Megaupload - MPAA

Contrary to recent media reports, the FBI did not arrest MegaUpload founder Kim DotCom after being pressured by managers at the four major record companies, who supposedly feared DotCom would launch an unlicensed music service, sources close to the investigation told CNET.

Numerous film and music industry sources have discussed some of the events that preceded the January 19 raid in New Zealand on DotCom's home. What becomes clear is that two years ago, when the FBI began investigating the cyberlocker service, the film studios were far more intent on taking down MegaUpload than their counterparts at the music labels.

In addition, records show that when the FBI began its investigation, MegaUpload had yet to approach the music labels about MegaBox. Meanwhile, over at the Motion Picture Association of America (MPAA), the trade group representing the six top Hollywood film studios, MegaUpload "was at the very top of the piracy pyramid," said Kevin Suh, the MPAA's senior vice president of content protection, in an interview this week with CNET.

DotCom, 38, remains in police custody pending the outcome of an extradition hearing expected later this month. He was arrested with three other MegaUpload managers after U.S. officials issued an indictment on January 5. The U.S. Department of Justice seeks to bring DotCom and six other MegaUpload employees to Virginia to answer charges of piracy, money laundering, and racketeering.

DotCom has denied wrongdoing and Ira Rothken, his U.S. attorney, says the government's case is badly flawed. DotCom is expected to fight extradition.

Neil MacBride, the U.S attorney for the Eastern District of Virginia, who filed the indictment against MegaUpload, declined to comment on what factors led to the MegaUpload investigation, but his office provided a statement about how the Justice Department works.

"In general, it is clear that the U.S. government receives referrals from all sorts of sources in criminal cases, including victims of crime," MacBride's office wrote. "We will investigate any referral containing significant and concrete evidence of criminal conduct. Intellectual property enforcement is no different."

Among the copyright owners who have accused MegaUpload of piracy, including software and video game companies, none of them presented the FBI with more "significant evidence" about MegaUpload than the MPAA, according to multiple sources.

The roots of the MPAA's involvement in the MegaUpload case can be traced back to the start of the investigation. MacBride's office said the FBI's probe began in March 2010. According to film industry sources, that was roughly the same period that the MPAA first referred MegaUpload and DotCom to law enforcement.

And the MPAA didn't just gripe. The trade group's antipiracy team turned over to FBI agents extensive information they had compiled about MegaUpload's operations and management, the sources said.

The Recording Industry Association of America (RIAA), the trade group for the four largest record labels, also spoke to the FBI about MegaUpload but provided little information outside of listing the pirated songs available on the site, sources said. At the time, the RIAA was much more focused on its court fight with file-sharing service LimeWire, which it eventually won. LimeWire was forced to shut down operations in 2010.

Hollywood had more motivation to try to get the federal government to crack down on MegaUpload, say film industry sources.

MegaUpload was for a period the 13th most-trafficked site on the Web. In the company's five-year history, it claims to have seen more than 1 billion visitors. The U.S. government alleges that the company banked more than $175 million in criminal proceeds and cost copyright owners more than $500 million in damages.

MegaUpload didn't do all that by offering songs and software, say studio insiders. They note that people across the globe flocked to MegaUpload because of the scores of free movies and TV shows available there. The film industry was much more invested in making sure the federal government did something about MegaUpload.