Megaupload claims it is beyond the reach of US criminal law

by Timothy B. Lee - May 30 2012, 1:27pm PDT

Megaupload, a corporation whose file-sharing business was effectively destroyed by a January indictment, has asked a Virginia judge to dismiss the case against it. It argues that because it is not based in the United States and has no offices there, it is not subject to US criminal law.

The company notes that the law requires that when a corporation is indicted, notice of the indictment must be served on an officer of the corporation and sent to the corporation's last known US address. But Megaupload is not based in the United States and has never had offices there, making it impossible for the government to comply with this requirement.

Indeed, the firm says, the judge himself acknowledged the government's procedural difficulties during an April 13 hearing. "Megaupload is a criminal defendant, a corporate entity who has not been served with a summons," the judge said. "So, they are kind of hanging out there, and that’s an issue that maybe we need to talk about as well."

"A corporation such as Megaupload cannot be brought within the jurisdiction of this Court for criminal proceedings absent its consent," the company argues.

Megaupload attorney Ira Rothken tells Ars he believes that if the case against Megaupload is dismissed, all orders against the company—including those freezing the firm's assets—would be vacated. However, the individual defendants would still face criminal charges.

Asset thaw

In a related filing, Megaupload founder Kim Dotcom and his co-defendants have requested that the government unfreeze the funds they need to fund their defense. In the process, they offered a preview of some of the legal arguments they are likely to raise if the case ever reaches a courtroom.

The government's indictment "seeks criminal forfeiture of 'at least' $175 million," the filing says. "This represents the total revenues generated by Megaupload during its entire corporate existence. 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."

And there are several reasons some of Megaupload's funds could be legal even if the company or its founders are ultimately found guilty of some of the counts against them. These include "noninfringing use of its service," "use that occurred wholly outside the United States and beyond reach of U.S. law," and "infringing use within the United States as to which Defendants nonetheless qualify for a statutory safe harbor or lacked requisite criminal intent." In any of those cases, forfeiture of Megaupload's funds would be inappropriate, Dotcom's lawyers argue.

The filing also emphasizes a point that seems likely to emerge as the centerpiece of Dotcom's legal argument: that inducing copyright infringement—a civil-law, judge-invented concept—cannot give rise to criminal liability.

"Patent law, from which the Grokster Court borrowed the 'inducement' rule... is exclusively civil in nature," the brief states. "There is no such thing as criminal liability for patent infringement."

But instead of letting Hollywood file its own civil case against Megaupload, "the Government has stepped in to transmogrify the doctrine of secondary infringement, as fashioned by the courts for civil copyright cases, into a crime and to wield its prosecutorial pretrial powers to snuff out an innovative technology," Dotcom's lawyers write. In doing so, the government risks "upsetting the essential balance that Congress and the Supreme Court have taken such care to strike and maintain."

The brief also argues that the government's shuttering of Megaupload violates the First Amendment, that its technology is capable of non-infringing use, and that the indictment effectively, and improperly, attempts to apply US copyright laws outside the borders of the United States.