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It’s been a little over a year and a half ago the FBI seized servers leased by the once predominant file sharing service Megaupload, shutting down roughly 25 petabytes of data. The FBI targeted Megaupload (soon to be re-launched and re-branded as “Mega”) for claims of storing illegally copied material.

The FBI did not discriminate in the seizure, all the servers and data in question were shutdown, leaving thousands of users without access to their files, whether they contained copyright infringing material or not. As of this writing, the case is still held up in U.S District Court, keeping the data in limbo.

The problem is, under current law, there is a grey area as to which files stored in the cloud should or can be released by law enforcement. Additionally, law enforcement currently face technical challenges that result in entire server arrays being seized along with data not within the scope of the investigation.

Much was written on the manner of which the FBI shutdown the servers, and the ramifications that this case will have on the cloud providing business. Specifically, assurance for cloud users that their data will not be seized as a part of a court order merely because it resides on the same physical server, the very model of cloud computing. It was predicted last April that a verdict in the case against Megaupload could mean Cloud Service Providers (CSPs) can be liable for illegal content stored.

So after one year, have CSPs been negatively affected financially by the case?  Going strictly on an informal market cap analysis of the following providers: Rackspace, SalesForce, Savvis, Amazon, CenturyLink, Equinix, and VMware (not quite a provider yet, but a major player in cloud industry) the answer is not yet. From January 2012 to December 2012, all showed slight gains in the market except for VMware, which showed a slight decline in 2012. Another informal study of forums on the topic offered anonymous comments such as “My boss told me we are NOT to use the cloud for our data” and other similar remarks to that effect.

Until more is revealed from the case we may not see major visible effects to the CSP industry. However, at the current pace of which the case is proceeding, there will more likely be another U.S government seizure of a server array in which innocent users are blocked from their data. If another “Mega-like” shutdown takes place within the next year or two, we will likely see wide-spread  abandoning of cloud services by individual users, small and maybe even large businesses.

Unless laws are updated to protect user data, such as amending the Digital Millennium Copyright Act (DMCA) to extend to cloud providers as well as Internet service providers (why doesn’t it now?) or law enforcement makes the necessary technical advancements to enable a more “sniper” approach to seizing files instead of the current “take it all and we’ll sort it out later”, the U.S law enforcement could stunt the growth of IT’s most promising technology.