Megaupload Say US Gov't Is Trying To Steal Assets

[Mike]

We've obviously been covering the Megaupload case for many years, noting how surprisingly weak the case against Megaupload and its execs was. The case has been based mostly on a non-existent belief in some form of secondary criminal liability for copyright law that doesn't exist (there is secondary liability in civil copyright law, but not in criminal copyright law -- and while there is "aiding and abetting" in criminal law it's very different and almost certainly doesn't apply here). While part of ACTA tried to create a secondary liability for criminal copyright law, ACTA has not gone into force, since most countries rejected it.

Separately, we've also been talking quite a bit about the government's widespread abuse of civil asset forfeiture, which is basically legalized theft by the US government, often done separately from any charges against people or businesses for crimes. These cases end up with funny names -- the US government vs. some sort of "thing" like the infamous United States v. Article Consisting of 50,000 Cardboard Boxes More or Less, Each Containing One Pair of Clacker Balls, which, yes, is real. Without getting too much into the legal weeds, there are really two separate processes: seizure and forfeiture. Seizure is basically when law enforcement grabs the stuff and hangs onto it for a while. Technically, after seizure, the government is supposed to either give the stuff back... or then file for forfeiture, which is when those crazily named lawsuits come into play.

In the Megaupload case, the government seized a bunch of stuff (all of which is still in New Zealand and Hong Kong), but over in the US, the government has made a move for civil asset forfeiture, leading to a separate civil asset forfeiture case named United States of America v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto. Catchy, right? But the reality is that it's the US government trying to claim "hey, we get to keep everything we took from Kim Dotcom and Megaupload, even though we haven't actually gone through and tried him or the company yet and there's no conclusive determination of guilt, we're saying that his property is guilty and we get to keep it and buy some toys with it."

Dotcom and Megaupload are now asking for that civil forfeiture process to be dismissed, or at the very least put on hold until after the criminal cases is resolved, for obvious reasons. The full filing (pdf) is worth reading -- and once you understand what we wrote above, it should mostly make sense. Basically, Dotcom and Megaupload are pointing out that the whole criminal case is based on a very questionable interpretation of the law, and then that the attempt at forfeiture is just an even more questionable attempt to not just pile on, but to get to keep everything the US government took from Dotcom/Megaupload based on those questionable theories.

Nearly three years ago, the United States Government effectively wiped out Megaupload Limited, a cloud storage provider, along with related businesses, based on novel theories of criminal copyright infringement that were offered by the Government ex parte and have yet to be subjected to adversarial testing. Thus, the Government has already seized the criminal defendants’ websites, destroyed their business, and frozen their assets around the world—all without benefit of an evidentiary hearing or any semblance of due process. Without even attempting to serve the corporate defendants per the Federal Rules of Criminal Procedure, the Government has exercised all its might in a concerted, calculated effort to foreclose any opportunity for the defendants to challenge the allegations against them and also to deprive them of the funds and other tools (including exculpatory evidence residing on servers, counsel of choice, and ability to appear) that would equip a robust defense in the criminal proceedings.

But all that, for the Government, was not enough. Now it seeks to pile on against ostensibly defenseless targets with a parallel civil action, seeking civil forfeiture, based on the same alleged copyright crimes that, when scrutinized, turn out to be figments of the Government’s boundless imagination. In fact, the crimes for which the Government seeks to punish the Megaupload defendants (now within the civil as well as the criminal realm) do not exist. Although there is no such crime as secondary criminal copyright infringement, that is the crime on which the Government’s Superseding Indictment and instant Complaint are predicated. That is the nonexistent crime for which Megaupload was destroyed and all of its innocent users were denied their rightful property. And that is the nonexistent crime for which the Government would now strip the criminal defendants, and their families, of all their assets.

Beyond the issues related to the basic secondary liability for criminal copyright infringement, the filing further points out that the government doesn't even show that any of the "criminal" infringement took place within the US -- and the Copyright Act only applies in the US.

Because the Government’s Complaint improperly grasps for assets derived from extraterritorial conduct, it falls outside the subject-matter jurisdiction of this Court.

