R v Ortmann
[2023] NZHC 1504
•15 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2022-404-2394
[2023] NZHC 1504
THE KING v
MATHIAS ORTMANN BRAM VAN DER KOLK
Defendants
Hearing: 15 June 2023 Appearances:
DJ Boldt and FRJ Sinclair for the Crown
GM Illingworth KC and PJK Spring for the Defendants
Sentencing:
15 June 2023
SENTENCING NOTES OF FITZGERALD J
Solicitors: Crown Law, Wellington
Keegan Alexander, Auckland
To:G Illingworth KC, Auckland D Boldt, Wellington
R v ORTMANN [2023] NZHC 1504 [15 June 2023]
Introduction
[1] Mr Ortmann and Mr van der Kolk, you appear before me for sentencing having pleaded guilty to four charges arising out of your involvement in the establishment and operation of the online platform Megaupload Limited (Megaupload). You have each pleaded guilty to two charges of participating in an organised criminal group, which for the majority of the time Megaupload operated, had a maximum penalty of five years’ imprisonment.1 This was raised to a maximum of 10 years’ imprisonment for the last two years of Megaupload’s operations.2 You have also each pleaded guilty to a charge of conspiring to cause loss by deception,3 and to a charge of conspiring to dishonestly obtain documents,4 both of which carry a maximum penalty of seven years’ imprisonment.
[2] As many of those who are here present in Court today will be aware, you were arrested in early 2012, following the United States of America seeking your extradition under the extradition treaty with New Zealand.5 From 2012 to 2021, each of you, together with Mr Dotcom and one other, were the subject of extradition proceedings which progressed from the District Court through to the Supreme Court’s judgment delivered in November 2020,6 and then the Court of Appeal’s decision in 2021 dealing with residual matters arising from the Supreme Court judgment. Following those proceedings, which concluded that you were eligible for surrender, the United States’ request for your surrender for extradition passed to the Minister of Justice.
[3] Your counsel advises that following final resolution of the extradition proceedings, you offered to submit to a prosecution in New Zealand under New Zealand law, instead of exercising any further rights in relation to the extradition process. In short, I am told that after a number of months of negotiation, an agreement was reached pursuant to which the charges I have just mentioned would be laid against
1 Crimes Act 1961, s 98A.
2 Section 98A(1) was amended by the Crimes Amendment Act 2009, s 5.
3 Sections 310 and 240.
4 Sections 310 and 228.
5 Treaty on extradition between New Zealand and the United States of America 791 UNTS 253 (signed 12 January 1970, entered into force 8 December 1970). See also Extradition (United States of America) Order 1970.
6 Ortmann v United States of America [2020] NZSC 120, [2020] 1 NZLR 475 [Supreme Court extradition judgment].
you in New Zealand, you would plead guilty to them, the United States would no longer seek your extradition, and you would provide assistance to the United States’ authorities in relation to proceedings concerning Megaupload in that jurisdiction. As we have heard earlier today it is not in dispute that you have promptly and fully complied with all of your obligations to date under those arrangements.
[4] The Court has no visibility or knowledge of the arrangements which led to the charges on which I am sentencing you today being laid in this jurisdiction other than what I have just summarised. The only interest the Court has in this matter arises from the laying of the charges, and progressing those charges through to trial, or as matters have developed, through to sentencing in the ordinary way.
[5] It is also appropriate to note that despite whatever arrangements are in place between yourselves and, I presume, the United States Government, as will be evident from the submissions made today, the Crown and yourselves are a long way apart on many of the issues which I must determine in order to arrive at what I consider to be the appropriate sentence. Ultimately the Crown submits that your offending warrants a reasonably significant term of imprisonment, while your lawyers advocate for a sentence of home detention.
[6] Before turning to the appropriate sentence, it is first necessary to set out the factual basis for your offending. I have received significant volumes of materials in advance of this sentencing, including lengthy and detailed submissions from both parties, for which I am grateful. However, the fundamental basis for sentencing you today is the agreed summary of facts which sets out your agreed involvement in and operation of Megaupload. I will shortly go through those facts in a little detail. You and the lawyers here today are of course aware of all of these matters already, but sentencing is an inherently public process, and it is appropriate that the public are aware of the factual basis upon which I am sentencing you today.
[7] I make one final point before turning to that factual background. The agreed summary of facts makes many references to Mr Dotcom and what he is said to have known, intended or done in relation to Megaupload. It is perhaps obvious, but Mr Dotcom himself has not agreed to the summary of facts, given he is not a party to
these proceedings. Accordingly, I should just be clear that what I am about to say, including any references to Mr Dotcom, is what each of you say about his role and involvement in Megaupload.
Factual background
[8] By way of summary, Megaupload was started in 2005 to provide cloud storage and file sharing facilities. Users were able to create an individual account accessible by a secret password. Users would upload a file to their account, and that file would then be stored by Megaupload on its servers. Users would each be provided with a unique internet address, known as a Uniform Resource Locator (URL), which allowed them to access and download their file. The URLs could be shared with others, to allow third parties to view or download the files. I pause to note that 90 percent of registered users had never uploaded a file to Megaupload or Megavideo (an associated site focused on movies). Those sites were primarily used to view and download content.
[9] It is helpful to note at this point the concept of deduplication, as it becomes relevant to later aspects of these sentencing notes. If the exact same file content was uploaded by different users, only one copy of that file would be saved on Megaupload’s servers. This saved storage space on the servers. Second (and subsequent) users to upload that file would, however, be provided with their own unique URL. In this way, there could be a number of different URLs all “pointing” to the same underlying file.
[10] At the time Megaupload commenced operations, sending links was fairly novel, but it was a useful means of sharing files, especially of larger content. It also saved space on users’ own devices, as the files were stored on Megaupload’s servers. This basic structure was first developed by another internet service provider, RapidShare, then mimicked by Megaupload.
[11] Through this structure, the online platform enabled users to gain near unlimited access to digital content, including but not limited to, commercial movies, television shows, music recordings, video games and commercial software. It is not suggested that any of the process of uploading files, being allocated a URL or sharing those
URLs, itself breached any law. However, the agreed summary of facts records that the overwhelming majority of Megaupload’s traffic consisted of content which was first, protected by copyright, and second, made available to users in breach of the rights of copyright owners. You accept in the summary of facts that by operating Megaupload, you intended to obtain significant financial benefits from copyright infringement, to the detriment of copyright owners.
[12] The agreed summary of facts records that Megaupload caused financial harm to copyright owners estimated by the United States Department of Justice to be at least US$500,000,000. The agreed summary also records that that is a conservative estimate, given any higher figure would not materially affect sentencing in the United States. I again pause to note that while that figure is recorded in the agreed summary of facts as being an estimate by the United States Department of Justice, there is no agreement on the accuracy of the estimate, or the actual losses caused by Megaupload’s operations, or even a broad estimate of those losses. It is not in dispute, however, that it would be nigh on impossible to quantify the losses. Each of you accept, however, that your actions caused the rights of copyright owners to be breached on a mass scale. You accept that Megaupload received millions of takedown notices from copyright owners. You also accept that “significant harm” was done as a result of Megaupload’s activities.7 I return to the topic of the losses caused by your offending later in these sentencing notes, when discussing the scale of infringement involved and the harm caused to victims.
[13] Turning back to how Megaupload got started, Mr Ortmann, you and Mr Dotcom have known each other since around 1993. And Mr van der Kolk, you and Mr Dotcom have known each other since around 2004, when you were 21 years old. In 2005, Mr Dotcom and yourselves, and one other person, agreed to develop an online service. You intended that this service would compete with RapidShare, the other internet service provider I mentioned earlier. You knew that RapidShare made money from large scale copyright infringement. You accept in the summary of facts that you and Mr Dotcom intended to emulate RapidShare in this respect.
7 Submissions of counsel for defendants in respect of sentencing dated 9 June 2023 at [B6.2].
[14] Megaupload was registered in Hong Kong but its services could be accessed from almost anywhere in the world, including from New Zealand. The company leased servers in several countries, including the United States, Canada, France and the Netherlands. There were several websites associated with Megaupload, including Megavideo.com, which as noted earlier was created as a platform for viewing video content, and Megarotic.com, which provided a similar service for pornographic video material. All sites shared the same database, which was administered by you.
