Appeals Court Says It's Perfectly Fine For The DOJ To Steal Kim Dotcom's Money Before Any Trial

from the this-is-pretty-fucked-up dept

Last year, there was a series of very troubling rulings by a district court in a case related to the criminal prosecution of Kim Dotcom. This wasn't, technically, part of the actual criminal case against him, but rather a separate effort by the government to steal his money. We've been covering the ridiculous process of civil asset forfeiture for a while, and it's really problematic in general. In Dotcom's case, it's something of a farce. Remember, civil asset forfeiture is the situation where the US government effectively files a civil (not criminal) lawsuit against inanimate objects, rather than people. In this case, it basically filed a lawsuit against all of Kim Dotcom's money, arguing that it was the proceeds of a crime and therefore, the government should just get it all. Again, this is entirely separate from the actual criminal trial of Kim Dotcom, which has been put on hold while the extradition battle plays out in New Zealand (determining if Dotcom can be forcibly sent to the US to stand trial).

Just the whole process of civil asset forfeiture is troublesome enough. As we've detailed over and over again, it's basically a system whereby law enforcement gets to steal money and other stuff (cars are popular) from people, simply by claiming that they were used in a criminal endeavor. Since the lawsuit is against the stuff, if people want it back, they have to go and make a claim on it, and it's a fairly convoluted process. In this case, things were even more ridiculous, because the government argued that because Dotcom was resisting extradition from New Zealand, he could be declared "a fugitive" and the judge overseeing the case (the same one overseeing his criminal case, Judge Liam O'Grady) agreed. That effectively meant that Dotcom had no legal right to protest the government simply taking and keeping all of his assets -- and they moved forward and did exactly that.

It is difficult to see how this can be legitimately described as anything but theft by the US government. It got someone locked up in New Zealand, based on questionable legal theories, and while he was (quite reasonably) fighting extradition to the US (a place he's never visited and where he has no business ties), it initiated a separate legal process to keep all his money, no matter what happens in his extradition fight and criminal trial. On top of that, it effectively barred him from making an official claim on that money by having him declared a fugitive for exercising his legal due process rights to fight extradition. So while he exercises his legal due process rights in New Zealand, he's blocked from doing so in the US. And all of his money goes to the US government.

As we said after O'Grady's ruling came out, even if you think that Dotcom is guilty of a criminal copyright conspiracy, and even if you think he should be extradited, tried and locked up this should concern you. Let him go through the full legal process, with all that due process entails, and then determine what should happen to his assets. To take them before that's happened, through this questionable side process is immensely problematic.

And that's why Dotcom appealed, and many others -- including a bunch of criminal defense lawyers -- stepped in to argue this was crazy. Unfortunately, earlier today, the 4th Circuit Appeals Court upheld O'Grady's ruling and rubber stamped the DOJ's legalized theft of Dotcom's assets. You should read the 61 page opinion (which was a 2 to 1 decision, with an interesting dissent), but we'll hit on some of the low points here.

There were a number of different arguments raised -- with a big one not just being the basic due process question, but a jurisdiction question. Dotcom's assets are not in the US. His work was not in the US. So why does the US get to seize the money. The majority opinion basically says "because that's what Congress wanted -- it created this law to let the US government seize overseas assets." The opinion admits that there's a bit of a circuit split on this, but goes for it anyway.

When the amendments were introduced in the Money Laundering Improvements Act, Senator D’Amato included an explanatory statement indicating that subsection (b) was intended to provide the federal district courts with jurisdiction over foreign property:

Subsection (b)(2) addresses a problem that arises whenever property subject to forfeiture under the laws of the United States is located in a foreign country. As mentioned, under current law, it is probably no longer necessary to base in rem jurisdiction on the location of the property if there have been sufficient contacts with the district in which the suit is filed. See United States v. $10,000 in U.S. Currency[, 860 F.2d 1511 (9th Cir. 1988)]. No statute, however, says this, and the issue has to be repeatedly litigated whenever a foreign government is willing to give effect to a forfeiture order issued by a United States court and turn over seized property to the United States if only the United States is able to obtain such an order.

Subsection (b)(2) resolves this problem by providing for jurisdiction over such property in the United States District Court for the District of Columbia, in the district court for the district in which any of the acts giving rise to the forfeiture occurred, or in any other district where venue would be appropriate under a venue-for-forfeiture statute.

This is the point that the dissent disagrees on, and argues that the forfeiture should be blocked on jurisdictional questions alone. The key, according to Judge Henry Floyd, is that court decisions must be binding on parties, and not advisory. But that doesn't work when you're talking about an opinion concerning assets overseas, which will still then depend on the local government where those assets live to abide by the ruling.