“For the Copyright Act to apply, ‘at least one alleged infringement must be completed entirely within the United States.’” Elmo Shropshire v. Canning, 2011 WL 90136, at *3 (N.D. Cal. Jan. 11, 2011) (quoting Los Angeles News Serv. v. Reuters Television Int’l, Ltd., 149 F.3d 987, 990-91 (9th Cir. 1998)); see also Columbia Pictures Indus., Inc. v. Fung, 2009 WL 6355911, at *8 (C.D. Cal. Dec. 21, 2009) aff'd in part as modified, 710 F.3d 1020 (9th Cir. 2013) (plaintiffs must show “that United States users either uploaded or downloaded copyrighted works”). Tellingly, the Complaint and the Superseding Indictment together fail to identify a single instance in which an act of infringement—particularly an unauthorized upload or download—occurred entirely within the United States.

Instead, the Complaint plainly accuses foreign activities that fall outside the scope of the Copyright Act. The Government describes Megaupload as “an international criminal enterprise,”..., and “a worldwide criminal organization,”.... Other allegations reference foreign citizenships, foreign company registrations, foreign employees, foreign bank accounts, foreign assets, and computer servers located “around the world.” .... Indeed, the reality is that Megaupload’s activities—its users, its operations, its uploadings, and its downloadings—spanned the world at all relevant times. Yet the Complaint is seeking forfeiture without specifying the location of any infringement or confining itself to U.S. borders.

Then it gets deep into that attempt by the "boundless imagination" of the US government to create secondary criminal liability where it does not exist.

The Supreme Court has recognized that, in the civil context, secondary copyright infringement liability may obtain based on uncodified “common law” doctrines. See MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930, 937 (2005). Federal crimes, in contrast, are “solely creatures of statute.” Liparota v. United States, 471 U.S. 419, 424 (1985)....

In fact, there is no such crime. Strikingly, the criminal copyright infringement statute, 17 U.S.C. § 506(a), says nothing whatsoever about secondary liability. See, e.g., Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 434 (1984) (“The Copyright Act does not expressly render anyone liable for infringement committed by another.”). The statute does not state that criminal liability can be predicated upon theories of secondary liability, nor does it contemplate that the reach of criminal liability is to be coextensive with civil liability. Because the Government’s proposed theory of secondary criminal copyright infringement is not codified, it is unknown to federal law—and it is no basis for this Court to assert jurisdiction.

Indeed, a theory of secondary criminal copyright infringement or any species thereof, including aiding and abetting through cloud storage case, would be unconstitutional under the void-for-vagueness doctrine. “A penal statute must define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement.” Connally v. General Construction Co., 269 U.S. 385, 391 (1926). If the Government’s theory takes hold, then ordinary people and legal scholars alike will be left guessing where civil secondary copyright infringement ends and criminality begins, particularly in an era when automated file transactions and “foot faults” faced by high-volume providers of online services are routine.

In a footnote, it also points out that Megaupload likely isn't even subject to civil secondary infringement claims, let alone criminal ones:

The Complaint’s allegations would not even satisfy the civil standards for secondary infringement, for cloud-storage technology is shielded from civil liability by the Sony doctrine, which forbids imputing liability in the context of dual-use technologies. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984). Likewise, online service providers deserve protection against civil liability that is based on theories of constructive notice. See Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995).

Furthermore, the ruling points out that the DMCA did not codify secondary liability, but, rather, did the opposite: it sought to establish standards to protect service providers from secondary liability for copyright infringement.

Thus, Congress not only declined to codify secondary liability, but further expressed its intention to protect service providers against even “monetary relief” in the civil context: it follows a fortiori that Congress did not want secondary copyright infringement to serve as a trigger for criminal punishment. The Government’s secondary criminal theory finds no traction “without rewriting the statute: an act the Congress, but not this court, can undertake.”

