A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the provider’s transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider, or by reason of the intermediate and transient storage of that material in the course of such transmitting, routing, or providing connections – 17 USC § 512, from the Cornell University Law School

No business is an island. There’s no company that does not, to some extent, rely on other businesses. Business models assume that vendors will be able to assure a steady flow of goods, that retailers will sell goods and pay as contractually bound, that shippers will actually ship goods, etc. Our legal system is filled with assurances to that effect. And this is important, because it gives companies confidence to make such agreements. Knowing that business partners can in fact be bound and trusted to perform their duties, companies can more readily act to grow and increase their revenues. The key component here is confidence – a certainty that once a contract is signed, it will be followed.

That’s what makes the MegaUpload case rather disturbing. There’s no doubt that MegaUpload was hosting infringing content. However, the content was not all infringing – but all of it was taken down. Right now there is a case and the hosting company, Carpathia, is seeking court action which would allow it to release the existing data back to MegaUpload users.

However, in a way, the damage has already been done. Whatever the outcome of the case itself, one message has been sent clearly: your data can be held hostage by others’ data. That’s sure to have a chilling effect on the hosting industry for years to come.