Kim Dotcom Launches Encrypted Cloud Storage Service

Kim Dotcom's new cloud storage venture, Mega, got off to an inauspicious start this weekend when a surge of visitors crashed the servers. Unfortunately for the Internet mogul -- as well as Mega's new users -- that glitch might only be the beginning of the problems with the initiative.

Dotcom launched Mega one year after U.S. agents raided his New Zealand home and shut down his previous cyberlocker service, Megaupload. Dotcom and other executives are still awaiting trial on criminal copyright infringement charges stemming from that defunct service -- though at this juncture it's not certain that the New Zealand authorities will order extradition to the U.S.

In the meantime, Dotcom forged ahead with Mega, a new service that allows users to store files in the cloud and also to share them with each other. Unlike Megaupload, Mega uses two-way encryption technology that prevents anyone -- Hollywood's investigators as well as Mega employees -- from opening the files without a key. Mega is even touting itself as "The Privacy Company" due to that unusual security feature.

But Mega's efforts to protect the files from outside eyes won't necessarily help the company in court, should people use the service to trade pirated movies or music. Ten years ago, a federal appeals court ruled that the peer-to-peer service Aimster couldn't avoid liability for users' copyright infringement by encrypting files.

In that case, the 7th Circuit Court of Appeals rejected Aimster's argument that it had no way of knowing whether users were infringing copyright. "Willful blindness is knowledge, in copyright law," the judges wrote. That ruling upheld a trial judge's order shutting down Aimster.

Despite that precedent, Mega still might be able to avoid liability by complying with provisions in the Digital Millennium Copyright Act, such as by removing files in response to complaints by content owners.

Of course, at this point there's no telling whether Mega will even be sued for copyright infringement, let alone whether it will be found liable. One of Megaupload's lawyers, Ira Rothken, tells Ars Technica the new service is legal for the same reasons as the cloud-based storage service Dropbox.

Still, it's safe to say that the Motion Picture Association of America will be watching the service and waiting to pounce, should it appear that people are using the platform to trade pirated videos.

Should that happen, Mega's users might find themselves out of luck. As Ars Technica points out, the 50 million users who relied on Megaupload's storage haven't been able to retrieve their files since the service was shut down. One, Kyle Goodwin, is suing in an attempt to reclaim the videos he shot and uploaded to the service, but his case is still in limbo.