribery provisions. These lawsuits could be brought by (1) any issuer, defined as an entity that issues securities under U.S. securities laws and its employees; (2) any domestic concern, defined as any U.S. citizen, national, or resident, or any business that is principally located in the U.S. or incorporated in the U.S.; or (3) any other United States person, defined as any person or business entity other than an issuer or a domestic concern. A foreign concern would be defined as any person or entity other than an issuer or a domestic concern. The bill would not allow for a private right of action against issuers or domestic concerns.

The bill was referred to the House Committee on the Judiciary Subcommittee on Courts, Commercial and Administrative Law and the House Energy and Commerce Committee Subcommittee on Commerce, Manufacturing, and Trade. Thus far, no action has been taken on the bill by the subcommittee.

Under the proposed bill, a plaintiff would be able to recover three times the amount of either the contract that the defendant gained or the contract that the plaintiff lost due to the bribe.

Private rights of action to enforce laws are premised on the assumption that there are so many violations occurring that the government needs the help of private parties to identify them. This assumption is not always correct. In False Claims Act qui tam cases, for example, a private party must submit its case to the government for review. If the government declines to intervene as a plaintiff, the private party may choose to continue with the litigation. However, in 2011, only 5 percent of the money recovered under the False Claims Act was in cases in which the government declined to intervene. This gives a strong indication of the merits of the claims being brought by private parties under this statute.

If private parties are allowed to bring FCPA actions, there will be even more meritless litigation bogging down the courts. Furthermore, the ability of private parties to bring these actions can lead to harassing litigation.

In FCPA cases, the government now has the sole option of deciding whether a case should be brought, and this should remain the law. Individuals should continue to report suspected wrongdoing to the government and let the government decide whether the case should be pursued. The Department of Justice has significantly increased its FCPA enforcement in recent years. It does not appear that there is a dearth of possible foreign bribery situations known to the government.

New York Mah Jong Ruling May Help Cause of Online Poker

Mah Jong, the ancient Chinese tile-based table game, can now count itself as a winner in the old debate of games of skill vs. games of chance, according to a New York state judge, who recently ruled that the game demands more than luck.

On January 4, 2012, Criminal Court Judge John H. Wilson declared in People v. Feng that “the court declines to declare Mah Jong to be a per se ‘contest of chance.’ ” Although Judge Wilson ultimately allowed a charge of promoting gambling to go forward, his findings have significant implications not just for the game of Mah Jong itself, but also for other popular games, like poker, which have historically been viewed to constitute illegal gambling.

In the Mah Jong case, Jun Feng and Victor Chan were charged with the misdemeanors of promoting gambling in the second degree and possession of a gambling device after allowing an undercover officer to participate in a Mah Jong game in their parlor. The alleged violation was of NY CPL 225.05, which states in pertinent part: “A person is guilty of promoting gambling in the second degree when he knowingly advances or profits from unlawful gambling activity.”

Another provision, CPL 225.00(2) defines “gambling” as follows: “When (a person) states or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an understanding that he will receive something of value in the event of a certain outcome.” The defendants argued that Mah Jong did not constitute a “contest of chance” within the meaning of New York state law. CPL 225.00(1) defines “contest of chance” as “any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.”

Judge Wilson disagreed with the defendants, finding the charge of promotion of gambling to be facially sufficient. The judge found the game to constitute gambling, insofar as the defendants risked money upon the outcome of “a future contingent event not under his influence of control” and the house took a share of a player’s winnings. However, he did not find the game to be gambling based on the alternative meaning of “gambling” involving a “game of chance.”

Citing an earlier New York state ruling, Judge Wilson found that Mah Jong was not a contest of chance, notwithstanding the element of luck involved in the game. He noted, “The mere fact that the game combines skill and luck does not make it a contest of chance.” The judge arrived at this finding after conducting a brief survey of the game’s history from online sources and noting the increasing popularity of the game.

While Judge Wilson’s decision may appear to be a mixed bag for these defendants, to gaming enthusiasts his finding that Mah Jong is a game of a skill is a clear win. The debate over what constitutes a game of chance or a game of skill has grown heated in light of last year’s Justice Department takedown of online poker operators. Those in the online poker world who intend to defend against the government’s charges will see Feng as a victory, especially given Judge Wilson’s reliance on the historical evolution of the game in reaching his decision. With the ever-increasing popularity of poker, those who defend online poker as a game of skill can only hope that poker will be dealt as favorable of a hand as Mah Jong.

High Court: Police Tracking of Suspect Via GPS Requires Warrant

Last November, we discussed the U.S. Supreme Court’s oral argument in United States v. Jones, which posed the question of whether police need to obtain a warrant before attaching a GPS device to a suspect’s vehicle during a criminal investigation.