As for the attempt to mix and match to pretend that this is "aiding and abetting" and that aiding and abetting is the equivalent of secondary liability for criminal copyright infringement, no dice:

But that is no conceivable basis for criminal prosecution, much less resulting forfeiture. Congress specifically removed from the Copyright Act language about aiding and abetting criminal infringement. See Irina D. Manta, The Puzzle of Criminal Sanctions for Intellectual Property Infringement, 24 Harv. J.L. & Tech. 469, 481 (2011) (“Several years later, countering what had been a trend of expansion in the area of criminal sanctions, the Copyright Act of 1976 eliminated the provisions for aiding and abetting . . .”) Judicial reinsertion of the deleted language, particularly in the criminal context, would chill innovation, creating the prospect of criminal sanctions despite, for instance, compliance with express DMCA safe harbors. Even assuming arguendo that such a criminal prosecution might ever be permitted, neither 18 U.S.C. § 2323 nor 18 U.S.C. § 981 authorizes civil asset forfeiture for proceeds traceable to aiding and abetting criminal conduct. There is, accordingly, no jurisdiction for entertaining a request for civil forfeiture as pleaded here.

The filing also points out that since the property is still in Hong Kong and New Zealand, the US can't use civil forfeiture procedures against it anyway as that's outside the jurisdiction for such "in rem" procedures.

The Fourth Circuit holds that a district court does not have in rem jurisdiction unless it has “exclusive custody or control” over the property at issue. R.M.S. Titanic, Inc. v. Haver, 171 F.3d 943, 964 (4th Cir. 1999) (“Only if the court has exclusive custody and control over the property does it have jurisdiction over the property”). Exclusive custody and control obviously do not exist over the foreign assets at issue here. Nor does this Court have constructive possession over the property. The “fiction” of constructive possession requires that the Court possess some part of Claimants’ assets. R.M.S. Titanic I, 171 F.3d at 964. Yet no portion of the assets sought by the Government resides in this district.

On top of everything else, the government doesn't even properly make a single claim of copyright infringement, with all of the necessary attributes of such a claim:

Missing from the Government’s pleadings are specifics about, e.g., (i) what works are at issue; (ii) whether those works are registered in the United States; (iii) whether those works were uploaded or downloaded and stored in the United States; (iv) which end users performed the infringing acts; (v) whether the end users acted with the intent to violate United States copyright law and (vi) when the alleged acts of infringement occurred (and whether they fell within the Copyright Act’s five-year statute of limitations). 17 U.S.C. § 507(a). The Complaint does not contain a single instance of infringement as to which all of the requisite facts have been pleaded.

The closest the Complaint comes to these specifics is mentioning that Dotcom distributed a link to an unnamed “musical recording” by “50 Cent.” ... The Complaint does not allege the name of the recording; its copyright registration number; the authorization status of link; whether Dotcom properly purchased the recording; who uploaded the file to create the link; who (if anyone) downloaded the file from the link; where any uploads or downloads occurred; or where Dotcom was geographically when he distributed the link. The Complaint does provide a date of distribution (December 3, 2006) but that date falls more than five years before the first Criminal Indictment, well outside the five-year statute of limitations set by 17 U.S.C. § 507(a).

And of course, for it to be criminal, it would have to be willful, and yet (once again) the US government fails to do anything to show how any of the infringement was willful. Specifically, as we've noted in other similar cases, the government would have to show that the users of Megaupload were both infringing willfully and for profit, and that the execs of Megaupload were actively aiding and abetting -- knowing that the end users were doing so willfully. Here the government is doing the same thing that's been done in other cases (without success) arguing that the users are infringing and the site is profiting, and thus it's both willful and for profit, but that's combining different people and different actions in a manner that the law does not accept.

On top of all of that the filing questions why the government is seeking to seize everything. Not only has it not shown a reason to seize any of the assets, it appears to be arguing that all of the proceeds from Megaupload were illegal and thus can be taken by the US government.

While this is a separate action from the other Megaupload situations we've covered -- regarding the criminal case in the US and the extradition attempt in New Zealand -- it certainly does a pretty good job laying out the significant weaknesses in the overall case.

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Originally Published: Mon, 13 Oct 2014 15:09:15 GMT
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[ddoking007]

someone want to simplify this for me I don't understand most of this legal stuff.