The majority side-steps this concern by cabining it to the separation of powers context. One of the basic tenets of what constitutes a “case or controversy” cannot be elided so. The defendant in this action--the res--is outside of the United States and beyond the control of the district court. Absent control, no order of the district court can be binding on the res because the fate of the res is ultimately not in the hands of the district court. Instead, the res in this case is subject to the control of the courts of New Zealand and Hong Kong. The district court’s forfeiture order therefore merely advises the courts of a foreign sovereign that (in the district court’s view under the laws of the United States) the United States should have title to the res. Those courts, of course, with control of the res and with the authority vested in them by their own sovereigns, remain free to revise, overturn, or refuse recognition to the judgment of the district court.

As Judge Floyd notes, this makes the opinion nothing more than an advisory opinion, which is prohibited by Article III of the Constitution (concerning the powers of the judiciary).

Back to the majority opinion, the court rejects the argument that this process to steal Dotcom's money without letting him defend himself violates the Due Process Clause of the Fifth Amendment. First, the court says that because some of Megaupload's servers were based in Virginia, the jurisdiction is fine. Then, the court accepts the lower court's decision that Dotcom can be called a "fugitive" even as he's both in contact with the court and going through a perfectly legal process around extradition in New Zealand. Somewhat incredibly, the court decides that because he's resisting extradition, that's the same thing as being a fugitive hiding out. That... should be troubling for a whole variety of reasons. Basically, the court says that due process means that Dotcom has the right to be heard protesting the forfeiture, but that the only way to do that is to stop fighting extradition. It gets down in the weeds parsing the law in determining what the right standard is for determining if fighting extradition counts as being a fugitive, and decides that this was Congress' intent with the law -- that so long as the person is avoiding court, even if for reasons relating to the legality of extradition, they can still be declared a fugitive.

The claimants’ argument that they have legitimate reasons to remain where they are, such as jobs, businesses, and families does not disprove that avoiding prosecution is the reason they refuse to come to the United States.

I imagine that Dotcom's lawyers will now try to fight this as well -- seeking either an en banc rehearing or petition the Supreme Court to hear the case. Both are pretty risky, with a fairly high probability of being rejected. And, of course, as the dissent pointed out, there's still one other hurdle for the DOJ: the assets are held in Hong Kong and New Zealand, and they now need to convince authorities in those two places to hand over the money. And, as of right now, it's not clear if they'll actually let it happen.

Again, no matter what you think of Dotcom's actual criminal case, this result should be concerning to you. The use and abuse of civil asset forfeiture is the real issue here -- not the copyright questions. The ability of the US government to simply take millions of dollars based on accusations and without a guilty verdict in a trial should be tremendously worrying. If a full trial happened and he was found guilty, then there's a reasonable argument that, as a result of that, the money can be forfeited. But it's extremely problematic that the money can be forfeited in these circumstances, before the rest of the legal process has occurred. Under this ruling, even if Dotcom came to the US and was found not guilty, the US government would still keep all his stuff. Can anyone explain how that would be a fair and just result?

Filed Under: 4th circuit, article iii, asset forfeiture, civil asset forfeiture, copyright, doj, due process, hong kong, jurisdiction, kim dotcom, new zealand
Companies: megaupload

Kickass Torrents Asks Justice Department To Drop Case

from the i'm-sure-the-doj-will-laugh dept

Last month, we looked at the criminal complaint against the alleged operator of the torrent search engine Kickass Torrents (KAT) and raised a number of questions about the complaint. We noted that it appeared that the alleged operator, Arten Vaulin, was getting the "Megaupload treatment," as there were a number of similarities between the two cases and the legal leaps of logic employed by the Justice Department in making their case. Thus, it was little surprise that Ira Rothken, who has managed the legal efforts for Kim Dotcom/Megaupload, has now signed on to represent Vaulin as well. His first move, last week, was to send the DOJ a letter, asking it to drop the case. While I would imagine that the request resulted in some hearty laughter among DOJ lawyers, it does lay out some of the key arguments that Vaulin will likely make as the case moves forward.

The key issue -- as we pointed out in our post -- and which is also true of the Dotcom/Megaupload case -- is that the DOJ appears to be making up a secondary liability for criminal infringement claim, which does not exist in the law.

This alleged criminal copyright case arises out of an erroneous theory of criminal copyright law advanced by the United States that attempts to hold Artem Vaulin ("Defendant") criminally liable for the alleged infringing acts of KAT's search engine users. Discussion of Mr. Vaulin’s involvement in KAT shall await another day. Distilled down, in terms of technology, nothing more is alleged in the CC than that a visitor to defendants' alleged "KickAssTorrents" ("KAT") site can take advantage of automated search processes embodied there to search for and locate "dot torrent" files. Such files contain textual information assembled by automated processes and do NOT contain copyrighted content. After leaving the defendants' alleged websites, the visitor may stop and do nothing or use the data in such torrent files in conjunction with third party "client" software; and that pursuit may, according to the desires of the user and the uncertain nature of the availability of third party files on the internet, lead to both infringing and non-infringing files being constructed that are located elsewhere on the Internet. By the time any possible primary infringement by a former KAT visitor could ever occur the visit to the site is long over.

