Megaupload Judge Defers Decision on Seizing Users’ Data

A U.S. judge deferred a decision on whether the government should set up a way for users to regain access to millions of gigabytes of data the company managed before being shut down as part of a criminal copyright-violation case.

U.S. District Judge Liam O’Grady in Alexandria, Virginia, today heard arguments over a request by a Megaupload user, Kyle Goodwin, that the government be ordered to create a mechanism allowing those who used the website for legitimate purposes to retrieve their data.

“We’ll look at it a little further and issue an order shortly,” O’Grady said at the end of the 1 1/2-hour hearing.

Investigators in January executed more than 20 search warrants in the U.S. and eight other countries and seized about $50 million in assets associated with Megaupload. Company founder Kim Dotcom was arrested in New Zealand.

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.

Since September 2005, the conspiracy generated more than $175 million in criminal proceeds by distributing millions of copies of copyrighted works, including movies, television programs, music, books, video games and software, according to the indictment.

Lifetime Subscription

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

Yesterday, a New Zealand judge ruled that Kim Dotcom had his home searched illegally by police as part of the investigation. Dotcom is free on bail and awaiting an extradition hearing scheduled for August.

Prosecutors today argued that users who had data stored with Megaupload should be required to act as unsecured creditors and file civil actions against Megaupload or Carpathia Hosting Inc., the Dulles, Virginia-based company that Megaupload paid to store the data.

Assistant U.S. Attorney Andrew Peterson compared Megaupload’s data storage to that of a service provider, rather than a holder of property.

“A file-copying service is what Megaupload provided,” he said.

Goodwin isn’t “asking that service be restored,” O’Grady responded. “He’s asking for his data back, and that’s property, right?”

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

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