Multiple criminal indictments and enforcement actions were taken against Megaupload owner Kim Dotcom in various jurisdictions. On 19 January 2012 the United States Department of Justice seized and shut down the file-hosting site Megaupload.com and commenced criminal cases against its owners and others. On 20 January 2012 Hong Kong Customs froze more than 300 million Hong Kong dollars (US$39 million) in assets belonging to the company.
Arrests in New Zealand Acting upon a US Federal prosecutor's request, the New Zealand Police arrested Dotcom and three other Megaupload executives in a leased $30 million mansion at Coatesville near Auckland on Friday, 20 January 2012 (NZDT, UTC+13). This was pursuant to a request from the U.S. Federal Bureau of Investigation that the four be extradited for racketeering and money laundering. The raid was timed for the birthday celebration of Dotcom. Assets worth $17 million including art works and cars were seized. The four men arrested were Kim Dotcom (founder; 38 years old, from Germany), Finn Batato (Chief marketing officer (CMO); 38, from Germany), Mathias Ortmann (Chief technology officer (CTO) and co-founder; 40, from Germany) and Bram van der Kolk (29, from the Netherlands). The number of police officers involved in this operation was about 80 according to Dotcom or 20 to 30 according to the New Zealand police.
On 23 January, Dotcom appeared in Auckland's North Shore District Court for a bail hearing. The crown argued against bail on the basis that he was a flight risk with a helicopter on his front lawn, while defence lawyers argued that the helicopter could not fly far enough to reach another country. They also said that Dotcom denied any criminal wrongdoing. Judge David McNaughton expressed concern at the discovery of two shotguns at Dotcom's mansion during the police raid, and deferred a decision on whether to grant bail, saying that he needed more time to review the submissions. The request for bail was turned down, with Judge McNaughton saying that "he was denied due to the risk [that] Mr. Dotcom would flee jurisdiction and the possibility that if he reached Germany he wouldn't be extradited to face the charges". On 3 February 2012, an appeal to the High Court of New Zealand upheld the decision to deny bail.
On 22 February 2012, North Shore District Court Judge Nevin Dawson overturned the previous rulings and granted bail to Kim Dotcom, saying that the risk of flight had diminished after his assets had been seized.
On 5 March 2012, a formal request for the extradition to the United States of Kim Dotcom and three other senior Megaupload staff was filed in a New Zealand court.
On 30 April 2012, the New Zealand High Court ruled that around $750,000 of Kim Dotcom's assets could be returned, including a Mercedes-Benz G55 AMG and Toyota Vellfire that had been seized during the raid on his home. The assets in 63 bank accounts and around thirty other vehicles remained in custody. A paperwork error by the New Zealand authorities meant that Kim Dotcom's property had been seized in January 2012 without giving proper notice. The restraining order on his property was granted in April 2012. During April 2012, US district court judge Liam O'Grady stated "I frankly don't know that we are ever going to have a trial in this matter," as he found out that the company had never been formally served with criminal papers by the US.
On 28 June 2012, New Zealand High Court justice Helen Winkelmann ruled that the search warrants used to raid the home of Kim Dotcom were invalid, saying "The warrants did not adequately describe the offences to which they related. They were general warrants, and as such, are invalid."
On 10 July 2012, a decision on whether Kim Dotcom and other Megaupload employees should be extradited to the United States was delayed until March 2013, in order to allow further time for legal arguments to be heard. In December 2012, it was delayed until August 2013.
In March 2013, Dotcom won a Court of Appeal ruling allowing him to sue the Government Communications Security Bureau (GCSB), rejecting the attorney-general's appeal against a ruling in December, 2012.
On 19 February 2014, a New Zealand appeals court overruled the 28 June 2012 decision, declaring the search warrants against Kim Dotcom to be valid. Dotcom's extradition hearing was set for July 2014.
On 8 September 2014, the Court of Appeal ruled that the New Zealand Police is to return seized electronic devices unencrypted back to Dotcom and those involved.
Basis of indictment
The indictment alleged that Megaupload differed from other online file storage businesses.