The indictment does not even come close to alleging direct "willful" copyright infringement as KAT contains and transmits no content files. Defendants cannot be held criminally responsible for what users do after they leave the KAT search engine behind. The Copyright Act does not criminalize secondary copyright infringement.... The Criminal statute at issue namely Section 506 only imposes liability for direct, willful infringement that causes specific damages.... The government’s copyright conspiracy theory for similar reasons fails as a matter of law. Such a conspiracy theory is little more than a novel back door attempt to improperly argue judge made civil secondary infringement in a criminal case. Trying to hold KAT criminally responsible for the entire global BitTorrent network does not pass muster.

Later, the letter points out how the failure of the complaint to point to any actual direct infringement shows just how weak the case is:

The absence of allegations of specific unauthorized downloads or direct infringements in the complaint is not inadvertent: rather it is a side effect of how far removed defendant is from the potential infringing event and it is part of an improper criminal complaint that purports to impose presumptive criminal liability on a BitTorrent search engine for alleged offsite infringements. It is also a sign that the government is eager to improperly introduce concepts of judge made civil law into a criminal statutory analysis.

The letter also notes that the Homeland Security Investigations agent who wrote the affidavit attached to the criminal complaint clearly did not understand how bittorrent works and completely misrepresented the technology in a way that unfairly represents how KAT and bittorrent actually work. For example:

Paragraph 19 of the Affidavit inaccurately states: “Between on or about June 24, 2016, and on or about June 30, 2016, HSI Special Agents downloaded from the Northern District of Illinois the following prerelease movies from KAT (at Subject Domain 4).” There was no movie or other content on KAT that could ever be downloaded and therefore no direct infringements could have occurred on KAT.... Infringements that occur after users, including HSI Special Agents, leave the KAT site behind cannot be criminally actionable against KAT.

The case by the DOJ also relies very heavily on the fact that the HSI investigator was able to find a torrent for a pre-release copy of Captain America: Civil War via a KAT search. The case needs this, because it's the only way it gets even remotely close to criminal copyright infringement (remember, there's a big difference between criminal and civil copyright infringement, and individuals downloading/uploading stuff won't cut it (especially if there's no money in it). The complaint tries to get around this by focusing (almost exclusively) on the Captain America pre-release, because there is criminal infringement for pre-release works. But, again, Rothken points out the problems with this argument:

The only copyrighted work identified in Counts Three and Four is “Captain America: Civil War,” referenced in paragraph 19, discussed supra. There is no evidence to support the allegations as “Captain America: Civil War” or as to any specific work. The lack of evidence is not surprising given that the KAT technology did not store or transmit any content. If a user committed copyright infringement, it is only after they left the KAT servers behind.

It is settled that liability for direct copyright infringement cannot be based on provision of information services to individuals that such individuals use to commit infringement. More specifically it is also well settled law that mere hyperlinks and their more attenuated cousin, torrent files, cannot constitute direct copyright infringement. In brief, because KAT did not copy anything or transmit content, it cannot be charged with direct copyright infringement.

It also challenges the weird DOJ argument that KAT failed to comply with the DMCA notices it sent. As the letter points out, that's not a criminal offense.

Alleged failures to comply with the conditions of a DMCA civil defense does not create a criminal cause of action. There is no Act of Congress establishing a crime for violations of the DMCA safe harbors. The DMCA is a defense in the civil context of contributory and vicarious liability for copyright infringement committed by third parties and of liability for intentionally inducing third parties to commit copyright infringement.

The Government knowing that Judge made civil law for internet secondary copyright infringement could not be applied in the criminal statutory context is attempting to use the vague and novel theory of criminal “conspiracy” to try to argue it through a back door and such arguments fail as a matter of law. There is a scarcity of judicial opinions in contested criminal copyright cases that discuss how a criminal conspiracy theory could apply to mere internet hyperlinks or torrent files/trackers. The government by throwing against the wall the criminal conspiracy theory without any statutory support from Congress is trying to argue Judge made civil common law by analogy. Common-law civil liability principles cannot be extended to impose criminal liability. Crimes must be specifically defined by Congress. Federal crimes “are solely creatures of statute.”

There are a few other points made in there, including laughing off the "conspiracy" claims, since the DOJ only named one person and can't legitimately argue a "conspiracy" between KAT's operator and its users. There are also jurisdictional questions about trying the case in Illinois (or under US law at all) and of course, the silliness of including a money laundering claim.

There's basically zero chance that this leads to the DOJ dropping the case, but I imagine that much of this letter (perhaps verbatim) will show up in court before long...

