Megaupload Prosecutors Seek to Keep Company as Defendant

Megaupload Ltd. should remain a defendant in the federal criminal case accusing the Internet company and its founder, Kim Dotcom, of running a massive illegal file-sharing service, U.S. prosecutors said.

Prosecutors, seeking to defeat the company’s request for dismissal, said today the U.S. has authority to bring copyright infringement charges against Megaupload even though it has no offices in the country.

“The heart of the issue is whether foreign companies like Megaupload can commit crimes in the U.S. and in this district and then never be brought to justice,” Assistant U.S. Attorney Ryan Dickey told U.S. District Judge Liam O’Grady during a hearing in Alexandria, Virginia. “That just can’t be the case, your honor.”

The dismissal of charges against Megaupload would add to the challenges prosecutors have faced since shutting down the company’s file-sharing website and charging Dotcom and six other individuals in January. A judge in New Zealand last month threw out warrants used to seize the Internet entrepreneur’s property, delaying Dotcom’s possible extradition by at least seven months.

Search Warrants

Investigators executed more than 20 search warrants in the U.S. and eight other countries and seized about $50 million in assets in connection with what they said was among the largest criminal copyright cases ever brought by the U.S.

Megaupload operated in the U.S. for more than six years, earning more than $175 million in illegal profit since 2005 from the exchange of pirated films, music, books and software, according to an indictment. More than 500 servers leased by Megaupload were located in Virginia, giving the U.S. jurisdiction to prosecute the company, the government argued in court papers.

“Over the years, millions of dollars poured into this district,” Dickey said.

At today’s hearing, lawyers argued over whether federal rules governing criminal cases bar indictment of foreign companies that don’t have offices or agents in the U.S. The rules require prosecutors to issue a summons to an agent or officer of the company, and mail a copy to the company’s last known address in the U.S., when bringing criminal charges against an enterprise.

Hong Kong

Megaupload contends prosecutors haven’t tried to serve the company, which is registered in Hong Kong, and can’t meet the requirements.

By indicting Megaupload, officials were able to shut down its operations through criminal forfeiture, seizing domain names and freezing assets without any review by a judge, William Burck, a lawyer for the company, told O’Grady.

“The process chosen here illustrates the threat the rule was designed to prevent,” Burck, a partner at Quinn Emanuel Urquhart & Sullivan LLP, said. “They wiped out a foreign corporation with no office in the U.S. by bringing a criminal indictment.”

The judge asked whether so-called mutual legal assistance treaties -- agreements the U.S. has with other countries to exchange information to enforce laws -- could trump the criminal-rules requirement. He said he would on the motion later.

Extradition Hearing

An extradition hearing for Dotcom, 38, was pushed back from next month until March 25 after a New Zealand judge ruled on June 28 that warrants police used to search his rented mansion on the outskirts of Aukland were overly broad and invalid. The warrants also enabled authorities to seize Dotcom’s property, including a pink Cadillac. Prosecutors are appealing the decision.

Another New Zealand judge in March granted Dotcom access to some of his seized funds and property, ordering that he be provided with $48,500 a month and use of a Mercedes Benz four- wheel drive vehicle.

A revised indictment on Feb. 17 includes charges of racketeering, money laundering, copyright infringement and wire fraud.

The racketeering and money laundering counts carry maximum penalties of 20 years in prison while the copyright infringement charges have maximum five-year penalties.

Megaupload reproduced copyrighted works directly from websites including Google Inc.’s YouTube for illegal sharing and to give the false impression that a related video-sharing website hosted user-generated, rather than copyrighted, content, prosecutors allege.

More than $150 million in profit came from premium subscriptions and $25 million from online advertising, according to the indictment. A lifetime subscription cost about $260, the indictment said.

The case is U.S. v. Dotcom, 12-00003, U.S. District Court, Eastern District of Virginia (Alexandria).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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