When Kim Dotcom partied down at his ill-fated 38th amongst the exotic game and other toys at Xanadu Dot Com in New Zealand, he naturally invited his head of advertising sales, Finn Batato–which made the arrests that much more convenient.  Mr. Batato subsequently was allowed to post bail and is now awaiting extradition in New Zealand having been afforded a lot of time to think about it, relatively speaking.

Based on his job description, I would suggest that Mr. Batato is probably the most interesting of the bunch of defendants, at least if you want to understand the breadth and scope of the what the indictment calls the “Mega Conspiracy” and how far it goes outside of Megavideo.

Down to a Sunless Sea

I began thinking about this over the last few days when it became apparent that a new meme had surfaced with the Google surrogates.  (Watch how messaging later adopted by Google in its many legal scrapes begins to surface online and from which sources.  You will get an idea of who these people are.)

The new narrative is that shutting down Megavideo accomplished nothing to stop piracy so why bother?  It’s all just whack a mole after all so what justifies the law enforcement resources spent on extradicting the Mega Conspirators?  Yes, and if that’s true, how about that assault, battery, rape, murder, burglary and theft?  Talk about whack a mole!  What’s up with that!

So how would you know the utility of spending law enforcement resources (the cost) without also knowing the losses due to piracy on Megavideo (the absence of which would be a benefit)?  Trying to calculate lost sales inevitably makes for argument and can lead to people like the Government Accountability Office suggesting that policymakers should take into account the positive effects of crime in these calculations.  Yes, it’s true.

But another good way to calculate these losses might be with reference to how much someone else made off of the sale of stolen goods–in the case of copyright from the theft of the reproduction and distribution rights (or the making available rights) reserved to copyright owners.  This measurement would be at least a starting place for the number of infringing copies and at least someplace tangible to start a statutory damages calculation.  Because it is possible to calculate exactly how much adserving companies and the pirate customers made from trafficking in stolen property.  Particularly with a subpoena and a badge.

Ad-driven streams, torrents or downloads are, after all, frequently monetized on sites like Megavideo even though they are unauthorized.  Advertising on pirate sites is not what either the advertiser or the copyright owner bargained for or even wanted, but were monetized nonetheless.

And the good news is that most of that money was made through credit card accounts or advertising sales so are on some level trackable.  So as Google has suggested on numerous occasions–follow the money.

Following the Money

The Mega Conspiracy indictment tells us (at paragraph 18):

“Before any video can be viewed on Megavideo.com, the user must view an advertisement. Originally, the Mega Conspiracy had contracted with companies such as AdBrite, Inc., Google AdSense, and PartyGaming plc for advertising. Currently, the Conspiracy’s own advertising website, Megaclick.com, is used to set up advertising campaigns on all the Mega Sites. The high traffic volume on the Conspiracy websites allows the Conspiracy to charge advertisers up-front and at a higher rate than would be achieved bythe percentage-per-click methodology used by other popular Internet advertising companies. The popularity of the infringing content on the Mega Sites has generated more than $25 million in online advertising revenues for the Conspiracy.” (emphasis mine)

“Originally” in the case of Megavideo was about 2005.  The indictment also states that:

On or about May 17, 2007, a representative from Google AdSense, an Internet advertising company, sent an e-mail to DOTCOM entitled “Google AdSense Account Status.” In the e-mail, the representative stated that “[d]uring our most recent review [as opposed to earlier reviews?] of your site [Megaupload.com,]” Google AdSense specialists found “numerous pages” with links to, among other things, “copyrighted content,” and therefore Google AdSense “will no longer be able towork with you.” The e-mail contains links to specific examples of offending content located on Megaupload.com….

AdBrite, Inc. (AdBrite.com) is an online advertising network based in San Francisco, California. AdBrite, Inc. provides advertisements for over 100,000 Internet sites and is believed to be amongst the top ten advertising networks on the Internet. From on or aboutSeptember 2, 2005 until on or about May 24, 2008, AdBrite paid at least $840,000 to the MegaConspiracy for advertising….

PartyGaming plc is a company based in the United Kingdom that has operated PartyPoker.com since 2001. PartyPoker.com has more than 3 million visitors annually and is one of the largest online poker rooms. PartyGaming’s advertising contract with the members of the Mega Conspiracy was initiated on or about November 12, 2009 and has resulted in payments of more than $3,000,000 to the Conspiracy. This contract was still active as recently as on or about March 18, 2011.

These three supporters of Megavideo would on the surface have little to do with each other.  And maybe they don’t.  But never underestimate the interconnectedness and influence of Silicon Valley VCs and luminaries.  (If you ever doubted it before, you should not doubt it at all after the Google Spring which gave a handy roadmap for future use.)

For example, AdBright and Google are both Sequoia companies.  MTP readers will no doubt remember Partygaming–this is the company whose co-founder, Anurag Dikshit, made big contributions to Creative Commons through his Kusuma Trust charitable foundation, and also to the U.S. Treasury when he made a plea deal for $300 million after violating the online gambling laws of the United States.  (See Poker Money and the Ethics Professor)  The Kusuma Trust also funds the Centre for Internet and Society in India which looks remarkably similar to the Center for Internet and Society at Stanford–another Stanford operation founded by guess who and funded by–Google.  The common theme?  Guess who.  Does it prove anything?  Time will tell.

Of All the Cyberlockers in all the World, She Walks Into His

So you may well ask yourself, of all the companies in the world that might advertise on Megavideo, how is it exactly that the big one that helped get Megavideo in business was Partygaming?  What are the odds of that?  Probably better than 649,740 to 1, which the Poker Prof will no doubt recognize as the odds of being dealt a royal flush.  How in the world did Megavideo and Partygaming find each other?  Perhaps a handy introduction in furtherance of the enterprise?

Another strange coincidence is that even though it would appear that Google Adsense terminated at least one Megavideo account for copyright infringement in 2007–two full years after it appears from the indictment that Google, Adbright and Partygaming helped Megavideo get in business–there is documentation that Google was still serving advertising in connection with illegal content from Megavideo cyberlockers.  (See extensive research on this by Ellen Seidler at Popup Pirates.)

For the adserving companies, if AdBright paid $840,000 to the Mega Conspiracy as the indictment alleges, then Adbright pocketed a good chunk off those transactions itself–probably a like amount.  And continued to do so well after Adsense terminated at least the account that they were writing about as quoted in the indictment.

“And all should cry:  ‘Beware! Beware!'”

And this will always be true–the site operator arrested in Operation Fake Sweep allegedly had at least one Adsense account.  The TVShack operator currently being deported from the UK to stand trial in New York is alleged to have made £150,000 in advertising revenue from selling unauthorized copies of other people’s work.  Whatever these customers of adserving networks made, it is likely that the adserving network, such as Adsense in the case of Operation Fake Sweep or in the Mega Conspiracy, made a like amount.

So I can’t wait to hear the Googley legalistic explanations of how Google doesn’t profit from piracy.  (Unlike the way Google profited from violating the controlled substances laws.)

But one thing is certain–who knows what evil lurks in the hearts of adserving companies.

Only Finn Batato knows.