Filed Under: artem vaulin, copyright, criminal copyright, doj, ira rothken, kim dotcom
Companies: kickass torrents

Judge's Opinion On Kim Dotcom Shows An Unfortunate Willingness To Ignore Context

from the this-is-disappointing dept

Last night, we posted the news that a judge in New Zealand had ruled that Kim Dotcom and his colleagues were extraditable. Dotcom is appealing the decision, so it's not over yet. Soon after the decision was announced, the full ruling by Judge Nevin Dawson was released. It's a staggering 271 pages, and I've spent a good chunk of today reading it over. Some parts of it are more compelling than others, and there may even be enough to support the ruling. However, what troubles me is how frequently Judge Dawson appears to totally, without question, accept the US government's arguments (as relayed by New Zealand prosecutors), despite the fact that many of them are clearly misleading at best, or downright incorrect.

It would take too long to go point by point through the whole thing, but I did want to highlight a few points that I found concerning. The key issue in the extradition fight is whether or not copyright infringement is an extraditable offense. Under the treaty between the US and New Zealand, it is not considered an extraditable offense, which is why a variety of other "conspiracy" charges are piled on in the complaint against Dotcom. Yet, Judge Dawson basically tosses much of that out, arguing that "conspiracy to defraud" is an extraditable offense, and copyright infringement can be a conspiracy to defraud. As Dotcom's lawyers noted yesterday, this would basically write out the fact that copyright is not an extraditable offense.

However, almost all of this "conspiracy to defraud," as well as the other issues that the court finds extraditable (such as "money laundering") are all based on the claims of the DOJ, many of which were presented ridiculously out of context by the DOJ in the original indictment, but which Judge Dawson takes as perfectly accurate, without considering alternative explanations. For example, there's the question of whether or not Megaupload had its own search engine. As we noted in the original indictment, this is particularly ridiculous. A key reason why the original Napster got shut down was because it had a search engine, which the court used to argue that it was more involved in the infringement. Thus, there's a strong argument for why a site should not have a search engine, in order to make it harder to find infringing materials. Yet, the DOJ argued that this was part of the "conspiracy" and that it showed that Megaupload was trying to hide the infringing activities from law enforcement. Damned if you do, damned if you don't. But Judge Dawson flat out accepted the DOJ's argument. Judge Dawson quotes a Skype discussion between two of Dotcom's colleagues, Mathias Ortmann and Bram Van Der Kolk, in which Ortmann notes that "searchability is dangerous and will kill us." And the judge concludes:

There was so much infringing content on the sites that its presence had to be disguised and made non-searchable. Traffic flowed to this content through third party sites.

That's one interpretation. A more plausible explanation could be that these guys didn't want to make their site easy to use for infringement and thus didn't make the material searchable. Instead, that's used against them.

Elsewhere, the judge uses a discussion between Kim Dotcom and Ortmann about how to make sure the service is "invulnerable" to legal challenges as proof that they "appreciated that Mega operated unlawfully and was at risk of being shut down by a court." Of course, a perfectly reasonable alternative explanation is that their discussion was on how to make sure they were not unlawful and not at risk of being shut down by a court. There are plenty of business discussions that tons of businesses could have like this that, devoid of context, could be presented in this misleading way. Any time any two executives from a business were to discuss specifics of making sure their business is legal could then be misrepresented as evidence that they "knew it operated unlawfully and was at risk of being shut down by a court."

There are lots of other examples of this, including conversations between basically all of the defendants discussing (and sometimes joking about) the possibility of lawsuits (most of which they assume would be civil lawsuits). But just because you think you might get sued is hardly evidence of a conspiracy or belief that what you're doing is illegal. I've had many discussions with our lawyers about doing things to protect ourselves from getting sued. That doesn't mean I believe I'm operating illegally. It means I understand the legal environment we operate in, where lawsuits happen frequently, and I'd like to minimize the risk. But in this case, every hint of Megaupload doing the same is treated as an admission of knowingly breaking the law. It's true that there are some conversations that do seem to go beyond this point, such as when Ortmann and Van Der Kolk complain that the business can't be sold because it's not "legit" -- so it's reasonable to argue that those are enough. But, so many of the conversations seem to be spun so far beyond reality that it makes the evidence appear a lot stronger than it really is.

Some of the evidence is just outright ridiculous. At one point, Ortmann sends Dotcom a link to an agenda for an "IP Crime Conference" that was hosted in the same building that was officially Megaupload's headquarters (a Hong Kong hotel) with the tagline "in the lion's den." The judge concludes that from this you can infer "Mega's business was copyright piracy." Huh? How is that a reasonable inference?

Now, I know that some folks are already banging angrily below in the comments about this, pointing out that of course Megaupload was used for infringement, and all of this is just hand-waving to ignore that fact. But that's not what I'm doing here at all. Yes, it's quite clear that Megaupload was widely used for infringement. But that alone is not a criminal offense. When the VCR was first introduced, it was widely used for infringement. When the mp3 player was first introduced, it was widely used for infringement. When the DVR was first introduced. Tape players. Photocopiers. Radio. But that alone does not constitute a criminal offense. Yet, here the judge seems to think that any weak inference that the execs at Megaupload knew that their service was used for infringement implicates them in a criminal conspiracy.

