Is the Case Against Megaupload Coming Apart?

Kim Dotcom Lashes Out Against "Corrupt" US Government ... The US judge handling the Megaupload case noted today that it may never be tried due to a procedural error, a comment that has sparked the anger of Megaupload's founder. Kim Dotcom is furious with the US Government for destroying his businesses and rendering hundreds of people unemployed. According to Dotcom the case is the result of "corruption on the highest political level, serving the interests of the copyright extremists in Hollywood." – TorrentFreak

Dominant Social Theme: This man, this four hundred pound criminal, deserves to be in jail for the rest of his life.

Free-Market Analysis: We along with many others questioned the original premise when this occurred. The US justice system – really, the West's – has increasingly imposed punishment before the crime is confirmed, and the shutdown of Megaupload was only the most recent example of this pernicious trend.

But maybe, as with so much else, a backlash is developing that may slow or even stop what has become business-as-usual for authorities. It could be that Megaupload and its boss, Kim Dotcom, were breaking all sorts of laws. But that is for a court to decide, presumably within a civil context.

Instead, the authorities, with the help of the New Zealand government, stormed Dotcom's mansion, threw the man in jail, confiscated his firm's bank accounts, scuttled a proposed IPO and even today continue to deny Dotcom and his colleagues funds either to restart the company or to properly defend themselves. Here's some more from the article:

Earlier today the news broke that a Megaupload trial may never happen because the US Government failed to serve the now defunct file-hosting company. While some defendants might respond with relief upon hearing such news, Megaupload founder Kim Dotcom is only becoming more furious at the people who destroyed his businesses.

"The US government has terminated Megaupload, Megavideo and 10 other subsidiaries, including a company called N1 Limited that was developing a clothing line," Dotcom told TorrentFreak. "They destroyed 220 jobs. Millions of legitimate Mega users have no access to their files."

If Judge O'Grady is to be believed all this damage could very well have been for nothing because the authorities simply can't serve foreign companies. This could lead one to wonder whether the whole setup was to simply destroy Mega's businesses.

This is certainly a theory Dotcom subscribes to, and it's not the only dirty trick Megaupload's founder believes the US Government is playing. The US is structurally denying Megaupload the chance to put up a fair fight.

What's Dotcom's response? "We have already been served a death sentence without trial and even if we are found 'not guilty' which we will, the damage can never be repaired," Dotcom says.

Dotcom believes the attack on Megaupload was a 'gift' to Hollywood, facilitated by corrupt forces. "This Mega takedown was possible because of corruption on the highest political level, serving the interests of the copyright extremists in Hollywood. Mega has become a re-election pawn."

Dotcom is confident that these forces will eventually be exposed, apparently, but as he himself acknowledges, the damage has already been done to Megaupload – and perhaps to the industry itself.

It was certainly Hollywood that took an adversarial stance toward companies like Megaupload to begin with. By providing electronic "lockers" that allow file sharing, Megaupload facilitated the trading of "copyrighted" products. Hollywood moguls estimate the damage runs into the hundreds of millions.

All this is highly speculative, however. It could be that the file sharing – which Megaupload execs claimed they could not control and were not responsible for – actually increased interest in certain films and ultimately boosted sales.

Nobody knows. And the possibility that the matter will be hashed out in court has been increasingly precluded by Dotcom's arrest and the shutdown of his company.

Of course, that's the point of the exercise according to Dotcom and his allies. The company was working on an alternative royalty scheme as well, that might have pried numerous recording artists lose from Hollywood and the big record company labels. That probably won't see the light of day either.

Meanwhile, other companies that provide sharing facilities for software and information are on notice now that they are responsible for the "crimes" of their clients.

The texture of the file-sharing industry will gradually change as a result, which may have been the point of the whole exercise. The idea is that whether or not it is fair, those who provide services are responsible for their clients' use of these services.

From a standpoint of free-market thinking this is a discouraging development, indeed. The more that governments pressure private enterprises into becoming agents of state policing, the less creativity and exuberance these facilities will show.

So many rules and the willingness to enforce criminal sanctions against trendsetters like Kim Doctom will surely have a chilling effect on entrepreneurship within the mainstream. Innovation will travel to the edges of the blogosphere now.

Conclusion: A gray market in technological innovations will develop instead of a mainstream one. Such innovations shall not be stopped but will go underground. Is that the plan?