Pirates ran aground in Sweden

The operators of the biggest pirate service in the world, The Pirate Bay, were sentenced to imprisonment and substantial damages. What is the verdict about?

Stockholm district court sentenced the four men operating the service to one year’s imprisonment and, being held collectively responsible, to pay SEK 30 million (€2.8 million) in damages to several holders of film and music rights.The verdict was no surprise, says Antti Kotilainen, managing director of the Copyright Information and Anti-Piracy Centre in Finland (CIAPC).

“The Pirate Bay chaps kept shouting loudly that nothing illegal was going on. Some people believed them and were astonished at the sentence. That there was a conviction came as no surprise, but the one-year prison sentence did.”

The verdict was given for complicity in copyright infringement. The defendants had been operating the tracker The Pirate Bay, facilitating the illegal downloading of works. The server provided information about where users could download films and music and the users downloaded them from each other.

The objective determined the sentence

Finland and Sweden have similar copyright laws, says Kotilainen. Having heard the verdict, he therefore read through the 107-page decision and compared it with the Finnish Finnreactor case in 2006.

The Turku Court of Appeal convicted twelve persons of copyright infringement by having run a BitTorrent tracker with 10,000 users. Seven defendants settled damages with the copyright holders. The case is now being tried in the Supreme Court.

The defence was the same in both countries: no works passed through the server, but the end users created their copies of it. Accordingly, running the server was not illegal, since it only indicated where the work was available.

The Finnish and Swedish courts, however, looked at the activity in its entirety. “Their verdicts were based on the same argument: What was the objective of the activity? It was to offer users an optimal service, providing material of interest to them.”

The operators of the service knew that the bulk of the materials they provided access to were copyrighted. They also made the service more versatile: The Pirate Bay offered menus in 34 languages.

The defence in Stockholm denied any infringement of copyright, but the district court considered it established that The Pirate Bay site had made works available without authorisation. “So the crime was committed in Sweden, although there were users in different parts of the world.”
At the time of the Finnreactor trial in Finland, copyright crime presupposed profit as a motive. Sentences were therefore passed for misdemeanour. Current Finnish criminal law defines information network activity causing considerable harm to rights holders as a criminal offence.

Finnreactor, established in 2002, used the same BitTorrent protocol as The Pirate Bay and its servers were located in Holland. Users were required to register and the operator provided a password. After a three-month surveillance period, the National Bureau of Investigation closed the server in December 2004.

Advertising revenue and wholly-owned companies

Stockholm district court found that the four defendants had acted together and were collectively responsible, although they had different duties. Two were engaged in the technical development of the service, one was the site spokesperson and in charge of cash flow relating to advertising, and the fourth was an entrepreneur and financier who was also actively involved in the maintenance of the site.

“The essential thing was that they were all the time working at upgrading the service. They did not remove unauthorised material at the request of copyright holders, maintaining that they were doing nothing illegal.” Kotilainen, who himself is a jurist, emphasises that punishments are not determined by the defendant’s own views on the illegality of a particular activity. “The objective was so clear all the time that no technical explanations helped.”

The court saw The Pirate Bay as a commercial service geared to making profits. “The defendants themselves admitted that at least part of the costs were covered by advertising revenues.” The court discovered emails and receipts for transfers and payments to the defendants. Peter Sunde Kolmisoppi, who assured the court that he was ignorant of any advertising income, had even set up a company to look after the advertising-related payments.

“They also had a strategic business plan involving a company, Random Media, intended for the administration of The Pirate Bay. There was proof of transfer of advertisement revenue to the tune of SEK 1.2 million up to May 2006. Nothing is known about later income.”

However, there was, and there still is, money. The site had 22 million simultaneous users, which requires expensive machinery and connections, says Kotilainen. “The server was located in Sweden and when it was confiscated the service started again on machines in other locations. All of this takes money, personnel and equipment.”