That seems incredibly problematic.

Similarly, as the DOJ did in its indictment, the Judge focuses a lot on the "incentive" program that Megaupload put in place, whereby users who post files that get a lot of downloads could profit from those downloads. The claim by the DOJ, and totally accepted by Judge Dawson, is that this is proof that they were encouraging infringement. But, again, such a program could just as easily be useful for non-infringing purposes as well. If you were a singer and wanted to give away your music for free, but still profit from it, you could see how this could be a compelling business model. In fact, some major recording artists, such as Busta Rhymes, were excited about using Megaupload in just this manner. Yes, obviously some would use this to post infringing files, but again the fact that some users could misuse the service does not mean the company's execs are criminals.

For example, the court uses the fact that Ortmann and Van Der Kolk messaged each other about how uploaded files in the program are "not yet" being "audited for copyright violation" as evidence that the program was designed to drive infringement. But there is no requirement under the law to proactively monitor the content for infringement. Later the judge uses the fact that the incentive program was purposely designed to "attract new users" and to reward "huge uploaders" as evidence that "this was not cyberlocker activity but mass distribution of illicit content." Again, this presumes that the only possible use for a cyberlocker is to store personal data, and not to use it to distribute and share files (many of which may be perfectly legitimate).

Again, some of the other statements may cross the line -- including discussions about specific users where the defendants appear to recognize that certain files are infringing. There are also discussions about whether to cut off incentive payments in cases where they know a user is uploading infringing material (where they don't cut off those payments). Those may be the most damning. But, again, straight up copyright infringement isn't supposed to be an indictable offense. And it's all this other stuff that the judge uses to argue some wider "conspiracy to defraud."

Also, as has been pointed out time and time again, there is no such thing as "secondary" criminal copyright infringement. That is, it's not a criminal offense if your tool is used by someone else to infringe. But all that basically gets ignored.

There's a lot more in there, and it's worth reading through and looking at all of the arguments and evidence. I can see why the judge ruled the way he did. And much of it is similar to the arguments in the original indictment. And, again, there may actually be enough in there for the extradition to go forward, but so much of it seems bound up in taking statements out of context that it seems pretty sketchy. If those kinds of arguments were dropped, and the ruling focused just on the clear evidence of some sort of plan to "defraud" it would seem like a much stronger argument. The fact that piece of evidence after piece of evidence just seems so... weak, raises serious questions about the whole decision.

Filed Under: bram van der kolk, conspiracy, conspiracy to defraud, copyright, doj, extradition, kim dotcom, mathias ortmann, nevin dawson, new zealand
Companies: megaupload

New Zealand Says Kim Dotcom Eligible For Extradition; Dotcom To Appeal

from the and-on-it-goes dept

This doesn't come as a huge surprise, but minutes ago in New Zealand Judge Nevin Dawson gave the US Justice Department a bit of an early Christmas present in declaring that Kim Dotcom and his co-defendants in the Megaupload case are eligible for extradition, following the long extradition trial earlier this year. The judge apparently said that the evidence was "overwhelming" against the defendants. This does not mean that Dotcom and crew are boarding a plane across the Pacific just yet. They have 15 days to file an appeal and Dotcom's lawyers have already indicated that such an appeal is on the way (what did you expect?). Dotcom's lawyer Ira Rothken points out that under New Zealand's extradition agreement with the US, there is no extradition over copyright issues -- and argues this ruling renders such a safe harbor "illusory." Of course, even if that fails, there's still a separate process for approving the actual extradition, which would take place with New Zealand's Justice Minister, but that part of the process is more of a formality than anything else. It's not over yet, but at this point things are leaning strongly towards Dotcom and his colleagues being shipped to Virginia to face a US criminal trial.

Filed Under: copyright, doj, extradition, kim dotcom, new zealand
Companies: megaupload

Larry Lessig Tells New Zealand Court That DOJ's Case Against Kim Dotcom Is A Sham

from the taking-it-up-a-notch dept

As Kim Dotcom's extradition case appears set to finally be heard (after many, many delays), Dotcom has brought in some interesting firepower. Presidential candidate and famed legal scholar Larry Lessig has submitted an affidavit that completely destroys the DOJ's case. He argues not only that Dotcom's actions do not amount to any sort of extraditable offense, but that they don't even seem to be against US law at all. If you've been following the case at all, you know that under the US/New Zealand extradition treaty, copyright infringement is not an extraditable offense. That's why the US has lumped in a bunch of questionable claims about "conspiracy" and "wire fraud." But most of those are just repeating the infringement claims in different ways. Lessig dismantles all of them and suggests the DOJ case is a lot of smoke and mirrors. His summary brings it all together:

It is my opinion that the Superseding Indictment and Record of the Case filed by the DOJ do not meet the requirements necessary to support a prima facie case that would be recognized by United States federal law and subject to the US-NZ Extradition Treaty. An attempt has been made to extract facts from multiple sources and over a wide span of time, to organize a large number of otherwise disconnected facts by using systematic phraseology and to juxtapose phrases in order to create an impression of coherence and substance. However, the attempt fails to reach its goals and any impression of coherence or substance dissolves under examination. Insofar as they are alleged in the Superceding Indictment and the ROC, respondents’ actions were not prohibited by criminal statutes of the United States. Filings of the DOJ attempt to create a false impression of criminal guilt and are not reliable.