[15] In terms of roles at Megaupload, Mr Dotcom was its Chief Executive Officer and later its Chief Innovation Officer. He supervised the development of websites and companies associated with Megaupload. Mr Dotcom controlled all aspects of Megaupload’s operations. He closely monitored and directed the administration of the entire business. He took most of Megaupload’s income for himself, receiving approximately US$100 million.
[16] Mr Ortmann, you were the Chief Technical Officer for Megaupload. You oversaw the software programmers who developed the Megaupload sites. You also had the authority to distribute funds from some of Megaupload’s main financial accounts, and authorised payments for the uploader rewards scheme (which I will come to shortly), in accordance with Mr Dotcom’s directions and policies. You paid the yearly renewal fees for some of the Megaupload sites’ domain names, for example megavideo.com and megaupload.com. You were a 25 percent shareholder of Megaupload. You received approximately US$19 million from Megaupload.
[17] Mr van der Kolk, you were the programmer-in-charge for Megaupload. Under Mr Dotcom’s supervision and direction, you oversaw the software programming on the Mega sites. You helped administer the rewards scheme. You also had primary responsibility for removing content in response to takedown notices, in accordance with policies and processes set by Mr Dotcom. You were a 2.5 percent shareholder of Megaupload and received approximately US$3 million from it.
[18] You both accept that your technical knowledge was indispensable to the creation and growth of Megaupload. While Mr Dotcom ultimately determined matters of policy and direction, he lacked the practical expertise to carry his wishes into effect.
He relied on you to set up and run the technical infrastructure of Megaupload. You accept the offending would not have been possible without your involvement.
[19] You willingly played your part in the Megaupload business until it was terminated in 2012. Since its inception, and in accordance with Mr Dotcom’s wishes or on your own initiative, you evolved technical solutions that enabled copyright infringement to flourish on the Megaupload sites. Your roles were not, however, limited to designing and operating the business. Both of you, though agreed to be a lesser extent in the case of you Mr van der Kolk, were involved in portraying Megaupload as a legitimate cyber locker service.
[20] You also accept that you intended that Megaupload would present an appearance of legitimacy and compliance with copyright legislation, while making money from deliberate and systemic infringement of copyright. This involved “grooming” the appearance of the sites so that Megaupload’s reliance on copyright infringing content was concealed (which Mr Ortmann, you termed the “innocent front end”), while the great bulk of the traffic would be by “private back end access”, via URL’s circulated on the internet.
[21] Because you had set out to run a business that profited by copyright infringements, you anticipated from the beginning that you were at risk from legal action. For example, on 7 March 2009, Mr van der Kolk you observed to Mr Ortmann that “if copyright holders really knew how big our business is they would surely try to do something against it”, and “they have no idea that we are making millions in profit every month”. You also anticipated that, sooner or later, you would be the subject of legal action. You discussed amongst yourselves the possibility of facing legal problems and the fact that this risk was increasing over time. For example, in 2009, Mr Ortmann you and Mr Dotcom discussed how to respond when lawsuits were threatened, and you suggested “promise some kind of technical filtering crap and then never implement it”.
[22] I turn now to some of these matters in a little more detail which are relevant to the sentencing exercise.
Scale
[23] Megaupload claimed to have 50 million daily users, 180 million registered users and, at one time, to have commanded 4 percent of all internet traffic. Given you agree that this was a Megaupload claim, I proceed on the basis that it had a factual foundation to it. Other indicia of Megaupload’s scale is that Google analytics reports indicated that Megaupload and Megavideo each received about 1 billion visits in the three month period between November 2010 and February 2011.
Copyright infringement incentivised
[24] It will be evident from what I have said already that both of you knew that there were multiple Megaupload users who regularly infringed copyright. Despite this, however, you took no steps to suspend or cancel infringing users’ accounts. Instead, you and Mr Dotcom created a scheme which incentivised users to upload popular files and videos. Importantly, you both knew that, overwhelmingly, the uploaded content attracted in this manner comprised infringing copies of copyright protected works. Some conspicuous repeat infringers were the subject of thousands of takedown requests – in one case more than 300,000, but who was paid $5,500 under the rewards scheme.
[25] The rewards scheme operated from September 2005 until June 2011. It rewarded subscribers whose URL links were used in a high number of downloads by other users. The rewards comprised either money or subscription privileges. Both of you administered the rewards scheme, overseen and instructed by Mr Dotcom. Each of you accept that you knew that the scheme:
(a)encouraged copyright infringement; and
(b)was essential to business growth.
[26] For example, in January 2008, you, Mr van der Kolk, observed that it was counterproductive to disqualify any users from receiving payment “because growth is mainly based on infringement”.
[27] Some repeat infringers were familiar to yourselves and to Mr Dotcom, and you corresponded with them, followed their activities and analysed the traffic they brought to the business, and calculated the purchase of subscriptions related to their content.
[28] In the early days of the reward scheme, Mr Dotcom tried to reduce the expense of paying rewards by directing selective disqualification of reward claimants. This was occasionally justified to the users on the grounds that their portfolios contained copyright infringing content. Although payment might be denied on this basis, the copyright infringing content was not removed. Nor were users’ accounts finally terminated for reasons of repeated copyright infringement. This was purely an economic measure.
[29] In total, at least $3 million was paid as cash rewards under the scheme. The rewards scheme ended in June 2011 after the linking site kino.to was taken down and arrests made in Europe.
Avoiding detection
[30] Mr Dotcom and each of you also knew that the publicly accessible parts of the Megaupload sites had to be sanitised to disguise the availability of copyright infringing content. In other words, you knew it was necessary to deceive copyright owners about the volume of copyright infringing works on Megaupload. For example, Mr Dotcom directed that all video content longer than 10 minutes was automatically assigned “private” status. Further, instead of showing the top 100 most downloaded files, Mr Dotcom and each of you curated 100 non-infringing files for the Megaupload’s “Top 100” page.
[31] You wrote software to enable the mass copying of user generated video clips from the YouTube site, in breach of the copyright held by YouTube contributors. Together with Mr Dotcom, your intention in doing so was to display “user generated” content to make Megavideo look more “legit”. Mr van der Kolk, you expressed the hope that YouTube had not “implemented a fraud detection system”.
[32] Megaupload also practised other deceptions to conceal the true nature of its activities, and each of you had at least some involvement in this. For example, through
the Megavideo Abuse Desk, you Mr van der Kolk falsely represented to NBC Universal in 2008 that Megavideo was “one of the few online video communities that made it impossible to fraudulently host full length feature movies due to a human assisted automatic detection/deletion mechanism”. In December 2011, the United States Trade Representative included Megaupload in its notorious markets list. In response, on 5 January 2012, Mr van der Kolk, you falsely represented Megaupload’s repeat infringer policy and the suggested implementation of that policy.
[33]This leads me to the take down processes employed by Megaupload.
[34] Copyright owners were able to identify some infringing copies of their works by reference to the URLs that they had located on the internet. During the life of Megaupload, and as I noted earlier, the business received literally millions of takedown notices from copyright owners. Megaupload also provided certain copyright owners with access to what was referred to as an “Abuse Tool”. Instead of submitting takedown notices, this “direct delete” tool enabled copyright owners to enter URLs pointing to specific files, though subject to a daily limit.
[35] However, Megaupload did not advise Abuse Tool users and copyright owners when submitting takedown notices that, in cases of multiple copies of the same file having been uploaded and with the deduplication process I mentioned earlier, the company only removed the particular URLs identified by the copyright owners, and that relevant stored files continued to be hosted and made available through other URLs “pointing” at that file. You accept in the summary of facts that this was a deliberate ambiguity, and that Megaupload’s overall concealment of its inner workings gave the impression that infringing content had been removed when it had not. You accept that this was one of the key mechanisms which enabled Megaupload to disseminate infringing content freely, while falsely maintaining that it operated a robust and effective system to protect the interests of copyright owners. You accept that you knew, and intended, that your response to takedown notifications would have no material effect on preventing access to copyright infringing content on your sites.