Media reports covering the case highlighted a number of points from the indictment used to support claims of illegal activity. The indictment provided a number of instances alleged to show criminal behaviour, as well as indicating design points of Megaupload's operating model as being evidence of criminal intent:
In practice, the "vast majority" of users do not have any significant long term private storage capability. Continued storage is dependent upon regular downloads of the file occurring. Files not downloaded are rapidly removed in most cases, whereas popular downloaded files are retained. (items 7 – 8) Because only a small portion of users pay for storage, the business is dependent upon advertising. Adverts are primarily viewed when files are downloaded and the business model is therefore not based upon storage but upon maximising downloads. (items 7 – 8) Persons indicted have "instructed individual users how to locate links to infringing content on the Mega Sites ... [and] ... have also shared with each other comments from Mega Site users demonstrating that they have used or are attempting to use the Mega Sites to get infringing copies of copyrighted content." (item 13) Persons indicted, unlike the public, are not reliant upon links to stored files, but can search the internal database directly. It is claimed they have "searched the internal database for their associates and themselves so that they may directly access copyright-infringing content". (item 14) A comprehensive takedown method is in use to identify child pornography, but not deployed to remove infringing content. (item 24) Infringing users did not have their accounts terminated, and the defendants "made no significant effort to identify users who were using the Mega Sites or services to infringe copyrights, to prevent the uploading of infringing copies of copyrighted materials, or to identify infringing copies of copyrighted works" (item 55–56) An incentivising program was adopted encouraging the upload of "popular" files in return for payments to successful uploaders. (item 69e et al.) Defendants explicitly discussed evasion and infringement issues, including an attempt to copy and upload the entire content of YouTube. (items 69i-l. YouTube: items 69 i,j,l,s)
Counter arguments advanced Schmitz hired the services of Ira Rothken, an attorney who defended several copyright infringement cases. Rothken claims that the raid was unjustly swift and did not give his client the opportunity to defend himself, quoting a similar case involving YouTube as an example of a completely different turnout.
Legal commentators point out that while the indictment may be correct and Megaupload might have acted as a criminal conspiracy as claimed, a number of points in the indictment are based upon selective interpretations and legal concepts (described in one article as "novel theories" of the law) and could be challenged in court. An L.A. Times analysis stated that the author was "struck by how far the indictment goes to find something nefarious"; likewise a TechDirt analysis concluded that while the founder of Megaupload had a significant history of "flaunting the law", evidence has potentially been taken out of context or misrepresented and could "come back to haunt other online services who are providing perfectly legitimate services". Both analyses concur that other evidence could show criminality; the concerns were not irrefutable. The legal concerns included:
Indictment cites lack of a site search as evidence supporting criminality, but in other copyright cases having a site search has been described as evidence in support of criminality and in Atari v. RapidShare not having a site search was agreed by the court as evidence of responsible activity given that some infringing content might exist and be searched for if one existed. In the case of Isohunt, the presence of a search feature was interpreted as evidence of inducement. TechDirt commented that "To use the lack of a feature, that previously was shown to be a problem, as evidence of a conspiracy is crazy. Damned if you do, damned if you don't." The "top 100" list excluded copyrighted titles, but the indictment claims this was evidence of concealing, rather than avoiding downloads of, infringing materials. The indictment asserts as evidence that no effort was made to identify infringing files or users, in other words by acts of omission. But federal court rulings repeatedly agree that no duty exists to search these out. In particular, in MGM Studios, Inc. v. Grokster, Ltd. the Supreme Court looked at "substantial noninfringing uses"; mere lack of monitoring was not by itself sufficient to show wrongdoing or inducement. It may not be possible (or reasonable to require) the host to know and identify what activity is legitimate or not, as file sharing may be used by many content creators. Deletion after a limited period of non-download is suggested as evidence of a motive. But many legitimate sites such as Imgur remove unused content after a while to free up server space. If files were routinely deleted after a short period it could equally suggest legitimate use - because it serves users who share legitimately for a short while, and enforces removal afterwards. Much of the indictment, in the words of one analysis, "seems to be based on the simple assumption that encouraging more usage means they must be encouraging infringement", in other words there should be evidence of actual wrongdoing, not merely evidence of popular use. Many legitimate files are popular and popularly shared, and an assumption that paid use largely equates to infringing use would need evidence. Failure to remove all links following a takedown request is often legitimate. For example the same content may be uploaded by legitimate and illegitimate users. Removing the infringing link does not affect legitimate uploaders. Removing the infringing file would wrongfully cause it to be deleted for legitimate users too. Similarly, once child pornography is identified, it is always illegal for all users. But other material may be legal for some users and not for others. So the fact one case requires file removal and the other only requires link removal may well be correct conduct. The indictment includes money laundering charges. But these include "basic payments" for web hosting, suggesting "lumping in" — adding matters that are in no way illegal to make a case look bad. Megaupload had indicated willingness to attend court in the U.S. already, and answer civil cases.
Safe harbor provisions The US Digital Millennium Copyright Act provides safe harbor for sites that promptly take down infringing content. Safe harbor does not exist if the site has actual knowledge and does nothing about it.
In Megaupload's case, the indictment alleges DMCA provisions were used for the appearance of legitimacy – the actual material was not removed, only some links to it were, takedowns agreement was approved based on business growth rather than infringement, and the parties themselves openly discussed their infringing activities. The indictment claims that Megaupload executives: