“I think Mega is using encryption not for the security of their users but their own personal legal protection,” Woodward added. “I cannot imagine anyone who understands encryption would trust their precious data to Mega’s scheme as it currently stands. It would appear that Mega is after people who are looking for somewhere to store their data with a provider who wishes to adopt a position of ‘see no evil’.”
According to Dotcom, Mega has a sophisticated encryption system which will allow users to encode their files before they upload them onto the site’s servers, which Dotcom says are located both in New Zealand and overseas…
As a result, the site’s operators would have no access to the files, which they say would strip them from any possible liability for knowingly enabling users to distribute copyright-infringing content.
Any allegation of copyright infringement against Mega would presumably be met with a response along the lines of “I see nothing!” due to Mega’s claimed (and self-imposed) inability to access the user-encrypted files.
But is it that simple to avoid prosecution for copyright infringement – by simply “seeing no evil”? In a word, no: though a lack of actual knowledge can make prosecution more difficult, a person may still be liable on the basis of constructive knowledge of infringing material. For example, section 36(a) of the Copyright Act 1994 states:
Copyright in a work is infringed by a person who, in New Zealand, other than pursuant to a copyright licence … possesses in the course of a business … an object that is, and that the person knows or has reason to believe is, an infringing copy of the work.
On the issue of constructive knowledge in copyright cases, Justice Smellie said in Husqvarna Forest & Garden Ltd v Bridon NZ Ltd  3 NZLR 215:
Constructive knowledge is appropriately imputed in other areas of law, if a party wilfully closes its eyes to the obvious or wilfully fails to make those inquiries that an honest and reasonable person in the circumstances would have made.
Thus, adopting a “see no evil” approach does not provide a free ride over copyright law.
In some cases the inability to access stored files will actually make it harder to gain protection from “safe harbour” provisions designed to protect service providers. In New Zealand, section 92C of the Copyright Act 1994 provide such safe harbour protection. However, this protection does not apply where the website:
… does not, as soon as possible after becoming aware of the infringing material, delete the material or prevent access to it.
This requirement does not apply only where the website has actual knowledge of copyright infringement; it also applies where there is “reason to believe” (i.e. the constructive knowledge test mentioned above) that there is copyright infringement. In either case if, having received a complaint, the website does not delete or prevent access to the allegedly infringing material, they will potentially lose the legal protection the section affords.
The new Mega has a top legal team behind it – it claims to have “the most legally scrutinsed business plan in start-up history”, and the old saying about Telecom being a law firm with a large IT department comes to mind – and to be clear Mega is not, to my knowledge, betting the legitimacy of its site solely on the “see no evil” basis described by some media. Lead adviser Ira Rothken makes the comparison with the early legal challenges mounted against the VCR, in which Hollywood studios claimed that VCR’s facilitated copyright infringement:
Rothken responds that many technologies have dual uses, but on balance provide more public good. That’s how the VCR stayed on the market, despite facilitating video piracy. The same argument applies to cloud computing as a whole, he says.
Rothken is referring to the famous decision in which the US Supreme Court ruled (5-4) that VCRs were lawful because even though they could be used to break the law, they had significant non-infringing uses. It is perhaps a stretch to apply that to cloud computing as a whole, but certainly an argument can be made. In New Zealand there is also the availability of section 92B of the Copyright Act, which states (in part):
Merely because [a person] uses the Internet services of the Internet service provider in infringing the copyright, the Internet service provider, without more, does not infringe the copyright in the work…
The scope of this section, and what “without more” means in each case (including in relation to relatively new legal scenarios such as Mega raises), are the key questions and ones on which international case law and evidence will likely be relevant.