[36] There is accordingly no dispute that each of you knew of the scale of copyright infringement on the Megaupload sites. This was evident from the number of takedown
notices and submissions to the Abuse Tool, the length of videos uploaded to sites, and in some cases, the names of files that had been uploaded and the high volume of traffic to them. Screening processes which you supervised focussed on the removal of pornographic content from Megavideo and removal of content that was illegal per se, such as child sex abuse material, but were not used to filter or remove copyright infringing content.
Monetising of content
[37] In various ways, you and Mr Dotcom sought to maximise the revenue created from traffic flowing to copyright infringing content. Advertising revenue was generated by ensuring your users had to view an advertisement before watching any video on Megavideo. Advertisements were also placed directly within videos including, inevitably, videos that were copyright infringing. You knew that each visit to a page that was associated with copyright infringing content and had advertising provided a monetary benefit to the business.
[38] In 2008, you calibrated the length of free viewing of material on Megavideo to a “sweet spot” at which a viewer became hooked on the commercial movie and would pay to continue watching. In September 2008, while discussing this innovation, Mr van der Kolk, you said to Mr Ortmann “I am looking forward to the first $1 million profit for the month”, and Mr Ortmann, you remarked “the concept is absolutely ingenious”. Later that month, Mr van der Kolk you asked Mr Ortmann “don’t you think copyright holders will now get extra pissed”, and during these discussions, Mr Ortmann you remarked “we did some things right” “we allowed fraud for a long time, fueling our growth”, “then we forced our own player, making us explode,” “and now we can capitalise on it”. You observed “let’s become the RapidShare of video”.
[39] From 2010, Megaupload adjusted its server arrangements to cope better with simultaneous traffic to the most popular files, leasing faster servers from Cogent Communications. While from a technical perspective, this was a response to meet demand from users, at the same time, you knew that the users accessing copyright infringing content was the primary source of Megaupload’s traffic. The FBI later analysed a sample of two Cogent servers leased by Megaupload, and determined that
on those servers, at least 90 percent of the files infringed copyright, and 43 percent of the files on the servers were already the subject of takedown notices. In 2009, you and Mr Dotcom also planned to distribute video content on Megavideo in high definition (HD), with you, Mr Ortmann, remarking “I just wonder what Warner Brothers will say when they see crystal clear BD rips instead of the usual blurry video”, and Mr van der Kolk, you replied “yeah will be even more pissed off”.
[40] Finally in this background section, from its inception to the financial year ending 2011, Megaupload acquired revenues of US$175 million from:
(a)selling advertising (approximately US$25 million); and
(b)selling subscriptions to users (approximately US$150 million).
Harm to victims
[41] I return now to harm to victims. This is a contentious topic. However, it is not in dispute that the victims of your offending are not limited to large corporate owners of copyright protected material. They include, for example, the numerous owners of the copied YouTube clips and smaller software developers and video producers. As an example of the latter, I have been provided with a victim impact statement from a Timaru-based computer software developer.
[42] In addition to that victim impact statement, I have been provided with a number of other statements from entities such as the Motion Picture Association (MPA) (whose members are the five major United States film studios);8 Autodesk Inc, a multi- national software corporation that makes software products and services for the architecture, engineering and similar industries; the Entertainment Software Association (ESA) (a US trade association which represents approximately 30 companies that publish interactive entertainment software for video game consoles and the like); the Recording Industry Association of America (RIAA) (the trade
8 Walt Disney Studios Motion Pictures, Paramount Pictures Corporation, Universal City Studios LLC, Columbia Pictures Industries Inc and Warner Brothers Entertainment Inc (and respective subsidiary companies and affiliates).
association which represents the United States recording industry); and Siemens Industry Software Inc.
[43] Before turning to the victim impact statements themselves, it is helpful to make some preliminary observations.
[44] First, I accept your lawyers’ submissions that it is not appropriate that the Court proceed for the purposes of sentencing on the basis of the losses estimated by the victims. You challenge the accuracy of the suggested losses. To illustrate the point, your lawyers have filed an expert statement from a Mr Marnus Beylefeld, who has conducted a literature review on the assessment of loss in copyright cases and online piracy, the overall thrust of his opinion being that the quantification of loss in such cases is much more complex than portrayed in the victim impact statements; that there are numerous hotly debated issues in the literature around the quantification of loss; and that it cannot simply be assumed, on the basis of a purported “common sense” approach, that copyright holders will have suffered losses in the billions of dollars as asserted by the Crown. This sentencing is obviously not the place or opportunity for me to conduct a detailed assessment of such matters. I repeat the point made earlier, however, namely that both parties accept that an accurate assessment or estimate of loss in cases such as this is almost impossible. That is a point also made by the courts of England and Wales in a number of significant copyright fraud cases.9
[45] Further, your lawyers challenge the proposition or assumption that large numbers of Megaupload users would have purchased legal copies of copyright works if Megaupload had not been offering its services. That any such assumption may not be valid was accepted by the English Court of Appeal in a case called R v Evans, in which the Court recorded the parties’ agreed position that an estimate of losses based on royalties due per download was more “notional than real”, given “by no means everybody who downloaded tracks via the appellants’ website would have downloaded those tracks via legitimate means had they not been obtainable through them.”10
9 See, for example, R v Evans [2017] EWCA Crim 139, [2018] 4 WLR 140 at [19] and [22]; R v Vickerman Newcastle Upon Tyne Crown Court, indictment No T2009 7188, 14 August 2012.
10 R v Evans, above n 9, at [10].
[46] Accordingly, while it is perfectly acceptable for a victim to include information in their victim impact statement about loss or damage suffered by them as a result of the offending (being one of the matters expressly recognised by the Victims’ Rights Act 2002 as being properly included in a statement),11 it is another matter to sentence on the basis of those stated losses when they are in dispute. The Court of Appeal has observed that when disputed matters are included in a victim impact statement, and the Crown considers that they are relevant to sentencing, they should be inserted into the agreed summary of facts, and if not able to be agreed, a disputed fact hearing ought to be held.12
[47] Your lawyers also raise scope and admissibility issues in relation to some aspects of the victim impact statements. The purpose and scope of victim impact statements is prescribed by the Victims’ Rights Act 2002, being to enable the victim to provide information about the effects of the offending on them, to assist the Court in understanding the victim’s views about the offending and to inform the offender about the impact of the offending from the victim’s perspective.13 Unfortunately, all too often information is included in victim impact statements which strays outside these parameters. I consider that to be so in relation to at least some aspects of the victim impact statements put before the Court in this case.14 For example, the victims purport to describe and give views on Megaupload’s operations and position in the market of infringing behaviour. Specific examples include the suggestion by the Crown that Megaupload was “clearly the largest, most sophisticated and most damaging rogue cyberlocker in the world”, or that “Megaupload was by far the worst infringer”, factual matters which do not form part of the agreed summary of facts but which instead appear to derive from the MPA and RIAA victim impact statements. I do not know if those assessments are correct. Megaupload was clearly operating on a massive scale, but whether it was the very worst type of offender is not recorded in the agreed summary.
11 Victims’ Rights Act 2002, s 17.
12 R v Patterson [2008] NZCA 75 at [28].
13 Victims’ Rights Act, s 17AB.
14 Your lawyers note that some aspects of the victim impact statements include evidence provided to the District Court in the prior extradition proceedings, and references to the superseding indictment under which you were charged in the United States. They submit that this is objectionable as it is not information that comes from the victims, nor is it information about relevant victims’ views of the offending.
[48] Another matter raised on your behalf is that some of the victims describe the effects on them of your offending by reference to information they have been given by the US authorities, such as the number of downloads of their copyrighted files from the Megaupload sites. Your lawyers say that these statements are hearsay or as you heard Mr Illingworth KC say earlier today, sometimes “double hearsay”. I am not so troubled by these aspects of the victim impact statements. It is questionable whether the Evidence Act 2006 applies to victim impact statements.15 Section 22B of the Victims’ Rights Act provides that in determining the weight to be given to a victim impact statement, the Court have regard to whether the statement has been verified, the date of any such verification, and any other matters the Court considers may properly be taken into account. If a strict evidential ruler was to be run over victim impact statements, many statements would no doubt lose much of their content. The source of information upon which a victim assesses the nature and type of harm caused to them is, however, a matter that can be taken into account when ascribing weight to the victim’s views.