We noted that in this case, 21st-century technology had come face to face with the constitutional requirements of the Fourth Amendment. We were hoping that the high court would uphold the U.S. Court of Appeals for the D.C. Circuit and hold that this action is a search that requires a warrant, but we took a pass on predicting what the Court would actually do.

On January 23, 2012, the Court decided the case – unanimously against the government and in favor of defendant Antoine Jones. The decision is fairly gratifying for those of us who believe it desirable to curb prosecutors’ power by imposing restrictions upon it, including, where appropriate, the requirement of a judge-issued warrant.

It turns out that both the advocates of the original-intent approach to constitutional interpretation, epitomized here and in general by Justice Antonin Scalia, and those who prefer the doctrine of the “living Constitution,” led here by Justice Samuel Alito, agree that the use of a GPS device by the government constitutes a search and requires a warrant.

Scalia, writing for a majority of the Justices, observed that prosecutors had intruded upon Jones’ property in way that would have been a “trespass” under common law.

Prosecutors “physically occupied private property for the purpose of obtaining information,” Scalia wrote. “We have no doubt that such a physical intrusion would have been considered a ‘search’ within the meaning of the Fourth Amendment when it was adopted.” And for Scalia, that fact alone was enough to decide the case.

Alito, joined by three Justices who concurred in the result, used quite a different line of reasoning and sharply criticized Scalia’s majority opinion, saying that ironically, it relied upon 18th-century tort law to decide a case involving 21st-century technology.

“This holding, in my judgment, is unwise,” Alito wrote. “It strains the language of the Fourth Amendment; it has little if any support in current Fourth Amendment case law; and it is highly artificial.”

Instead, Alito wrote, he “would analyze the question presented in this case by asking whether [Jones’] reasonable expectations of privacy were violated by the long-term monitoring of the movements of the vehicle he drove.” Alito observed that for decades, the Court has invoked the concept of “reasonable expectations of privacy” in a number of cases to define the nature of a “search” under the Fourth Amendment and to expand the definition of “search” to actions that do not involve a trespass to someone’s property.

Even though Alito is often identified with the pro-prosecution, conservative wing of the Court, he took the defendant’s side in this case. As our blog post last November noted, at oral argument Alito expressed concern about how easy it is these days “to amass an enormous amount of information about people” by the use of today’s technology.

Alito’s opinion followed similar lines. In the absence of legislation about police use of GPS tracking, he wrote, “The best that we can do in this case is to apply existing Fourth Amendment doctrine and to ask whether the use of GPS tracking in a particular case involved a degree of intrusion that a reasonable person would not have anticipated.”

This is good news for constitutional rights and for defendants. Whatever approach one takes to the Fourth Amendment, it’s clear that prosecutors can’t attach a GPS to a suspect’s car without a warrant.

Death Penalty Overturned Because of Sleeping, Tweeting Jurors

Contrary to our prediction, the Arkansas Supreme Court has vacated the conviction and sentencing of capital-murder defendant Erickson Dimas-Martinez and remanded the case for a new trial on grounds of juror misconduct. Although the decision is a definite victory for defendants, it may well invite a flood of appeals based on allegations of misconduct, regardless of whether the defendant can demonstrate a reasonable possibility of prejudice.

In 2010, a jury sentenced Dimas-Martinez to death for the 2006 murder of 17-year old Derrick Jefferson. Dimas-Martinez appealed the conviction and sentence on grounds that he was denied a fair trial. Specifically, he claimed unfair prejudice due to one juror who slept through portions of expert testimony (the sleeping juror) and another juror who posted trial-related messages on Twitter in violation of the court’s jury instructions (the tweeting juror).

In December 2011, the Arkansas Supreme Court reversed the conviction and sentence. Speaking for the Court, Associate Justice Donald Corbin explained that, under Arkansas law, the moving party bears the burden of proving both jury misconduct and a reasonable possibility of prejudice resulting from the misconduct. Corbin noted further that the court will not presume prejudice based on misconduct; the moving party must show that the alleged misconduct prejudiced his chances for a fair trial.

Then, the court purportedly applied the test. First, the court found juror misconduct because of the sleeping juror. The court found a reasonable possibility of prejudice because the juror would have no way of knowing what testimony he had missed, how much of it he missed, and whether that evidence would have influenced his view of the case. Accordingly, the court reversed and remanded. Although the Court could have ended its analysis there, it proceeded to a discussion of the tweeting juror instead.

