Digital Daredevil Behind Megaupload Has a New Venture

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AUCKLAND -- At 6:48 a.m. Sunday, the Internet tycoon Kim Dotcom opened his new file-storage Web site to the public -- one year to the minute after the police raided the mansion he rents in New Zealand.

The raid was part of a coordinated operation with the F.B.I. that also shut down Megaupload, the file-sharing business he had founded.

Mr. Dotcom faces charges in the United States of pirating copyrighted material and money laundering and is awaiting an extradition hearing in New Zealand. But on Sunday, his focus was on the new site, which was already straining under heavy traffic within two hours of its introduction. In the first 14 hours of the site's operation, more than half a million people registered to use it, Mr. Dotcom said.

"This should not be seen as the mocking of any government or Hollywood," Mr. Dotcom, 39, said Sunday at a news conference at the Auckland mansion. "This is us being innovators and executing our right to run a business."

The event marking the introduction of Mega, held at the same property that had been raided by the police, was designed to be a spectacle. As Mr. Dotcom addressed a large crowd of journalists and guests, actors dressed as armed police officers rappelled down the sloping roof of the main house and shouted that all those present would be detained. A helicopter emblazoned with "F.B.I." hovered overhead.

Mr. Dotcom, a German citizen and permanent resident of New Zealand who was born Kim Schmitz, was arrested Jan. 20, 2012. During the raid on his home that day, the police seized vehicles worth about 6 million New Zealand dollars, or $5 million, and froze about 11 million dollars in bank accounts, according to a news release issued at the time.

Over the past year, Mr. Dotcom has become an ever-prominent figure in New Zealand as the legal and political saga surrounding his case has played out in the public sphere.

In June, a High Court judge ruled that the police had used the wrong type of search warrants to enter Mr. Dotcom's property, meaning that the raid had been illegal. In September, Prime Minister John Key of New Zealand apologized to Mr. Dotcom after it was disclosed that the country's intelligence agency had acted illegally by spying on him, even though he holds a permanent resident's visa.

Mega, Mr. Dotcom's new Web site, is a file-storage and sharing system that encrypts files on one's computer before they are uploaded to the site's servers. Files can then be downloaded and decrypted. This means that files on Mega's servers cannot be read by anyone, including by the company itself, without the user's decryption key.

The allegation that Mr. Dotcom's previous venture, Megaupload, knew its users were illegally uploading copyrighted material -- and indeed sought to encourage the practice -- is a crucial part of the U.S. Department of Justice's indictment against the site and those who operated it.

In contrast, the new site appears to distance Mega intentionally from any legal responsibility for the content on its servers, although the terms and conditions of the site do explicitly forbid uploading copyrighted material.

"What he's trying to do is give himself a second-string argument," Charles Alexander, a lawyer in Sydney who specializes in intellectual property law, told The Associated Press. "'Even if I was wrong before, this one's all right because how can I control something if I don't know that it's there?"' he imagined the new company thinking. "I can understand the argument; whether it would be successful or not is another matter."

U.S. prosecutors declined to comment on the new site, The A.P. reported, referring only to a court document that cites promises Mr. Dotcom made while seeking bail, including one that he would not start a Megaupload-style business until the criminal case was resolved.

"Legally it's probably the most scrutinized Internet start-up in history," Mr. Dotcom said. "Every pixel on the site has been checked for, you know, all kinds of illegal -- potential legal challenges. We have a great team of very talented lawyers that are experts in intellectual property and Internet law, and they have worked together with us to create Mega."

The Motion Picture Association of America, which has filed complaints about alleged copyright infringement by Megaupload, told The A.P. that it was skeptical that Mr. Dotcom's new site was harmless. "We are still reviewing how this new project will operate, but we do know that Kim Dotcom has built his career and his fortune on stealing creative works," it said in a news release.

The Mega site offers 50 gigabytes of storage free; additional storage and bandwidth can be purchased at three tiers of monthly fees.

The service competes with online storage Web sites like Dropbox and Google Drive. Dropbox provides two gigabytes of storage free, although this can be increased to as much as 18 gigabytes by referring friends to sign up. Google Drive provides five gigabytes of storage free. The two sites offer more storage for a monthly fee, but Mega significantly undercuts them on price for the amount of storage offered.

The main difference in the product is Mega's encryption of uploaded files.

The encryption software is built by Mega and functions from within the Web browser. Mr Dotcom said it utilized new parts of the HTML5 programming language used to build Web pages. These aspects were introduced only nine months ago, he said.

"A year ago, this wouldn't have been possible," he said. "No one else who is currently in business in the cloud-storage arena can just update their site and be like us. You have to start from scratch."

Mega Limited has been registered as a New Zealand company since Nov. 29, 2012. Its directors are listed as Mr. Dotcom, Mathias Ortmann and Antonio Lentino.

Mr. Lentino, known as Tony, described himself at the company event Sunday as its interim chief executive. He lives in New Zealand and has a limited public profile, having appeared only in local news articles about rally car racing, a sport he enjoys. Mr. Dotcom said Mr. Lentino had helped him pay rent when he was in prison and was an investor in Mega, along with two other people, from Luxembourg and Australia.

He is listed as a director of 19 other companies that are registered in New Zealand, including Instra, a company that registers domain names and that is providing "product, billing and technical support services" to Mega, according to an Instra news release. Mr. Ortmann, the chief technical officer of Mega, also faces charges in the Megaupload case and was arrested a year ago.

Mega's shares are divided among three holding companies, including one that lists Mr. Dotcom's wife, Mona Dotcom, as its sole director and shareholder and holds more than 85 percent of Mega Limited's shares. Mr. Dotcom said he hoped to list Mega on the New Zealand stock market.

Despite the fanfare over the introduction Sunday and the initial response to the site, Mr. Dotcom still faces a series of legal battles over Megaupload in both New Zealand and the United States.

He has won several rulings in New Zealand in the year since the raid: Among them are his being granted bail and having some of his frozen assets released. The funds are meant to cover only his living expenses, however; the start-up costs for Mega have been covered by third-party investors.

Mr. Dotcom's extradition hearing has been postponed several times and is now scheduled for August. But some reports in the news have suggested that it could be years before the legal action is completed, or that it might never happen at all.

Mr. Dotcom said he was still angry about the raid but that he wanted its first anniversary be something "positive."

"We are still here. We are still breathing," he said. "Consider what has happened to us a year ago -- that is probably the least likely event that anyone would have expected."

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This article originally appeared in The New York Times.


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