Megaupload: Will Anti-Piracy Efforts Have a "Chilling Effect" on Innovation?

ThePirateBay Dancing is one example of an innovation in "circumvention technology," or, for some, in piracy.

With the founder of Megaupload, Kim Dotcom, denied bail in a New Zealand court, it's a tough time to be in the file-sharing business.

As the wake from a multinational enforcement operation against Dotcom — who is also known as Kim Schmitz — ripples across the web, companies similar to his appear to be in a panic. People running "cyberlocker" sites, where people can upload files for themselves or others to download, are clearly rethinking the viability of their operations. But the consequences, both for innovation and Internet freedom, are potentially more broad. The Megaupload case has advocates for both of those things thinking it's time to become more actively involved in shaping the international maze of rules around copyright and intellectual property.

One of the key allegations in the indictment against Dotcom, his company, and his colleagues is that they used an affiliate rewards program — paying people who frequently uploaded material to the site for any other user to download — to encourage users to bring them copyrighted content for other people to use.

Torrentfreak reports that since the indictment, prominent file-sharing sites Filesonic and Fileserve have both ended affiliate rewards programs — and they are just the largest of a half-dozen names that are scaling back operations or shutting down entirely.

Retreating from a business practice that may be illegal is one thing. But even Megaupload had users who were putting the site's abilities to legitimate purposes. This type of attack on illegal activity is also wounding lawful users through collateral damage. As a result, they may have new implications for free speech.

"I definitely think it's a chilling effect," said Jason Schultz, an assistant clinical professor of law at U.C. Berkeley.

He suggested the definition of that phrase — "chilling effect," a freighted term used to imply that heavy-handed government action might unjustly intimidate people from engaging in First Amendment-protected speech — should be widened.

"I would say traditionally it's in a First Amendment context around speech, around what you would publish, but it's increasingly becoming relevant to the innovation context. What can you code? A lot of people consider code to be speech.

"If you are thinking about writing a new feature for a website or a service," he said later on in our conversation, "you might be chilled from launching it because it might draw the ire of other companies or the [Department of Justice] or some other site."

The charges against Megaupload already appear to be motivating similar companies to back away from their operations, but it may also discourage the next Sean Parker or even the next Jeff Bezos from developing a product that makes it easier to (lawfully) share content, Schultz suggests.

If there's anything to be learned from years of cat-and-mouse between law enforcement and people sharing content online, exactly the reverse has been true so far. In order to protest proposed anti-piracy legislation in the U.S., many programmers built applications to make it easier to avoid goods sold by supporters of the bills, to identify and contact lawmakers sponsoring them, and even to prove that the changes to the structure of the Internet proposed in the bills would ultimately prove futile.

As Schultz points out, legal attacks collapsed Napster, but that spawned Grokster, KaZaa and Limewire, decentralized peer-to-peer services. As these services were attacked globally, The Pirate Bay and other sites emerged to make BitTorrent, also used to distribute legitimate software updates, for example, more effective for spreading copyrighted content.

Limewire's planned redemption was to work with copyright holders to create an iTunes-esque music service, a platform for buying and sharing music all on the up-and-up. Before Limewire could reach a deal to go ahead with this, the separate legal action against it ended in judgments that dismantled the entire company. That's software the world will never see. The year after Limewire shut down, New York gave the world Turntable, and the European creation Spotify came to the United States. Both of those services are having their own negotiations with music copyright holders, too, but they're still around. (I'm listening to Jack Johnson by way of Spotify as I finish up this piece.)

Will the Megaupload case stifle innovation? If history is any guide, likely not. The question seems to be, will the coming round of laws, treaties and Internet regulations leave room for entrepreneurs' innovations, particularly the ones created by individuals and small companies, to be legal — and that's very much unclear as of now.