Lessig's detailed analysis covers many of the same issues I raised just days after the raid on Dotcom's mansion and his arrest. Basically, it appears that the DOJ is trying to make up a form of criminal copyright infringement that is based on "well, Hollywood really dislikes him." A key issue, as we've discussed in the past, is that there is no such thing as secondary criminal copyright infringement. The Supreme Court, in the Grokster case, created a concept known as inducement for civil copyright infringement, but criminal copyright infringement cannot be expanded by the courts -- only by congress. Yet, the DOJ is trying to pretend that there is such a thing as secondary criminal infringement, despite it not being in the law.

... criminal copyright liability cannot be broadened by invoking civil concepts of secondary copyright infringement directly or under the guise of the general aiding and abetting statute, 18 U.S.C. § 2. See Sup. Ind. Counts Four, Five, Six, Seven, and Eight. The United States legislature previously removed “aiding and abetting” from the copyright act, evincing an intent to eliminate that form of liability

He further notes that the indictment and DOJ arguments repeatedly refer to the DMCA, but the DMCA is only for civil copyright infringement, not for criminal:

The DMCA is only a defense in the civil context because only civil indirect or secondary liability is possible under the common law. Common law liability principles cannot be extended to criminal liability, which must be specifically proscribed by statute. See Dowling v. United States, 473 U.S. 207, 213-214 (1985). Because there cannot be common law crimes under United States law, the DMCA further emphasizes that criminal indirect liability for copyright infringement does not exist by statute.

And thus, Megaupload's "failures" to follow the DMCA cannot be the basis of criminal charges:

... allegations of defendant’s failure to maintain a DMCA policy or defects in a defendant’s DMCA procedures cannot be the basis of criminal copyright charges....

And, of course, he points out that under the Sony Betamax case that confirmed VCRs were legal in the US, the standard the Supreme Court set up was if a technology had "substantial non-infringing uses," which Megaupload clearly had.

Lessig also points out something that should be pretty obvious, but is often forgotten: the US Copyright Act does not apply outside the US.

An important limitation on enforcement powers of the DOJ is the principle that the United State Copyright Act has no application outside of the territorial bounds of the US, and therefore there is neither civil nor criminal liability under United States law for acts of infringement taking place outside of US borders.

And, yes, the DOJ points out that Megaupload had servers in the US, but as Lessig points out that's not enough under US law:

The Superseding Indictment does discuss the existence of Megaupload servers in the United States.... But the mere presence of data servers in Virginia does not establish that direct infringement took place there. See, e.g., CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544, 549-50 (4th Cir. 2004) (holding that direct infringement under the civil standard requires more than “mere ownership of a machine used by others to make illegal copies” and that there “must be actual infringing conduct[.]”); Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121, 131-32 (2d Cir. 2008) (direct civil infringement requires “volitional conduct,” not mere ownership of device used by others to infringe).

The Superseding Indictment never states that any specific user, much less any of the criminal defendants, chose to upload or download any specific infringing work from within the United States.

That seems like a pretty big flaw in the DOJ's case.

Perhaps an even bigger flaw? The lack of any showing that any of the defendants engaged in all of the required elements for criminal copyright infringement:

the DOJ fails to show direct criminal copyright infringement on the part of Megaupload personnel or on the part of Megaupload cloud storage users. The allegations in the Superseding Indictment and the Record of the Case do not match up to all of the elements of offenses. Importantly, there is no showing that any specific Megaupload representative or third-party user had the requisite mens rea to willfully violate copyright law. There is an even more fatal failure to show that Megaupload personnel agreed with a third party user to commit such violations. An agreement requires communications between defendants and the user, not just discussions among Megaupload personnel and a general “environment of infringement.” Attempts to juxtapose pieces of allegations do not succeed in making even a single whole, unified criminal charge.

As Lessig details, criminal copyright infringement requires willful infringement for the purpose of commercial advantage or private financial gain. The complaint does not do a very good job of showing the "willful" part. Just showing that the company was slow to take down content is not enough. In fact, Lessig points out, charges of criminal copyright infringement need to list out the actual works infringed and then show all the other necessary elements:

proof of charges of both Criminal Copyright Infringement and also Conspiracy to commit such crimes must identify specific copyrighted works on a work by work, link by link basis, and describe the who, what, when, where, why, and how to meet all the elements for each such instance and to examine fair use, amongst other things. The “willfulness” requirement means that a person must have had the specific intent to commit copyright infringement as to each individual work.

