Megaupload Demands Return of Millions of Dollars From U.S. Govt.

Megaupload is challenging the U.S. Government's possession of millions of dollars in assets it seized from the company and its operators in January. The newly-filed and eye-opening motion slams the U.S. for holding the defendants liable for alleged offenses that aren't even a crime, ignoring laws designed to offer them protection, failing to provide any detail whatsoever on alleged infringements, and pushing U.S. law far beyond its borders.

In addition to filing a general motion to dismiss the criminal case on the basis that the company was never properly served, Megaupload and defendants Kim Dotcom, Mathias Ortmann, Bram Van Der Kolk and Finn Batato are demanding the return of some, if not all, of the assets seized by the United States.

The motion, which “challenges the scope of pretrial restraint of assets”, is running in parallel with yesterday’s general motion to dismiss, just in case the former should be declined. It also gives us an interesting flavor of the nature of Megaupload’s defense should the case go to full trial.

As previously reported, the US indictment claims that Megaupload caused $500m in losses to copyright holders while generating revenue for itself in excess of $175m. In addition to $67m already seized, the U.S. Government is seeking criminal forfeiture of at least $175m, an amount challenged by Megaupload.

“This represents the total revenues generated by Megaupload during its entire corporate existence,” the motion begins.

“Thus, the premise of the Government’s forfeiture request is that Megaupload never earned a single penny that was not criminal under U.S. law — whether, say, from a non-infringing use of its service, or from use that occurred wholly outside the United States and beyond reach of U.S. law, or even from an infringing use within the United States as to which Defendants nonetheless qualify for a statutory safe harbor or lacked requisite criminal intent.”

Considering the high probability that at least some of the money generated by Megaupload was from entirely legal means (unless every single Megaupload user was engaged in criminal copyright infringement), assets should be released so that the defendants can pay to mount a defense, their legal team argues. Currently, no-one conducting Mega’s expert defense is getting paid.

The motion continues by detailing what the defense believes is the key to undermining the whole case – claims of secondary copyright infringement against Megaupload (i.e holding the company responsible for the actions of its users) can’t lead to criminal liability.

Indeed, only this week New Zealand Judge David J. Harvey made his opinion known, stating that in lacking “statutory support for its unprecedented effort to criminalize secondary copyright infringement, the Government has reached beyond the pale of the law.”

The motion adds that federal criminal liability is created by statute, and no statute imposes criminal liability for secondary copyright infringement.

“Congress did not contemplate that service providers such as these Defendants might be imprisoned based on uncodified theories of secondary liability that are still evolving in the civil context, as though those amounted to established federal crimes,” Dotcom’s lawyers write.

In addition to being held secondarily liable, there are various allegations of direct infringement being leveled at the defendants. For example, one involves Kim Dotcom allegedly uploading a single 50 Cent track, another with Finn Batato doing the same with a Louis Armstrong song.

However, Dotcom’s lawyers note that these allegations contain zero factual information from which the defendants could prepare a defense. Whose copyrights were infringed? How and when did the alleged infringements occur? The list goes on.

“The Government has attempted to make out an all-encompassing case of an alleged criminal copyright conspiracy without bothering to allege concrete specifics of the actual
infringement allegedly committed,” the lawyers write.

“It has attempted to build one of ‘the largest criminal copyright cases ever brought by the United States’ out of conclusory ipse dixit, reciting statutory verbiage and nothing more.”

In the indictment the U.S. makes much of the “rewards program” operated by Megaupload, claiming that such rewards encouraged users to upload infringing material. The defense see things somewhat differently.

“Particularly in the context of this case, where it can be stipulated that Megaupload’s
business was designed to appeal to its users and facilitate uploading and downloading of files, such allegations say nothing of consequence.

“If the Government believes that every such business model is inherently and pervasively criminal because it may enable copyright infringement along with other misuse, then it should say as much, so that everyone is on notice and this Court can take due account.

If, on the other hand, the Government believes that this business and these Defendants specially set out with intent to perpetrate copyright infringement, it is conspicuously bereft of corresponding facts.”

The motion continues by stating that Megaupload had “substantial non-infringing uses” and had protections under the DMCA since it complied with copyright holder takedown requests by removing millions of links to allegedly infringing material.

“Megaupload negotiated with numerous major rights holders, including the Recording Industry Association of America, the Motion Picture Association of America, Disney, Warner Brothers, and Universal Pictures, to grant them full access to directly remove any active link to infringing material,” Dotcom’s lawyers note.

Furthermore, even if the claims against Megaupload had merit, they would still be geographically restrained, Dotcom’s team writes.

“Megaupload was a non-U.S. company whose activities mostly occurred overseas and whose users were mostly located overseas. The laws of the United States do not apply to overseas locations and operations absent contrary prescription by Congress.”

The motion, which runs to 45 pages, is somewhat of a tour de force from a legal team co-ordinated by Ira Rothken of the Rothken Law Firm in California. Its contents could yet provide the biggest copyright-related upset the U.S. has ever seen.

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