[49] It is now appropriate to address some of the content of the victim impact statements. Despite the points I have just made about them, there is no doubt that the entities I have referred to are victims of your offending. Accordingly, while it is not appropriate that I sentence you today on the basis of the dollar amounts referred to in their statements, they nevertheless represent the victims’ own views and they are entitled to be heard on them. In addition, the fact that many of the victims are multinational or large corporations does not undermine their role as a victim and their rights at a sentencing hearing in New Zealand.
[50] Autodesk Inc says that it received data from the United States Department of Justice which showed that approximately 132,000 downloads of its copyrighted products on Megaupload occurred over the period 2006 to 2008. Autodesk says that those downloads had an estimated retail value of approximately US$425 million. Autodesk confirms that it did not give authorisation to you or anyone else associated with Megaupload to reproduce or distribute any of those products. The Siemens’ victim impact statement is to a similar effect, referring to unlawful downloads from
15 Evidence Act 2006, s 5.
Megaupload of its copyrighted software with a retail price of approximately US$75 million.
[51] The ESA acknowledges that Megaupload was not the only platform which allowed the unlawful distribution of gaming software, but, at least in the ESA’s opinion, was “undoubtedly the largest”. The ESA says that during 2011, it found over
1.5 million posted Megaupload URLs that could be used to initiate unauthorised downloads of copyrighted video game content. The ESA says that it caused “potential losses” in the hundreds of millions of dollars. More broadly, the ESA states:
When video games are illegally copied, the video gaming industry – and the broader economy – experience a negative ripple effect. Developers and publishers become less likely to see their systems and content become a commercial success. This leads, at a minimum to fewer incentives to create, and a less vibrant gaming scene.
[52] The RIAA represents member companies which create, manufacture and distribute approximately 85 percent of all legitimate sound recordings produced and sold in the United States.16 The RIAA acknowledges that it is impossible to measure the full extent of the harm caused by Megaupload, but expresses the opinion that, on the basis of the information provided to it by the United States Department of Justice, the volume of piracy of copyrighted works is “staggering”. The RIAA states that the music industry sustained a large industry wide decline in revenues in the 2000s as the sale of physical media, like CDs, collapsed in the face of freely available pirated content on Megaupload and other pirate sites. It suggests that overall, US recorded music revenues fell from over $14 billion in 2000 to around $7 billion in 2012 as new digital music services licensed by labels were forced to compete with unlicensed websites dealing in free music. The RIAA is clear, however, that it does not suggest Megaupload was solely responsible for this suggested decline, but given Megaupload’s scale, the RIAA considers it contributed substantially to it. The RIAA also comments on the time and effort wasted by its members over a period of several years seeking to protect against the unauthorised distribution of their copyrighted sound recordings through the Megaupload takedown system and Abuse Tool.
16 Members include Sony Music, Universal Music and Warner Music.
[53] Based on publications as to the cost of online piracy, the RIAA says that the United States recording industry lost more than $5.33 billion per year when Megaupload was in business (though again I note the RIAA does not ascribe all of this to Megaupload). The RIAA also refers to a study that suggests that unauthorised downloading reduces sales of legitimate music by 10 to 20 percent (though I note Mr Beylefeld refers to statements made in the same study as to its small sample size and that it is not to be taken as representative). The RIAA also refers to United States federal law, which entitles plaintiffs in civil copyright infringement cases to choose statutory damages in lieu of having to prove actual damages (given the difficulties involved). The RIAA suggests that given the huge volume of RIAA member company copyrighted works on Megaupload, its member companies would be entitled to a damages award of hundreds of millions or even billions of dollars under the US statutory damages regime.
[54] The MPA makes similar points. It states that according to one study (which Mr Beylefeld suggests in his report is an outlier from most other studies), that the shutdown of Megaupload led to a 7 to 10 percent increase in online movie sales and a 4 to 7 percent increase on online movie units rented. The MPA also says that Megaupload displaced MPA members’ theatrical sales by releasing illegal copies of highly anticipated films prior to their theatrical release. As an indication of the scale of the harm caused to its members, the MPA states that over a four year period alone, Universal sent over 1.2 million takedown notices to Megaupload and Megavideo, and that Disney sent Megavideo and Megaupload nearly 30,000 takedown notices between April 2011 and January 2012 alone. The MPA states that given what it describes as the enormous scale of the Megaupload service, it conservatively estimates that Megaupload infringed thousands of MPA member-owned works during its operation.
[55] I have already referenced a New Zealand based victim. While noting that Megaupload was not the only online site pirating his software, he says that he submitted at least 10 to 20 takedown requests to Megaupload after he had noticed a decline in sales of his software towards the end of 2009, and finding pirated versions were being made available to him on the internet. The victim notes that infringing copies of his software remained active on Megaupload after takedown requests were made, with the result that what he found to be a very time consuming process of putting
in takedown notices was a waste of his time. He states that piracy reduced his income to such an extent that it was no longer viable for him to work full-time on his software business, and while his product still yields a modest income, he was forced to take other jobs. The victim responsibly notes that he cannot quantify how much Megaupload in particular contributed to the piracy problems he experienced.
Approach to sentencing
[56] Having set out that background, I now turn to the appropriate approach to sentencing. The sentencing purposes which are particularly relevant in this case are to hold you accountable for your offending,17 to denounce the conduct in which you were involved, 18 and to deter others from committing the same or similar offences.19 The Court of Appeal, in a serious fraud case called (Leonard John) Ross v R, emphasised that it is essential the courts denounce fraud offending to endeavour to deter others from committing similar offences.20 The Courts of England and Wales, before which there are more examples of prosecutions for serious fraud offending involving copyright infringement, make the same point. For example the Court of Appeal of England and Wales in a 2017 case called R v Evans said:21
… illegal downloading and distribution is very often difficult to investigate and detect. It can give rise to serious problems and losses (none the less real for not being readily quantifiable) to the music and entertainment industry. Deterrent sentencing in such a context is appropriate.
[57] In terms of sentencing principles, I must take into account the gravity of your offending and the degree of your culpability,22 and the seriousness of the type of offences to which you have pleaded guilty in comparison with other types of offences (as indicated by the maximum penalties prescribed for the offences).23 I must impose the maximum penalty prescribed if the offending is within the most serious of cases for which the penalty is prescribed, unless the circumstances relating to the offender
17 Sentencing Act 2002, s 7(1)(a).
18 Section 7(1)(e).
19 Section 7(1)(f).
20 Ross v R [2019] NZCA 455 at [60].
21 R v Evans, above n 9, at [22(1)].
22 Sentencing Act, s 8(a)
23 Section 8(b).
make that inappropriate.24 I must also impose the least restrictive outcome that is appropriate in these circumstances.25
[58] As you may be aware, the first task in the sentencing exercise is to set what is referred to as a “starting point” which reflects the culpability of your offending.
[59] Having set the starting point, I will then turn to personal factors relating to you, to determine whether they mean the starting point should be adjusted upwards or downwards.
Starting point
[60] In assessing the starting point, there is a dispute between the lawyers as to the appropriate sentencing structure and in particular, whether the conspiracy to commit fraud charges or the organised criminal group charges should form the lead charges. There is also a dispute as to whether a cumulative approach to sentencing is available or appropriate. The Crown’s overall approach suggests a starting point of around 12 and a half years, while your lawyers advocate for a starting point of up to seven years for you Mr Ortmann, and five years for you Mr van der Kolk.
[61] I have decided that it is appropriate to take the conspiracy to commit fraud charges (which going forward, I will refer to as simply the “fraud charges”) as the lead offences for sentencing purposes. There are a number of factors that have led me to this conclusion. Principally, the fraud charges are more directed to the actual offending in this case, which was an agreement to commit fraud in the manner encapsulated by the two different fraud charges to which you have pleaded guilty. Consistent with this, English cases of large scale copyright offending are routinely charged by way of the common law offence of conspiracy to defraud. The organised criminal group charges are also more generic and can obviously capture criminal offending of any nature, including serious violence and sophisticated drug offending. In addition, until December 2009, the fraud charges carried the higher maximum penalty. While the maximum penalty for participation in an organised criminal group
24 Section 8(c).
25 Section 8(g).
increased to 10 years in December 2009, that was very much in the latter stages of Megaupload’s operation.