With respect to misconduct, the Court readily concluded that the tweeting juror had knowingly and repeatedly violated the judge’s explicit instruction not to tweet about the case. But the Court’s discussion of the next prong — reasonable possibility of resulting prejudice —simply conflated the second prong with the first. And considering the tweets, it is clear why: none of the juror’s tweets showed that he was more or less likely to decide the case based on the evidence.

For one, all the tweets referenced in the Court’s decision were sent during the sentencing phase. They could not have prejudiced the guilt phase. Additionally, the messages were fairly benign and did not expressly reference the case. For example, when all the evidence was submitted for sentencing, the juror tweeted, “Choices to be made. Hearts to be broken. We each define the great line.” During deliberations, he tweeted, “If its [sic] wisdom we seek . . . We should run to the strong tower.” After the jury reached its sentencing verdict, he tweeted, “Its [sic] over.”

The defense proffered no evidence that the juror received trial-related messages. Thus, the defendant had to argue that these outgoing messages resulted in a reasonable possibility of prejudice. The defense did so by claiming that the juror’s inability to follow jury instructions called into question his ability to follow the law. If Corbin’s standard of law is correct, though, the failure to follow instructions would not, by itself, raise a presumption of unfair prejudice. Without more, the defendant’s argument seemed bound to fail. It didn’t.

The Court found that the juror’s failure to comply with jury instructions raised a question as to whether he followed the law. This reasoning allowed the Court to sidestep a challenging explanation as to how the tweets may have resulted in unfair prejudice: it was the juror’s inability to follow instructions that deprived the defendant of a fair trial, not his tweets.

The distinction is so fine it even tripped up the court.  Corbin wrote: “It is in no way appropriate for a juror to state musings, thoughts, or other information about a case in such a public fashion.” When jurors do so, “[t]he possibility for prejudice is simply too high.” But if the court was concerned with prejudice resulting from the juror’s inability to follow instructions, why would any of this matter? Whether a juror tweets messages online or falls asleep during trial, it is the juror’s failure to follow jury instructions that shows his inability — whether intentional or inadvertent — to follow the law. Under the court’s new test, that alone is grounds for reversal.

We support the court’s decision to address the growing problem of Internet-related juror misconduct. Fortunately, the decision will cause trial judges to think long and hard before overlooking such misconduct. That said, we question whether the court’s rationale will stand the test of time. By eliding the distinction between juror misconduct and resulting prejudice, the court has drastically lowered the bar for obtaining reversal. It is difficult to conceive of any instance of juror misconduct that could not support reversal based on the rationale enunciated in Dimas-Martinez v. Arkansas. In the months ahead, the Arkansas Supreme Court will likely delimit the holding to stem the flood of appeals that will be filed in its wake.

Indictments of Megaupload Are a Greater Threat to Web Users Than Piracy

In last week’s Megaupload indictment, the U.S. government has raised the debate over copyright infringement on the Web to a whole new level – treating the operators of one of the most popular sites on the Internet as if they were part of organized crime.

On January 19, 2012, a federal grand jury in the Eastern District of Virginia charged executives, founders and employees of Megaupload.com, one of the leading file-hosting services on the Web, with copyright infringement, conspiracy to commit racketeering and money laundering. The U.S. Department of Justice is charging that Megaupload.com caused over $500 million in lost revenue from “pirated” content such as music and movies. In addition, the government seized Megaupload’s domain names and shut down all of its sites, contending that Megaupload is an organization dedicated to copyright infringement.

These actions, more suitable to the type of steps that the government takes against an organized-crime enterprise dedicated to murder, theft and racketeering, are astonishing. The government seems to have ignored the fact that other popular content-sharing sites have successfully defended themselves in civil cases by using the safe harbor provisions of the Digital Millennium Copyright Act, which provide immunity to a site that promptly takes down infringing content.

Among those charged in the indictment were Megaupload founders Kim Dotcom and Mathias Ortmann, chief marketing and sales officer Fin Batato, and lead programmer Bram Van der Kolk. All four were arrested in Auckland, New Zealand. On Monday, the Auckland district court denied bail, making way for extradition proceedings that will likely be contested. In addition to the arrests, approximately 20 search warrants have also been executed within the United States and in eight additional countries. The Eastern District of Virginia has called for the seizure of 18 domain names associated with the site, and about $50 million in assets and targeted sites have been seized thus far.

The indictment is riddled with inconsistencies. On the one hand, the government asserts that Megaupload is not entitled to use the safe harbor provisions. According to the government, everything on the site was doctored to create a veneer of legitimacy, while its employees knew full well that the site’s main use was to distribute infringing content. Yet the government readily admits that it has Megaupload emails talking about using U.S. courts and lawyers to file actions against other “pirate” sites and that the site did take down illegal content and build an abuse tool. To top it all off, many big-name artists support the site, as evidenced by an entirely legal video posted on YouTube, which Megaupload tried to save in U.S. courts from takedown requests.

