Will the MPAA Target RapidShare, Megaupload or Dropbox?

Hollywood opened up a new front in its war against piracy Tuesday by taking the Florida-based file host Hotfile.com to court. Hotfile facilitates copyright infringement “on a staggering scale,” the Motion Picture Association of America alleged, and “profits handsomely” from distributing unlicensed copies of major motion pictures and TV shows.

This is the first time the movie studios have taken a so-called one-click file host to court, and the legal arguments used in the lawsuit could spell trouble for sites like Megaupload and RapidShare, or even backup services like Dropbox.

Let’s examine the main arguments made against Hotfile, and how they could affect other services:

Direct download links. Hotfile offers its paying users the ability to directly link (“hotlink”) files hosted on the company’s servers, a feature which the service owes its name to. The complaint argues that through this feature Hotfile “directly sells access to, and copies of, hosted content, profiting directly from its reproduction and distribution,” and in fact does what Netflix (s NFLX) and Hulu do, just without a license.

Of course, many cloud storage providers also offer the ability to share direct download links, and companies like Mediafire have been using this feature as an upsell for their premium plans for years. One could even argue that traditional web hosting plans with metered bandwidth offer the exact same feature. Does that mean that every web host profits from the distribution of copyrighted works?

Public sharing. “Hotfile could immediately, with no effort, substantially mitigate the massive public distribution of copyrighted content by password-protecting the ability to download files,” the complaint argues. The fact that Hotfile allows public sharing is seen as proof that the company’s business model is based on infringement. Once again, bad news for any cloud backup or storage service that offers convenient ways to share files. No password for that Dropbox share? Then you must be infringing.

No search engine. “To conceal the scope of its infringement, Hotfile does not provide a searchable index of the files available for download from its website,” the complaint reads. This is a remarkable argument. File sharing services like Napster got in trouble because they offered a central, searchable index of files to download, and Hollywood went on to sue dozens of torrent sites offering search functionality. Now it’s apparently wrong to not offer search. Of course, one could easily argue that companies like Dropbox and Sugarsync also simply want to “conceal infringement” by not making their data available for public search.

Hotfile’s rewards system. Hotfile offers free file storage, but it restricts the amount of data a non-paying user can download. The company offers cash rewards to users whose files are downloaded frequently to get more people to sign up for its premium services. It’s a business model common with one-click file hosts. Megaupload, for example, offers users $1500 in cash if their files generate one million downloads. However, RapidShare eliminated its own rewards system last summer due to piracy concerns.

The rewards system put in place by Hotfile will likely play a big role in this lawsuit, should it go to court. However, some of the other claims made by the MPAA are more than troubling, and cloud storage companies should pay close attention to this case going forward. A legal precedent in this area could spell trouble not only for the RapidShares and Megauploads of this world, but also for a much wider array of cloud service providers.

Image courtesy (CC-BY-SA) of Flickr user tuchodi.

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