[62] If a cumulative approach is taken to the two fraud charges, a maximum penalty of 14 years’ imprisonment is available to the Court. The Crown urges me to adopt a cumulative approach. It submits that the conduct underpinning the two fraud charges is not the same, and indeed is reflective of two separate aspects of your offending, albeit both directed to the creation and ongoing operation of the Megaupload enterprise more generally. The Crown submits that the obtaining, retention and dissemination of copyright infringing materials, and knowing this to be the case, is captured by the s 228 fraud charge, while the active deception of the scale of the copyright infringement, including the Top 100, and the setting up and operation of the takedown and Abuse Tool process, is more appropriately captured by the s 240 fraud charge.
[63] On the other hand, your lawyers submit that the underlying conduct captured by the two fraud charges very largely overlaps, in that the s 228 charge reflects the gains accruing to you, while the s 240 charge reflects the harm to copyright holders; and thus the two are really “two sides of the same coin”. Further, counsel submit that the conduct captured by the fraud charges is also entirely subsumed within the organised criminal group charges. On this basis, your lawyers submit that a concurrent approach to sentencing is appropriate, and that to engage in cumulative sentences would offend against the principle that an offender must not be punished twice for the same offence.26
[64] Cumulative sentences in multiple offence cases can be appropriate, no matter how closely related the specific charges are, if concurrent sentences do not adequately reflect the totality of the offending. Section 84 of the Sentencing Act 2002, addressing concurrent and cumulative sentences, is expressly a “guideline” only and addresses when concurrent and cumulative sentences will “generally” be appropriate. The important and overriding point is that the total sentence must represent the overall criminality of the offending and the offender. How the sentence is made up is not
26 New Zealand Bill of Rights Act 1990, s 26(2); Crimes Act, s 10(4).
really important. This was a point made quite clearly by the Court of Appeal in a leading case called R v Xie.27
[65] Examples of cumulative sentencing can be seen in some of the fraud cases to which I have been referred. A cumulative approach was taken in the Ross Asset Management Ponzi scheme case, where cumulative sentences, adjusted for totality, were imposed for offences of false accounting28 and theft by a person in a special relationship.29 This was despite the obvious and close connection between the false accounting offences which was the vehicle by which Mr Ross committed theft by a person in a special relationship. A similar approach was taken in a case called R v Swann.30 In that case, there were three representative charges of fraud, each carrying a maximum terms of seven years’ imprisonment. The sentencing Judge noted that that meant there was a potential maximum sentence of 21 years’ imprisonment. Despite acknowledging that the charges in that case would ordinarily attract concurrent sentences, the Judge concluded that a final sentence within the maximum statutory penalty of seven years’ imprisonment was inadequate to reflect the totality of Mr Swann’s offending, and adopted a cumulative approach.31
[66] Based on the guidance provided by cases such as R v Xie, I consider that a cumulative approach to sentencing is available in this case. Further and in any event, while I accept there is some connection or overlap between the conduct captured by the two fraud charges, I am not persuaded that the overlap is as large as your lawyers suggest. It is correct that the s 228 charge reflects your pecuniary gain, and that the s 240 charge reflects losses caused to copyright holders. But for the reasons given by counsel for the Crown, I am satisfied that there are nevertheless distinct aspects to the offending captured by the two fraud charges, despite both conspiracies being directed
27 R v Xie [2007] 2 NZLR 240 (CA), (2006) 22 CRNZ 949.
28 Crimes Act, s 260.
29 Section 220.
30 R v Swann HC Dunedin CRI-2007-012-004181, 11 March 2009.
31 See also Cameron v R [2016] NZCA 48, (2016) 27 CRNZ 700 at [169], which concerned the importation and sale of controlled drugs, in which the Court of Appeal stated “We accept that some of the personal liability in relation to the importing charges is repeated in the sale charges. However, they are separate offences. The approach of the Judge was to reflect the position by adopting cumulative starting points but with reduced starting points for the supply charge. That approach cannot be faulted particularly in context. The appellants were running a business with two separate aspects, that is, importation and sale.” See also R v Douglas [2012] NZHC 2271 at [105]; R (SFO) v Robinson [2015] NZHC 1673 at [24]–[26].
to the overall operation of Megaupload. This is also consistent with the Supreme Court’s consideration of the two fraud charges and the conduct captured by each in its extradition decision.32
[67] Turning then to the assessment of culpability, there is no guideline or tariff judgment for sentencing in fraud cases. But the Court of Appeal in a case called R v Varjan said the following about the assessment of culpability in fraud cases:33
Culpability is to be assessed by reference to the circumstances and such factors as to the nature of the offending, its magnitude and sophistication; the type, circumstances and number of the victims; the motivation for the offending; the amounts involved; the losses; the period over which the offending occurred; the seriousness of breaches of trust involved; and the impact on victims.
[68] The nature of the underlying offending in this case is of course conspiracy to commit fraud in relation to copyright infringement. That such conduct amounts to criminal offending, at least in this jurisdiction, is perhaps not so obvious or overtly “criminal” as other types of fraud offending, such as outright forgery, theft and the like, a point emphasised by Mr Illingworth. I also acknowledge the point made by Mr Illingworth that unlike other frauds that involve, for example, theft, copyright infringement involves a more complex interference with a copyright holder’s statutory rights; for example, it does not involve the assumption of physical control over the copyright; nor does it wholly deprive the owner of its use.34 But I think it would be wrong to consider this means it is significantly less serious offending as a result. Copyright protection is an important aspect of the law which has existed for centuries, and has obvious and clear benefits, by encouraging the development of bodies of works which contribute in vast ways to the wellbeing of society. Further, the summary of facts confirms that you knew what Megaupload was doing was inherently wrong, that it was unlawful, and that it needed to be disguised as a result. And as Mr Boldt emphasised, the offences to which you have pleaded are fraud offences inherently based on dishonesty and deception.
32 Supreme Court extradition judgment, above n 6, at [457]–[463], and [485]–[487].
33 R v Varjan CA97/03, 26 June 2003 at [22].
34 Dowling v United States of America 473 US 207 (1985) at 216–217.
[69] It is inescapable that the magnitude and sophistication of the offending in this case is very high. There was a great deal of planning and structuring of Megaupload’s operations, including to encourage what was known to be copyright infringement, and to present a false “innocent front end”. This was not spur of the moment or opportunism.
[70] The type, circumstances and number of the victims is also an aggravating factor. I accept that at least the more obvious victims, in terms of large US corporate entities, are not vulnerable in the same sense as some victims seen in the cases, for example elderly investors in the Ross Asset Management Ponzi scheme. Nevertheless, it would be wrong to equate the victims in cases of this kind only to large corporate enterprises. The victim impact statement from the person in Timaru attests to that, and it is fair to assume that there will be very many more victims of that nature. Further, as the English cases have observed, copyright offending carries with it both financial and broader societal harm
[71] In terms of the motivation for the offending, plainly financial gain was at the heart of this, and you obtained relatively significant sums from your involvement in Megaupload, particularly you, Mr Ortmann. I also accept, however, that in the context of your own particular abilities and fascination with matters such as coding and the internet, there was also a degree of excitement and challenge at being at the frontier of ISPs such as Megaupload, operating “at the boundary”,35 and looking to emulate and then rival other ISPs such as RapidShare. That does not overshadow, however, what is abundantly clear from the summary of facts, that you knew from the outset that a very significant plank to the Megaupload business involved copyright infringement. Accordingly, no matter how exciting or absorbing this type of work and enterprise was from your own personal perspectives, you each knew very well that what you were facilitating was wrong and at the very least, against the law in a civil sense.
[72] The period over which your offending extended was lengthy, from the establishment of Megaupload in 2005 until it ceased to operate in very early 2012.
35 See psychiatric report for Mr van der Kolk, at [35]–[36].
[73] I accept your lawyers’ submission that unlike in some of the fraud cases to which I will refer to shortly, there was no direct or egregious breaches of trust involved. This is not a case, for example, such as the Ross Asset Management Ponzi scheme of a financial advisor committing fraud on his customers over many years, or a valued employee fraudulently siphoning money from their employer.
