The MPAA announced a milestone win against online file hosting service Hotfile, having convinced a U.S. Federal court that the service is liable for copyright infringement. Hotfile is one of dozens of such operations to be found on the web, often described as cloud storage services and cyberlockers. Many of these services have business models similar to that of Hotfile. Incorporated in Panama, Hotfile’s founder lives on US soil in Miami, which is thought to be the reason the company was targeted by the MPAA. (The founder was named in the lawsuit.)
File hosting services are quite common, and not necessarily evil. In fact, the trend in computing increasingly moves towards cloud storage and cloud computing, through services such as Apple iCloud, Google Drive, Microsoft SkyDrive, Dropbox, etc. Many of these services allow users to share files with others by simply sharing passwords and links – which can be quite convenient if the file is too large to email. The difference in services of this type is the amount of storage available, the cost of storage, maximum file size, and allowable frequency of uploads and downloads. Usually a limited degree of features are available for free, and users pay for enhanced access. The challenge presented by file hosting services to copyright holders is that the hosting service is the equivalent of a building owner that offers rental space for personal storage. If a tenant stores illegally copied DVDs in rented space, is the building owner guilty of copyright infringement? Some complicity has to exist.
The redacted transcript of the court order has yet to be released. However, judging by a published statement from Chris Dodd, MPAA CEO, it appears that the prosecution succeeded by proving that Hotfile’s business model is designed to encourage copyright infringement. Hotfile offers free accounts for file uploads and downloads, where a 400MB file size is imposed, and limits on the frequency of downloads are enforced. Premium accounts, which require paid subscriptions, allow for files up to 2GB in size, and remove the frequency limits for downloads. By itself, none of this leads to complicity in copyright infringement. It might be possible to prove complicity if a hosting site offered a search engine that revealed links to pirated content, but Hotfile does not offer a search engine for its site. It appears, though, that the MPAA’s approach was to prove complicity through Hotfile’s business model, focusing on Hotfile’s policy of paying premium users for each download by other subscribers, based on a formula that essentially shares the downloader’s subscription fee with the uploader. The more a file is downloaded, the more money the uploader makes, encouraging uploaders to share popular files, such as pirated movies. In turn, Hotfile profits by growing its subscriber base of downloaders. The challenge for the MPAA would have been to demonstrate that the vast majority of payers were downloading pirated content. More details will be known about the strength and breadth of the MPAA’s argument when the court releases the transcript.
The conviction of Hotfile will not stop file sharing per se. But it could have an important and significant impact on business models that encourage online sharing of pirated content. Assuming the conviction is upheld on appeal, the MPAA will likely use the US case as the basis for lawsuits against the many Hotfile look-alikes around the world.