Megaupload Paid Prolific Pirates Thousands in Rewards, U.S. Says

In a rewards program that lasted five years, Megaupload paid out more than $3m to users who uploaded content the site. One of those was paid more than $50,000, despite having more than 1,200 takedown notices filed against his account, the U.S. claims. Countering, lawyers for Kim Dotcom says its unfair those users' identities are being kept secret

As the extradition hearing of Kim Dotcom and his former Megaupload colleagues enters a second week, a lawyer acting for the United States government has continued to make the case against the Internet entrepreneur and co-defendants Mathias Ortmann, Finn Batato and Bram van der Kolk

With Dotcom and friends due to have their right of reply later in proceedings, thus far media attention has been focused on a totally one-sided version of events. Today that pattern continued, with Christine Gordon QC focusing on the rewards scheme operated by Megaupload between 2006 and 2011

Just like YouTube does today, Megaupload rewarded users whose videos were downloaded thousands of times. However, the U.S. suggests that Dotcom and his colleagues were well aware that the users that brought the most traffic to the site – and earned the most in rewards – did so by uploading infringing content.

A user known only as “TH” is reported to have been paid more than $50,000 in rewards between 2006 and 2011, despite his sharing being in the spotlight of copyright holders

“So far TH has provided us 18 million download pageviews [and] US$112,257 premium sales to users who have downloaded at least 15 of his files,” Mathias Ortmann wrote to Kim Dotcom in 2007

However, the company also received a significant number of copyright complaints against “TH” – 1,200 in all – which were processed by Bram van der Kolk. According to the lawyer, Megaupload failed to terminate the user’s account, instead offering him additional server space. In a 2008, another conversation centered around whether infringers should continue to get paid.

“Growth is mainly based on infringement anyway,” Van der Kolk said via Skype

“What if we modulate our tolerance according to sales triggered?” Ortmann responded

According to NZHerald, 77% of Megaupload’s members had received at least one takedown notice against their accounts, with 56% receiving 10 or more. Even today, however, single strikes against user accounts are tolerated by YouTube, for example, while users of some of the main ISPs in the United States have amassed dozens of infringement notices without being terminated.

During the summer of 2011, Megaupload discontinued its rewards program, a move that proved unpopular with the site’s uploaders. According to U.S., Dotcom then took the opportunity to contact PayPal with complaints about his competitors who continued to “illegally” pay such bonuses to their users

“They pay everyone no matter if the files are pirated or not and they have NO repeat infringer policy, and they are using Paypal to pay infringers,” Dotcom wrote

In court today, Christine Gordon pointed out that Megaupload had run a similar program for more than half a decade

“They describe the payments as illegal but Megaupload had done that for six years,” she said

While Dotcom and associates will eventually enjoy a full right to reply, lawyer Ron Mansfield raised objections against the U.S. citing evidence from users such as “TH” who have allegedly provided evidence against Dotcom while being allowed to remain anonymous

“I’m just inquiring whether the US is prepared to identify the users so we are at least in the position of knowing who the users are and making some inquiry in relation to these conversations,” he said

“In my submission it’s unfair that the identities of relevant parties are being withheld”

Today’s evidence comes on the heels of revelations during last Friday’s session in which conversations between Mathias Ortmann and Bram van der Kolk suggested that the pair knew the company might get into trouble over rewards

“That’s the big flaw in the rewards program: we are making profit off more than 90 per cent infringing files,” Van der Kolk said

The hearing is expected to continue for another three weeks