[74] Finally, in terms of impact on the victims, I have already addressed that there is undoubtedly a high impact in this case. In reality, while it is very difficult to assess the losses involved, there is no doubt in my view that very significant losses were caused to the victims, and that it would be quite unrealistic not to accept that this runs into the millions, possibly hundreds of millions, and it is highly likely to eclipse the losses involved in most of the cases to which I have been referred. I make the point, however, emphasised by Mr Illingworth this afternoon, that the losses, or potential losses, involved are only one factor in the culpability assessment, and should not overshadow all of the other circumstances that the Court must assess.
[75]Based on all of these factors, in my view, your culpability is assessed as high.36
[76] I turn now to comparable cases to which I have been referred. These are New Zealand cases involving serious fraud offending, New Zealand infringing copyright offending and copyright offending in the UK cases. I say at the outset that the New Zealand copyright infringement cases are not of any particular assistance, reflecting for example, selling bootleg copies of music CDs at a market, and therefore I put those cases to one side.37
[77] The earliest authority that I have been referred to is R v Rose, a Crown appeal in relation to the respondent who was a young and promising executive who, at 29, became the company secretary of Dairy Containers Limited, a subsidiary of the Dairy Board. He had a key role in the frauds perpetrated against his employer, personally obtaining just under $2.7 million. He made whatever reparation he could. The Court
36 This is also consistent with the United Kingdom Sentencing Council Guidelines “Fraud, Bribery and Money Laundering Offences: Definitive Guideline” (1 October 2014) assessment of culpability in relation to the common law offence of conspiracy to defraud.
37 See for example, Police v Vile [2007] DCR 24; Wang v Police HC Auckland CRI-2004-404-476, 23 March 2005.
of Appeal observed that in a case of prolonged, carefully planned fraud by a man in a position of trust, a sentence of 18 months’ imprisonment, as imposed at first instance, was quite inadequate. The Court stated that a starting point of seven or eight years’ imprisonment was appropriate, and adopted the lower starting point because of the respondent’s limited personal benefit from some of the charges and influence exerted on him by others.
[78] In R v Patterson, the respondent was convicted on 10 representative charges, the lead charges carrying a maximum penalty of 10 years’ imprisonment.38 The offending involved fraudulently obtaining $3.4 million from the Ministry of Social Development using forged documents to create false identities. Though not through any efforts of the respondent, there was ultimately full recovery of the amounts that were stolen. The Court considered there to be a high degree of culpability and rejected the proposition that because the victim was the State it made Mr Patterson less culpable. A starting point of nine years and six months’ imprisonment was adopted.
[79] The next case is R v Swann, to which I have already referred.39 Mr Swann, together with an associate, submitted 198 fraudulent invoices to Mr Swann’s employer, the Otago District Health Board, and received $16.9 million. Mr Swann personally received and kept most of the money. The fraudulent conduct extended over a six year period. The sentencing Judge, Stevens J, referred to the factors for assessing culpability set out in Varjan, and noted that in relation to each of those, Mr Swann’s offending was at the highest level. Adopting a cumulative basis to sentencing, the Judge adopted a starting point of 10 years and six months’ imprisonment.
[80] In Ross v R, the Ponzi scheme case, Mr Ross faced four representative charges of false accounting and one representative charge of theft in a special relationship.40 He was a financial advisor who misused investors’ funds causing overall losses of approximately $115 million, with at least 700 victims. The offending was described as “at the most serious level of commercial fraud in New Zealand”. Aggravating
38 R v Patterson, above n 12.
39 R v Swann, above n 30.
40 Ross v R [2014] NZCA 272.
factors were the scale of the offending, the vulnerability of victims, the breach of trust, and the fact that Mr Ross compromised the integrity of the Financial Markets Authority. Adopting a cumulative approach to sentencing, a starting point of 16 years’ imprisonment was adopted.
[81] In R v Rowley, two offenders were convicted on 80 and 75 charges respectively of using a document to obtain a pecuniary advantage and other subsidiary charges in the context of tax fraud.41 The two offenders were accountants who used false invoices on behalf of clients to obtain a benefit of between $1.8 and $2.3 million. The Court described the offending as fraud practised on a “cynical and widespread scale” and involving a breach of the special status of the offenders as tax agents. Starting points of seven years, and six years, six months’ imprisonment were adopted respectively.
[82] In (Leonard John) Ross v R, Mr Ross and others fraudulently obtained loans amounting to approximately $42 million from the ANZ Bank.42 Ultimately, ANZ did not suffer any loss from the offending, and indeed made a profit. Mr Ross was the mastermind of the fraud, it was elaborate and required careful planning. The Court of Appeal upheld a starting point of five years and six months’ imprisonment, by reference to the deception charges which carried a maximum penalty of seven years’ imprisonment, with associated forgery offending forming part of the deception perpetrated by him.
[83] In Bracken v R, which involved fraudulently obtaining $17.3 million through GST returns,43 the sentencing Judge adopted a starting point of eight years and six months’ imprisonment. The Court of Appeal dismissed the appeal against sentence, describing a community based sentence as “completely unrealistic”.
[84] I turn now to the United Kingdom sentences for copyright offending. While they are perhaps more comparable than the New Zealand cases of copyright offending, they are of course sentencing decisions of courts in a different jurisdiction, and
41 R v Rowley [2015] NZCA 233, (2015) 27 NZTC 22-011.
42 Ross v R [2019] NZCA 455.
43 Bracken v R [2022] NZCA 237, (2022) 30 NZTC 25-019.
concern charges of conspiracy to defraud, which carries a maximum penalty of 10 years’ imprisonment.
[85] In R v Zinga, Mr Zinga and an associate, Mr Pillai, were charged with conspiracy to defraud in relation to the establishment of a company that sold media boxes that could unscramble and stream Virgin Media channels for free.44 Mr Zinga was the mastermind and while Mr Pillai was the technical brains, he played a crucial but less prominent role. Losses were estimated at £10.4 million per month to Virgin Media. Mr Zinga’s company received between £25 and £30 million in sales, and he personally benefitted to “the tune of millions”. He was sentenced to an end sentence of eights years’ imprisonment, while Mr Pillai to an end sentence of six years’ imprisonment, which was then reduced on appeal to an end sentence of four years’ imprisonment.
[86] In R v Vickerman, which has some parallels to this case, Mr Vickerman was convicted of two charges of conspiracy to defraud in connection with creating a website that made copyright material available to others. It operated between 2007 and 2012. Mr Vickerman’s website did not host content itself, but was essentially parasitic upon cyberlocker sites such as Megavideo. It was a much smaller enterprise than Megaupload. In just the two years from 2009 to 2011, it produced a profit of
£250,000 from a turnover of just £1 million. Mr Vickerman also flooded his site with legal links to disguise the prevalence of links to infringing content, and professed to have a policy of compliance with takedown notices.
[87] The sentencing Judge rejected the suggestion that Mr Vickerman did not realise what he was doing was unlawful. The Judge noted that it was an all but impossible task to assess the loss to the film industry. Mr Vickerman demonstrated a complete absence of remorse. The sentencing Judge accepted that in terms of culpability, Mr Vickerman’s case was not the worst form of conspiracy to defraud, and adopted an end sentence of four years’ imprisonment.
44 R v Zinga [2012] EWCA Crim 2357.
[88] In R v Taylor, Mr Taylor was charged with conspiracy to defraud Virgin Media, being the guiding and controlling mind in a scheme to provide unauthorised access to premiere league streaming. Estimated losses to Virgin Media were £500,000 to
£750,000. On appeal, the Court of Appeal observed that even taking into account those estimated losses, this was a serious, sophisticated and protracted fraud, where a starting point in excess of seven years would have been fully justified.
[89] I have also been referred to the sentence of a Mr Nomm, who was an employee at Megaupload. He was under your supervision, Mr Ortmann. He had no shares in Megaupload. In 2015 he consented to extradition from the Netherlands to the United States, and pleaded guilty to one charge of conspiracy to commit copyright infringement, and consented to forfeiture of all his property derived from his offending. He was sentenced in the United States to one year and one day’s imprisonment. I do not have any information before me of the maximum penalty on the charge in that case, or how the sentence was constructed.