[stormium]

someone want to simplify this for me I don't understand most of this legal stuff.

in the united states, the government practices something called 'civil asset forfeiture'. it basically consists of the government taking your stuff if they have reason to believe that it is connected to a crime in any way, shape, or form.

they are trying to apply this to the megaupload case. the rest of the story is about how the case is weak and they are making up laws.

[ddoking007]

someone want to simplify this for me I don't understand most of this legal stuff.

in the united states, the government practices something called 'civil asset forfeiture'. it basically consists of the government taking your stuff if they have reason to believe that it is connected to a crime in any way, shape, or form.

they are trying to apply this to the megaupload case. the rest of the story is about how the case is weak and they are making up laws.

thanks

ya live in the USA and our system is fucked up big time sadly

[Ernesto]

Acting on a lead from the entertainment industry, the U.S. Government shut down Megaupload early 2012.

Since then the case hasn’t progressed much. Kim Dotcom’s extradition hearing has been delayed until 2015 and most of the recent court proceedings dealt with how the seized assets should be handled.

Two months ago the Department of Justice launched a separate civil action in which it asked the court for a forfeiture of the bank accounts, cars and other seized possessions of the Megaupload defendants, claiming they were obtained through copyright and money laundering crimes.

Megaupload has now responded to these allegations at the federal court in Virginia, with a motion to dismiss (pdf) the complaint. According to Megaupload’s lawyers the Department of Justice is making up crimes that don’t exist.

One of the main arguments is that the Government accuses the Megaupload defendants of secondary criminal copyright infringement, a crime that doesn’t exist under common law.

“The crimes for which the Government seeks to punish the Megaupload defendants do not exist. Although there is no such crime as secondary criminal copyright infringement, that is the crime on which the Government’s Superseding Indictment and instant Complaint are predicated,” Megaupload’s lawyers write.

“That is the nonexistent crime for which Megaupload was destroyed and all of its innocent users were denied their rightful property. And that is the nonexistent crime for which the Government would now strip the criminal defendants, and their families, of all their assets,” they add.

In addition, Megaupload mentions another argument why the Court doesn’t have jurisdiction over the case. It’s a requirement that the infringements took place in the United States, but the DOJ’s compliant fails to back that up.

“Tellingly, the Complaint and the Superseding Indictment together fail to identify a single instance in which an act of infringement — particularly an unauthorized upload or download — occurred entirely within the United States,” the motion reads.

This is true for the alleged infringements committed by Megaupload users and also for the 50 Cent track Kim Dotcom allegedly distributed himself. There is no mention or proof that this infringement took place in the United States.

“Although the Complaint alleges that Kim Dotcom personally distributed a link to a copy of a copyrighted work on, and has received at least one infringing copy of a copyrighted work from, the Mega Sites, the Complaint never alleges where that occurred,” the lawyers argue.

Based on these and several other arguments Megaupload’s legal team has asked the Court to dismiss the DOJ’s complaint. At the very least, they want the case to be put on hold until the criminal case is completed.

TorrentFreak spoke with Megaupload lawyer Ira Rothken who explains that this is the first time that they called out the Government for prosecuting “nonexistent” crimes.

“For the first time in the case, with this motion to dismiss, we are attacking the merits of the DOJ’s core copyright claims. We are optimistic that the Court will find that there is no such thing as criminal secondary copyright infringement,” Rothken tells TorrentFreak.

The Government’s efforts are no surprise to Megaupload’s legal team. The civil attempt to obtain possession of the assets fits a pattern of meritless claims according to Rothken.

“The DOJ is trying to win the Megaupload case on procedure rather than the merits,” Rothken told us.

“We are hopeful the US Court will finally decide the threshold copyright issues in Kim Dotcom’s and Megaupload’s favor and bring this global legal matter to a rapid end.”

Originally Published: Mon, 13 Oct 2014 16:43:50 +0000
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[AdmiralSmith-0xf00d]

Yes, with drug charges through the circuit courts as a guess. Consider it a bylaw for the arms dealer business NOT just for drugs. Pirated software and media to an arms dealer may be considered illicit drugs because of import/export trade laws.