Repercussions elsewhere

Sentence has been passed, but an appeal is certain. The Pirate Bay’s server is still operating. “Now we’ll see if there will be similar closures elsewhere. At least in Italy there are several criminal cases in progress. In Denmark the Eastern High Court confirmed last November that the operator is to block access to The Pirate Bay, and the case is now being referred to the Supreme Court.”

The Pirate Bay’s damages were based on the estimated numbers of downloads. The site had its own counter. The record labels and the US film producers demanded large sums, claiming compensation for the making of illegal copies. The Nordic companies claimed damages for making works available and the amounts were smaller. The amounts awarded in the court decision were below those claimed.

In both the Finnreactor and The Pirate Bay cases the defendants cited the EU directive on electronic commerce. The downloading procedure it prescribes gives rights holders the option to request the removal of illegal materials, in which case the telecommunications operators are relieved of responsibility unless they were actively involved in the in the illegal operation, either as the perpetrator or as an accessory.

By virtue of this stipulation operators of pirate servers are, in their own opinion, free of responsibility under civil and criminal law. “The Finnish court ruled that the operators of Finnreactor could not invoke it, as the explicit objective had been to set up an illegal service”, says Kotilainen.

“The Pirate Bay referred to the same stipulation. The court stated that you can be free of responsibility only if you were unaware of the illegality of the operation and acted as soon as you were notified of it. The Pirate Bay both knew and was informed, but failed to take any action, deliberately choosing to do nothing”.

Part of The Pirate Bay’s image-building policy was their insolent way of publicly responding to all requests from rights holders. In a reply to a letter, Dreamworks was referred to as a “bunch of idiots who should stick telescopic batons up your …”. The message ended with the explicit greeting “Go and fuck yourself”.

The end of one argument

What does the Stockholm verdict mean? “It puts an end to one discussion: this is illegal. The legality of the operation was advocated so loudly and for so long that some people started believing in it. The verdict makes it clear that running this kind of server is illegal.”

“Having to pay for the contents of services seems to be one of the biggest social evils in Sweden, and some politicians use it to collect the odd point. The ruling gave the Pirate Party quite a boost.”

“If The Pirate Bay can be closed down, it will be significant. Twenty-two million users will be left without access to illegal material. Napster, Kazaa and Grokster were convicted and disappeared from the market. The message is that providing this kind of service means risking conviction. Several minor Swedish services have closed down following the Stockholm verdict.”

“I would like to see the legal services getting a proper chance to cope. Finland is a developing country in this respect, and one reason for that is the activities of the likes of The Pirate Bay – everything is offered free of charge. Competing with them becomes an impossible equation.”

The Pirate Bay case has widened international cooperation, and Kotilainen believes joint actions between authorities and rights holders across borders will become more significant. “There are as yet no new techniques to complicate surveillance, but no doubt they will come. Encrypting contents is not enough, however. The pirates also have to provide the keys for decoding. As users we keep monitoring the operations, the work goes on.”

When a service is ruled illegal one solution is to block access to the site through decisions at the national level. “Why should trading in stolen goods be allowed to continue? If the server is transferred somewhere with weak copyright protection, banning may work. In that case the pirates would run out of users and advertising revenue.”

How does The Pirate Bay operate?

The operations of The Pirate Bay and Finnreactor are both based on the BitTorrent protocol. It is a distributed file-sharing protocol, in which users download data to their computers from several other computers.

A new user downloads a BitTorrent client program and applies it to create a torrent file with information on his material, say a film, for the Pirate Bay tracker. When another user searches for this film, he/she downloads the torrent file on his/her own client program. Having received it, the program identifies the location of the film and starts loading it directly from the other user. In this way the film itself is not transferred through the Pirate Bay tracker.

After the download the tracker knows that the film is now also available on the second computer, and the next user looking for it can download it from both computers. The result is an extensive network, in which torrent files circulate between the users and the tracker, and the works circulate among the users.

In March 2009 The Pirate Bay had 1.6 million torrents and was the biggest BitTorrent tracker in the world. One of the recently convicted employees mentioned in an interview in July 2007 that half of the trackers in the world were using The Pirate Bay. The site declared this year that they had 22 million simultaneous users.