[90] As noted, I have concluded that your culpability is high. I consider your offending less serious than in the Ross Ponzi scheme case, on which the Crown places considerable weight, given the very egregious breaches of trust in that case, that Mr Ross was at the apex of the scheme, the vulnerability of the victims, that the lead charge had a maximum penalty of 10 years imprisonment, and what I consider to be the inherently more serious nature of that offending. It is difficult to draw any real comparisons with many of the other New Zealand cases, given the different nature of the offending involved, but given the amounts in issue in this case are undoubtedly significantly higher, this case must be in similar territory to those cases, despite them involving breaches of trust, and some also involving charges with a higher maximum penalty (of 10 years’ imprisonment). In terms of the English copyright cases, this is more serious than all of those I have discussed. The scale is larger, and by some degree, including in comparison to the Vickerman case. That said, while playing leading roles, you were not the overall leader of the enterprise like in many of those cases. I also take into account the higher maximum penalty in the English cases of 10 years’ imprisonment.
[91] Standing back, I consider a starting point of ten years and six months’ imprisonment for you Mr Ortmann, and ten years’ imprisonment for you Mr van der Kolk, reflecting your somewhat lower role and lower personal gain, to be appropriate. The differentiation between the two starting points is more modest than Mr Illingworth submitted would be appropriate, however, as the summary of facts demonstrates a very similar culpability on both of your parts. I have adopted these starting points on the basis that your offending is at least near to the most serious case for which the maximum penalty is prescribed,45 but given there must in my view be some not-insignificant headroom for a lead offender. On that basis, I have adopted a starting point on the s 228 fraud charge of six years’ imprisonment, and uplifted that for the s 240 charge by four years and six months’ imprisonment in your case Mr Ortmann, and four years’ imprisonment in your case Mr van der Kolk.
[92] The starting points I have adopted also reflect my view that there is a near total, if not total, overlap between the conduct captured by the two conspiracy charges and the two participation in an organised criminal group charges. It would be quite wrong in my view to uplift the starting point any further to reflect those two separate charges. Accordingly, there will be smaller concurrent sentences imposed on the organised criminal group charges.
[93] I should add that I considered the Crown’s suggested starting point of 12 and a half years to be too high in the context of the fraud charges, which each have maximum penalties of seven years’ imprisonment, which would be approaching cumulative sentencing at the maximum or near the maximum penalty available on both charges. Equally, starting points of seven and five years respectively as advocated for by your lawyers, fail to reflect the degree of culpability, the sheer scale of Megaupload’s operations and the harm inevitably caused by it.
[94] I should also observe that I do not accept your lawyers’ submission that matters pertaining to mental health should operate to reduce your culpability at this stage of the sentencing exercise. Mr Ortmann, you have suspected and have now been diagnosed as autistic, though not suffering from autistic spectrum disorder.
45 Sentencing Act, s 8(d).
Mr van der Kolk, you were diagnosed at a young age with Attention Deficit Hyperactivity Disorder (ADHD). However, there is no doubt that both of you have continued to function very well in ordinary day-to-day life, and indeed these conditions have perhaps enhanced your ability to perform at the very high levels that you do. Given the contents of the summary of facts, I am unable to accept that your conditions somehow masked or prevented you from having the capacity to see “invisible” victims, given you were clearly aware of the harm you were causing to copyright holders and that doing so was unlawful. I return to the impact of these mental health conditions on your sentences later in these sentencing notes.
[95] I turn now to personal factors to you and whether these warrant starting points being adjusted upwards or downwards.
Personal aggravating factors
[96] Neither of you have any prior convictions. The Crown does not suggest there are any other personal aggravating factors which warrant the starting points being uplifted, and I agree.
Personal mitigating factors
Guilty pleas and assistance to the authorities
[97] The first matter I address by way of discounts is your entry of guilty pleas and the assistance that you have given or will be giving to the United States authorities in their enforcement actions in relation to Megaupload. Discounts for guilty pleas and assistance given or to be given to authorities are usually considered together and given a combined percentage discount.46
[98] There is no doubt that you pleaded guilty at the earliest possible opportunity to the charges filed in this Court, namely at your first appearance. Ordinarily it would uncontroversial that you would receive the full 25 percent discount for an early guilty plea.
46 See for example, R v Hadfield CA 337/06, 14 December 2006.
[99] However, the Crown says the position is not as clear cut as that. Counsel submit that you have spent 10 of the last 11 years strenuously resisting extradition to the United States, and that a key part of your opposition to the extradition request was a steadfast denial of facts now admitted by you through the summary of facts. The Crown says while it follows that you entered your pleas promptly once the charges were laid, your pleas do not represent an immediate acceptance of responsibility which would usually entitle a defendant to the full 25 percent discount. The Crown accordingly says that a discount of only around 15 to 20 percent would be appropriate.
[100] In terms of assistance to the authorities, as you heard earlier today, Mr Boldt accepts that a meaningful discount ought to be provided. You have surrendered various devices and computers to the FBI. You have agreed to waive privilege. You have agreed to engage in interviews with the relevant authorities and to give evidence against Mr Dotcom and any other Megaupload defendants at trials in the United States. You have also attested by affidavit to the truth of the summary of facts.
[101] While the Crown accepts that these matters warrant an additional discount, counsel submit that the value of the assistance is not as significant as it would have been at an earlier point in time, given it has belatedly tended to confirm things that the prosecution already knew. The Crown also notes that there is no suggestion of any personal danger to you from assisting the authorities.
[102] Taking all those matters into account, the Crown says that a combined discount of 40 to 50 percent is appropriate.
[103] Turning first to your guilty pleas, I consider that the full 25 percent discount is warranted. The simple point is that you were not in a position to plead guilty to any charges until charges were actually laid, and when they were, you pleaded guilty to them at the earliest possible opportunity.
[104] I acknowledge the point made on behalf of the Crown, in terms of your resistance to the extradition proceedings. However, it was your right to resist those proceedings, and while your positions on many factual matters are now different in light of your acceptance of the summary of facts, your challenge also included a
plethora of legal and other matters unrelated to those factual issues. While the ultimate outcome was that you were eligible for surrender to the United States, you and your co-respondents were successful on some issues in the High Court and again in the Supreme Court, with matters only being finally resolved by the Court of Appeal in 2021. Further, the fact that you and your co-respondents were granted leave to appeal to the Supreme Court confirms that the matters being ventilated were considered of sufficient importance, either more generally or in relation to your case in particular, to justify leave to appeal being granted.47 Accordingly, until the charges upon which you are presently being sentenced were laid in New Zealand, there was nothing for you to plead guilty to, and you were legitimately engaging in the extradition proceedings. I do not consider that engagement should penalise you in the quite different scenario of actually facing criminal charges in this jurisdiction.
[105] Turning to the assistance, even on the Crown’s approach, this is to be viewed positively, given even accepting a guilty plea discount of only up to about 20 percent, the Crown accepts that your assistance warrants a further discount of up to around 30 percent. With a 25 percent discount for the guilty pleas and assistance, this would see a combined discount of around 55 percent , which I consider is reasonable to adjust to 60 percent.
[106] I accept that it is not suggested there is any personal safety issues arising as a result of the assistance that you have given or will give, and that that is a feature of some of the assistance cases to which I have been referred. However, the authorities are clear that the key factor when considering a discount for assistance to the authorities is the value of that assistance. As Mr Boldt accepted this morning, your assistance, and in particular the agreement to the summary of facts, is “invaluable to the United States”. For these reasons, the combined discount of 60 percent is in my view available.
47 Senior Courts Act 2016, s 74(2).
[107] The remaining personal mitigating factors can be addressed under the topics of mental health, your personal background and cultural environment, reparation, remorse and rehabilitation, and impacts on your family. Your counsel submit that a further combined discount of at least 20 percent is justified for these factors.
Restrictive bail conditions
[108] I deal with one point briefly first, namely the submission that lengthy restraints on your liberty ought to be taken into account in the end sentence. Both of you were held in custody in 2012 for a relatively short period of a few weeks before being released on bail. You were initially released on electronically monitored bail for three months, or slightly more in your case Mr van der Kolk, with a 24 hour curfew. When EM bail and curfew restrictions were removed, your bail conditions required you to report with various frequencies to police stations for the period of the extradition proceedings and variations have been required – and I take it granted – when you have sought to move house or you have needed to travel outside of Auckland.
[109] The position is a little complicated as you were not on bail in relation to any criminal charges in this Court, but rather in the context of the extradition proceedings. The Sentencing Act does provide that time spent on electronically monitored (EM) bail is a mandatory mitigating factor.48 Although not specifically provided for in the Sentencing Act, a discount for the time spent on bail simpliciter is potentially available where the conditions are restrictive, such as where they impose lengthy curfews.49 Putting aside for present purposes the fact that you were not on bail in connection with the present charges, your bail conditions were not particularly restrictive and compliance with bail conditions over an extended period is not in itself sufficient to require a discreet discount in these circumstances. Further, I have some hesitancy in ascribing a discount under the Sentencing Act for bail restrictions that are a consequence of and imposed in the context of an entirely separate proceeding under the Extradition Act.
48 Sentencing Act, s 9(2)(h).
49 See for example, Kreegher v R [2021] NZCA 22, (2021) 29 CRNZ 622 at [9]; and Bennett v R
[2012] NZCA 173 at [25].
Reparation
[110] Turning to reparation, while an exact figure cannot be stated, given your remaining funds are to be subject to ongoing access for expenditure on legal fees, you have both undertaken to surrender, by way of reparation and otherwise, all funds that remain in your names in overseas accounts at the end of the sentencing process. Counsel advise that the total amount received or to be received by the US Government as a result of forfeitures and reparation will exceed NZ$10 million. My understanding is that the majority of this reparation will emanate from you Mr Ortmann, though that naturally reflects the more significant financial gains you received from your involvement in Megaupload.
[111] The Crown submits that like the reparation available in the Ross Ponzi scheme case, your offers, while welcome, can fairly be described as a “drop in the bucket”. The Crown submits that it would be open to the Court to offer no additional discount for reparation, or if one is provided, it should not exceed five percent.
[112] As you have heard earlier your lawyer submits that a more meaningful discount should be made for reparation also. As I will come to later, I do consider a modest discount for reparation ought to be ascribed.
Mental health
[113] Mr Ortmann, I have read the psychiatric report prepared on your behalf by Dr Duff. As noted earlier, she considers you are autistic, though you function well in the community, maintaining relationships and building very successful businesses (both Megaupload and now Mega). As the Crown note, you do not suffer from autism spectrum disorder nor do you claim to have been unable to appreciate the difference between right and wrong. Your lawyers say that the report of Dr Duff leads to the conclusion that you have suffered from a lifelong disability which resulted in you becoming focussed on one issue – computer coding, which caused you to have tunnel vision, and which meant you were unduly focussed on your coding work, and provided insufficient attention to broader aspects of what you had become involved in at Megaupload. I am unable to accept that submission, or even if these matters existed, they warrant a specific discount. Your autism has no doubt contributed to you being
an immensely talented coder, I am told one of the best in the world. However there is no suggestion that this condition somehow prevented you from understanding that what you were doing was wrong, and indeed any such suggestion is contrary to the express acknowledgements in the summary of facts. Your rather glib comments referred to in the summary facts, for example, also undermine the suggestion that you paid insufficient attention to the broader aspects of what you had become involved in at Megaupload.
[114] I am similarly unable to give a specific discount for mental health in your case Mr van der Kolk. As noted, you were diagnosed as a child with ADHD. Combined with your relative immaturity at the time you started working for Mr Dotcom, 21 years’ old, the psychological assessment suggests that while you were someone who was extremely bright, you were easily manipulated. While that may be so, your sustained involvement in Megaupload over a lengthy period, and in a leadership role, discloses significant agency. Again the summary of facts discloses an acute awareness on your part of the nature of Megaupload’s operations and copyright infringement in particular.
[115] Ultimately, to the extent there was any causative contribution to your offending through your respective conditions, as the majority of the Supreme Court said in a recent case called Berkland:50
[111] The causative contribution of background may also be displaced, in whole or in part, where the offending is particularly serious. Complex and orchestrated offending is likely to involve careful assessment of the risks of detection and therefore increased agency. The contribution of background to offending with this level of agency may therefore be significantly reduced or even negated and other sentencing goals … may become more important.
[116] These observations are applicable in this case, particularly given the importance of the sentencing goals of denunciation and general deterrence.
[117] Turning to your personal backgrounds, both of you had relatively stable and happy upbringings, and there is certainly nothing in the materials I have read which suggests your personal background was a causative contribution to your offending.
50 Berkland v R [2022] NZSC 143, [2022] 1 NZLR 509.
[118] I have read the cultural reports prepared on your behalf of each of you, by Profession Chris Gallivan of Massey University. Professor Gallivan attaches to each of his reports a German legal opinion, in your case Mr Ortmann, and a Dutch legal opinion in your case Mr van der Kolk. The upshot of those legal opinions is that your conduct would not have been considered criminal in your respective home countries. Dealing with that material first, the legal background in Germany and the Netherlands is irrelevant, given you knew that Megaupload’s operations involved copyright infringement on a very significant scale, even if you did not expressly turn your minds to the criminality of that conduct. Ignorance of the requirements of the law is also no excuse.51
[119] The point also remains that even if the approach to copyright and copyright infringement was more relaxed in your home jurisdictions, there is no doubt that you knew that that was not the position in other jurisdictions. Nor am I persuaded that the broader global context described in the cultural reports, of Megaupload being part of the wave of the early 2000s that saw the expansion of the internet, and also file sharing communities, coders, programmers and lastly consumers, provides a proper basis for a further discount to your sentence. Ultimately copyright protection is no new phenomenon. Moreover, to the extent there was any sufficient causal connection between these broader “cultural” factors and your offending, the passage I have already referred to from Berkland means that a separate discount for them is not available.
[120] I accept, however, that you now display some insight into your offending and remorse for it, and have excellent prospects for rehabilitation – indeed essentially being rehabilitated already and contributing members of New Zealand society. You have both gone on to build a very successful new business from late 2012, namely the Mega cloud storage service.
[121] I have also read all of the character references that have been provided to me. I consider any discount for post-offending good character is properly encompassed in a discount for rehabilitation, where I do consider there ought to be a meaningful
51 Hamidzadeh v R [2012] NZCA 550, [2013] 1 NZLR 369 at [84].
discount. I do not extend that to the earlier periods, however. Any prior good character is overshadowed by the duration of your offending and the choices and agency involved in it.
[122] I am also conscious of the impact of these proceedings on you and your families. However, court proceedings and their consequences are sadly always of real difficulty, including for families, and I am not persuaded that there is anything particular or unique that warrants a special discount.
[123] Taking all of these additional personal factors into account, I propose to discount the starting point by a further 15 percent, which is heavily weighted to rehabilitation, together with remorse and reparation.
[124] The combined discount for personal mitigating factors of 75 percent results in an end sentence of two years and seven months’ imprisonment in your case Mr Ortmann, and two years and six month’s imprisonment in your case Mr van der Kolk.
Sentence
[125] Mr Ortmann and Mr van der Kolk would you now please stand. On the lead charge of conspiring to obtain documents dishonestly, Mr Ortmann, you are sentenced to two years and seven months’ imprisonment, and Mr van der Kolk, you are sentenced to two years and six months’ imprisonment. On the charge of conspiring to cause loss by deception, and each of the charges of participation in an organised criminal group, you are sentenced to two years’ imprisonment, all to be served concurrently. Mr Ortmann, this means that your overall sentence is one of two years and seven months’ imprisonment, and Mr van der Kolk, yours is one of two years and six months’ imprisonment.
[126] I also need to make orders as to reparation and the parties have helpfully provided orders that I may make by consent. I make reparation orders as follows:
(a)Mr Ortmann is to forfeit the funds in his Hong Kong bank accounts by a procedure agreed upon with the Crown Law Office on behalf of the
Attorney-General, subject to the order of the Hong Kong Court dated 16 October 2013 that monies be released to him to make payment for his reasonable legal costs, including any appeals.
(b)Mr van der Kolk is to forfeit the funds in his Hong Kong bank accounts by a procedure agreed upon with the Crown Law Office on behalf of the Attorney-General, subject to the order of the Hong Kong Court dated 16 October 2013 that monies be released to him to make payment for his reasonable legal fees, including any appeals.
Fitzgerald J
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