Cash incentive payments are Dotcom's undoing

I've previously written that Megaupload's cash-incentive payments would loom large in Kim Dotocom and co's extradition case.

And so it proved yesterday as the Crown alleged one user of Mr Dotcom's file sharing service was paid more than $US50,000 as a reward for uploading files that proved popular with Megaupload members.

Files uploaded by user "H" – just one of many to take advantage of the cash-incentive rewards scheme – generated 1.2 million downloads between 2006 and 2011 (the expanded FBI evidence summary covers it in detail here).

The US Department of Justice, plus major Hollywood studios and multinational record labels, say most of the files covered by the cash-incentive scheme were copyrighted works and that Megaupload was rewarding piracy.

Megaupload discontinued the cash incentives a year before it was shut down in a January 20, 2012 raid but, as expected, the Crown is making hay from the scheme.

The cash rewards programme's five-year run undermines one of Mr Dotcom's most frequently used arguments; that Megaupload was no different from online file sharing services today run by Google, Microsoft, Apple, Dropbox and others, which all feature some degree of pirated material. He says Megaupload was more proactive in taking down offending material.

Mr Dotcom has also pointed out that YouTube gives uploaders of popular files a share of the Google Ad revenue generated by their clip. That could well be construed as an incentive programme. But to get a share of that Google Ad money, you have to be a trusted user. And if, in its vetting process, YouTube notices there is copyright-infringing music (for example, a zany wedding dance clip features a Taylor Swift soundtrack), the service then approaches the artist or rights-holder concerned and offers to either a) take the clip down or b) leave it up but cut them in on the revenue. Megaupload never gave a cent to an artist or rights holder when it generated an alleged $US175 million in membership fees and ad revenue generated around their material (Mr Dotcom also made some of his fortune from a series of porn sites including MegaPorn, but that's largely outside the scope of this trial).

On the anniversary of his arrest, Mr Dotcom told NBR that the cash-incentive programme was restricted to files of 100MB in size, or about a sixth of the size of even a standard definition movie. But that still leaves lots of scope for downloading pirated music, games and other files, or even a full high-definition movie split across several files.

Mr Dotcom has also styled Google as a giant piracy machine, saying it makes it easy to find copyright-breaching material, whereas Megaupload featured no search engine or other mechanism to help users find files stored by other members.

But the Crown has already focused on FBI evidence, gathered through intercepted Skype conversations, that the Megaupload crew worked with third parties to make offending content on Megaupload easily discoverable.

Mr Dotcom and co-accused Finn Batato, Bram van der Kolk and Mathias Ortmann also face money laundering and rackeetering charges.

In total, seven Megaupload staff were charged. One, programmer Programmer Andrus Nomm, voluntarily traveled from the Netherlands to the US in February, where plead guilty to felony copyright infringement and was sentenced to one year and one day in prison.