And yet, the Dotcom indictment fails to do basically all of that.

As for the attempt to get around the fact that there is no secondary infringement in criminal law by saying, "oh, well, it's just aiding and abetting," that doesn't fly either. Yes, users may have willfully infringed, but the evidence is lacking that the Megaupload team did the same, and just "aiding and abetting" doesn't work:

Aiding and abetting requires a showing of “double wilfulness,” which is lacking in the Superceding Indictment and ROC. A vague charge of “making available” a copyrighted work under a theory of “Aiding and Abetting Criminal Copyright Infringement,” is insufficient. In my opinion the government has failed to allege sufficient facts that the Megaupload defendants shared in any alleged infringer’s criminal willful intent. Gestalt allegations that the Megaupload cloud storage system brought about the arrangment that made the vague criminal acts of the alleged infringers possible is insufficient “willfulness” as a matter of law. As discussed above, Megaupload did not exercise volitional control over user uploads, link sharing, and downloads.

Basically, he's calling out the fact that the DOJ is picking and choosing different actions by completely different actors and trying to tie them all together to create all the elements for criminal copyright infringement. But you can't do that.

The Supreme Court of the United States has stated that the aiding and abetting statute converts an accomplice into a principal, but that aiding and abetting is neither a separate crime nor is it relevant to the distinct crime of conspiracy. See Pereira v. United States, 347 U.S. 1, 11 (1954) (“Aiding, abetting, and counseling are not terms which presuppose the existence of an agreement. Those terms . . . mak[e] the defendant a principal when he consciously shares in a criminal act, regardless of the existence of a conspiracy.”) (emphasis added). Therefore, allegations that defendants aided or abetted a crime of copyright infringement do not amount to an extraditable offense. The crime, if it exists, must be specifically shown.

A similar argument dooms all the "conspiracy" charges. End users may have willfully infringed, but that doesn't create a "conspiracy" between them and the Megaupload team.

United States v. Hickman, 626 F.3d 756 (4th Cir. 2010), a decision by the Fourth Circuit Court of Appeals is particularly instructive. In that case, the court was asked to decide if a store that sold thousands of glass vials was engaged in a conspiracy to distribute heroin, since it was well known that such glass vials were used primarily to package heroin for sale. Id. at 767-73. The Fourth Circuit explained that merely selling the vials was not sufficient to demonstrate the crime of conspiracy without something more. Id. The court would have required that the defendant possess explicit knowledge of specific plans to distribute heroin in order to be convicted of conspiracy. Id. This is consistent with other Fourth Circuit decisions which generally require a "showing that the defendant knew the conspiracy's purpose and took some action indicating his participation." Chorman, 910 F.2d at 109.

As mentioned above, a member of the conspiracy must undertake some "overt act" which furthers the underlying offense of the conspiracy. Chorman, 910 F.2d at 109. Thus, in order to properly state a claim for conspiracy to commit felony copyright infringement, there must be an agreement between two individuals to commit that crime, and then one of the individuals, who is a party to the agreement, must commit an act in furtherance of that crime.

As discussed above, infringing acts are alleged to have been committed by unnamed Megaupload users. A crime of conspiracy requires an agreement with criminal infringers. No such agreement is shown.

Lessig notes that while the record in the case shows lots of communication between Megaupload staff, it shows none between the staff and the users of the site who are actually doing the infringing. That's a pretty weak conspiracy.

there is no allegation of direct communication with the user, and no reason to believe that the Megaupload employees entered into a relationship with the user beyond a series of retail transactions regarding cloud storage space on the Megaupload leased servers.

Lessig also rips apart the arguments for wire fraud, noting that they all seem to be based on the idea that Megaupload didn't abide by the DMCA (again a US law).

Alleged frauds revolve around Megaupload’s practices under the DMCA and around an “Abuse Tool” Megaupload provided to copyright owners or agents who wanted to deliver to Megaupload DMCA notices of infringing materials on the Megaupload site and automatically disable access to such materials. It is alleged that Megaupload made misrepresentations in connection with the Abuse Tool, promising to delete access to referenced materials while only deleting the referenced URLs and without deleting all other URLs in the database that pointed to such materials. It is further alleged that the Abuse Tool did not operate as represented, that deletions were delayed and that the site promised to terminate repeat infringers but failed to do so....

As mentioned above, the DMCA serves to explicitly limit the copyright liability of Internet service providers and to provide a “safe harbor” from copyright claims.... If an online service provider like Megaupload is noncompliant the result is loss of the civil safe harbor defense not a criminal fraud.

Furthermore, Lessig notes that for there to be wire fraud, US law requires a scheme to defraud users and then the use of mail or wire in furtherance of that scheme. Yet the indictment is lacking in defrauded parties.

It is alleged that Megaupload received “advertising revenue as a result of the continued availability of files,” while never stating that the copyright holders themselves made any pay outs.... Thus, there is no allegation that the advertisers were ever lied to, deceived or misled; in other words, the party deceived and the party that lost property were two completely different individuals.