The 72-page indictment is not some knee-jerk reaction to the ongoing protests of proposed misguided legislation that would strengthen protections against piracy at severe costs to the Internet. This action was clearly in the works for some time. But the filing of a criminal case against one of the most popular sites in the world is remarkable to say the least, given that other popular content-sharing sites have never faced criminal charges for allegedly facilitating piracy. Indeed, when these other sites have been targeted in well-financed civil cases, they have successfully asserted defenses.

When Viacom filed its lawsuit against YouTube in 2007 based on charges that YouTube and its parent, Google were engaging in “massive intentional copyright infringement,” the government did not arrest YouTube or Google executives. In fact, the U.S. District Court for the Southern District of New York held that YouTube was shielded from liability in that case by the safe harbor provisions.

Similarly, when IO Group, Inc. filed a complaint against Veoh Networks for copyright infringement, the U.S. District Court for the Northern District of California held that Veoh’s video-sharing website was entitled to the protection of the safe harbor provision. In both cases, U.S. courts recognized that simply providing access to content did not equate to engaging in infringing activities.

Megaupload, an online storage and web hosting service site, counts itself in the same category as YouTube and Veoh — merely acting as a hosting company that provides access to content. By invoking the full wrath of U.S. criminal laws, the government is using tools that were never meant for this situation – and is potentially doing incalculable harm to thousands of Internet users and to the integrity of the Web itself.

Online Protests Hit Hard Against Anti-Piracy Bills

Organized online protests over two bills in Congress targeting online copyright infringement — the House’s Stop Online Piracy Act (SOPA) and the Senate’s Protect Intellectual Property Act (PIPA) — seem to have crippled these bills’ progress and ended their chances of becoming law in their present form.

We have previously written about the protests mounting against the bills.

Just this week, high-profile protests cropped up all over the Internet. On January 18, Wikipedia shut down all English content on the site in protest; Reddit.com also went offline for the day; Google covered its homepage logo with a black box; and an estimated 10,000 smaller websites participated in some kind of protest over the bills.

Google’s online petition to Congress expressing opposition to the bills obtained over 7 million signatures in the United States in a very short period of time.

The bills’ supporters continue to argue that the legislation is important to protecting intellectual property. The bill would allow the Justice Department as well as private parties to seek court orders against foreign websites that steal content from American authors and would prohibit advertising networks and payment facilitators from doing business with the offending companies. The bills would also criminalize the streaming of restricted content, with a maximum penalty of five years in prison.

The bills enjoy strong support from organizations that rely on copyright protection, such as movie, music, and cable companies. The bills have also garnered the support of business groups such as the U.S. Chamber of Commerce. The Chamber estimates that American industry loses roughly $135 billion every year to online piracy.

The protests have been led by Internet businesses that argue the bills will lead to censorship of the Internet. Under SOPA, websites such as Facebook and YouTube could be found to be liable if they host infringing content. This would require these sites to police the content that users post, opponents say, and essentially have a censoring effect on the content.

Supporters of the bill stress that the bill is targeting activity that is already illegal and targets foreign websites that infringe on American copyrights.

Due to the protests, at least 13 lawmakers who co-sponsored the legislation have withdrawn their support. According to one media outlet, from the beginning of January 18 to the end of January 19, seventy members of Congress announced their new opposition to the bill.

The Senate has a procedural vote scheduled on January 24 on proceeding with PIPA. Senate leaders currently still plan to move forward with the vote, but it remains unclear if the bill has the 60 votes it needs to pass the procedural vote. Senate Minority Leader Mitch McConnell (R.-Ky.) has called for a delay of the bill because of “serious legal, policy, and operational concerns.”

In the event the bills were to make it out of Congress, President Obama might veto them, but he has not yet made a definitive statement that he intends to do so. The Obama administration did respond to a petition against the bill stating that it would not support legislation that could lead to Internet censorship or reduced Internet security.

Opponents of the current bills are looking toward another proposed bill, the Online Protection & Enforcement of Digital Trade Act, known as the OPEN Act, which takes a much narrower approach to copyright issues by trying to cut off the money that flows to foreign piracy sites.

The online protests have placed a major roadblock in the way of these bills. The bills’ potential to stifle speech and Internet entrepreneurship are too great and the strength of the online protests appear to have put Congress on notice that these bills in their current form should not go forward.