Funds in the British Virgin Islands

In public The Pirate Bay and the pirates pose as a non-profit organisation, and the bunch probably includes some believer in a free-of-charge economic perpetual motion machine. The Pirate Bay, however, was handling substantial amounts of money, according to the police investigation. The tax records show the main protagonists as low-paid or penniless, with the exception of multimillionaire Carl Lundström.

In the raid in 2006 the police confiscated email correspondence in which the main executives were pondering how the money should be divided and kept. They also found mail in the pirates’ computers in which the site’s Israeli advertisement sales agent Oded Daniel reported sales income figures of over USD 72,000 and USD 85,000 for February and March 2006, respectively. He is also in charge of the advertisement sales for certain large torrent-based porn sites.

Gottfrid Svartholm Warg, who was also convicted at the trial, had, according to a preserved email of January 2006, asked Daniel to send him “about USD 3,000 out of my share of The Pirate Bay’s profits”, but “tax-free” and not via the Western Union money-transfer service.

In his reply, David promised the funds would be paid into Svartholm Warg’s account in the British Virgin Islands. Only fragmentary information and estimates exist concerning The Pirate Bay advertising sales revenue, as the money moves between foreign accounts in tax havens.

A Swedish company collected the advertising revenue in the Nordic countries and remitted it to Random Media in Switzerland. The same address was shared by Daniel’s tax consultancy Geneva Management Group. Daniel’s company sold advertisements in other parts of the world.

A representative of the Swedish company mentioned in a newspaper interview in 2006 that he collected advertising income for the site to the tune of SEK 600,000 – 800,000 monthly. The most expensive advertisement cost SEK 200,000 per day – four of them had been sold.

Company contract found

Mikael Viborg, The Pirate Bay’s legal counsel, told the Realtid journal in an interview in 2006: “We’ve been fooling the lot. The money ends up in the British Virgin Islands tax haven. You can find that out if you’re smart.”

The court found invoices and money-transfer receipts proving that the defendants had received at least SEK 1.2 million (€113,000) of the advertising revenue.

The police also discovered a very detailed contract through which the Swedish pirates and Daniel had set up the Transworld Advertising Corporation in the British Virgin Islands to administer The Pirate Bay’s pages. The pirates told the police that it was just a plan. The company had, however, featured in The Pirate Bay’s cash flow.

During the hearings the defendants were movingly ignorant of Daniel’s doings. Peter Sunde Kolmisoppi told the court how he had been wondering why Daniel kept sending him advertising-income reports, but mentioned that he had been acting as a contact person between a Swedish company engaged in the sales of advertisements and Daniel. The experienced businessman Carl Lundström did not know why Daniel had set aside funds for his account. The court differed.

Another reason why cooperation with Oded Daniel was attractive was that he held technical patents relating to Internet advertising. The Swedish pirates, who are averse to immaterial rights, used them in the financing of their own business operations – naturally against compensation.


Eccentric multimillionaire financier

In the Pirate Bay verdict, sentence was also passed on Carl Lundström as one of the joint owners of the website. The name may not mean a lot to Finnish people, but he is well known in Sweden. As one of the heirs to the Wasabröd factory he became a multimillionaire when the family sold it abroad in 1982.

Carl Lundström, who lives in Switzerland, was sentenced together with some skinheads for assault on two Chileans in 1986, and is known for his firm anti-immigrant views. According to information in the press, he has supported and financed several far-right and anti-immigrant organisations.

Last year the managing director of one of his companies was convicted of armed robbery. The man was one of the leading activists in Nordiska förbundet, described as a Nazi organisation, and the robbery was part of an intimidation campaign aimed at a member who wanted to get out.

During The Pirate Bay’s set-up and expansion phase, the site used the servers of Lundström’s Rix Telecom company, and pirate technician Fredrik Neij was on its payroll. After the verdict of the Stockholm district court Lundström’s solicitor told the news agency TT that his client would pay all the imposed damages.

Text: Heikki Jokinen
Translation: Joan and Henrik Nordlund
Picture: Topi Saari