It is also alleged that Megaupload received money from users who purchased premium subscriptions.... However, as with the advertisers, there is no indication that the users were deceived or misled in any way.

Moreover, the DOJ must look at the monies actually received when charging the crime of wire fraud, and cannot look to any “intangible right” that may belong to the copyright holder. United States courts have explained that intangible rights cannot form the basis of a wire fraud charge. See United States v. Hilling, 891 F.2d 205, 208 (9th Cir. 1988) (reversing a mail fraud conviction based on intangible rights). Nor is a “license” a recognized property right. See United States v. Schwartz, 924 F.2d 410, 418 (2d Cir. 1991) (overturning wire fraud conviction because “[t]he [] licenses given appellants were merely the expression of its regulatory imprimatur, and they had no other effect as ‘property’”).

And all of that dooms the wire fraud claims:

In sum, the DOJ only alleges that one party was deceived: the copyright holders.... However, that party cannot lay a claim to a recognized property right that Megaupload is alleged to have taken; at best the rights claimed would be the right to license their works, or similar intangible rights which cannot form the basis of a wire fraud conviction.

Another defect in the DOJ approach is that it is contrary to the DMCA. The Fourth Circuit has repeatedly upheld the principal of statutory interpretation which holds that courts “must give effect to every provision and word in a statute and avoid any interpretation that may render statutory terms meaningless[.]” Scott v. United States, 328 F.3d 132, 139 (4th Cir. 2003). Here, in order to give proper effect to the DMCA, the wire fraud statute cannot be interpreted to criminalize Megaupload’s conduct.

Lessig also attacks the idea that Megaupload even violated the DMCA in the first place. As he notes, the law says a service provider needs to "reasonably implement" a DMCA policy, but leaves the interpretation of "reasonably implements" up to the courts. And the standard interpretation, from the Perfect 10 v. ccBill case is that it's reasonably implemented "if it has a working notification system, a procedure for dealing with DMCA-compliant notifications, and if it does not actively prevent copyright owners from collecting information needed to issue such notifications." And Megaupload had all of that.

The DOJ, instead, is rather incredibly arguing that because Megaupload did not immediately delete 100% of infringing files, it violated the DMCA and thus is guilty of criminal copyright infringement. That's stretching the laws way past breaking points in multiple directions.

The DOJ does not allege that Megaupload had no policy at all, nor does the DOJ allege that Megaupload “actively prevent[ed] copyright owners from collecting information[.]” Instead, the DOJ charges a much lower standard: that Megaupload failed to terminate 100% of all repeat infringers, ... and moreover, that this failure, in the face of Megaupload’s stated policy, was a misrepresentation sufficient to sustain a charge of wire fraud....

The purpose of the DMCA is to prevent liability where a defendant has stated a policy and reasonably implemented it—not where a defendant has failed to terminate each and every repeat infringer. Indeed, the statute recognizes that service providers are not required to terminate all repeat infringers in order to comply with the DMCA (17 U.S.C. § 512(I)(1)(A)) or to remove their posted content. See e.g. Perfect 10, Inc. v. Giganews, Inc., 2014 WL 8628034, at *9 (C.D. Cal. Nov. 14, 2014) (“Giganews had no obligation to indiscriminately remove every post a repeat infringer ever posted and Perfect 10 may not shift its burden of policing copyright infringement to Giganews in the guise of a claim for direct infringement.”).

Were the DOJ able to simply charge defendants with a separate crime (in this case wire fraud) then the liability safe harbor becomes meaningless, and Scott v. United States is thus violated. As a result, it is improper to interpret the wire fraud statute as criminalizing Megaupload’s actions, and the proper interpretation is to give effect to the DMCA’s stated safe harbor provisions.

Lessig also points out that the DOJ is just wrong on its argument that after receiving a notice on a file, Megaupload must delete all versions of that file. That's not what the law says at all.

The DOJ appears to be asserting that an online operator who receives copyright take down notices identifying one URL must search for and delete all duplicate files in the system or be subject to a copyright or fraud claim. In my opinion the DOJ’s theory of copyright or fraud liability is erroneous.

Megaupload reduced operating loads by “deduplication,” namely maintaining only a single copy of a file in its database and generating multiple pointers to such file. Each pointer identified an uploader of the common file. It is possible for one uploader to have a right to fair use of a copy of a file, e.g., a purchaser uploading a backup or an educational organization offering critical commentary, while other uploaders might have no such fair use right. It is contrary to the purpose of the DMCA that a fair use right would be violated though a take-down notice directed at another person’s wrongful use. If such a violation were to occur, the provider of the take-notice would be subject to liability under the DMCA (17 U.S.C. § 512(f)).

Such an approach can lead to mass DMCA 512(f) misrepresentation claims against the DMCA noticing parties.

As he notes, the US courts -- particularly in the Lenz case -- have said that takedowns require looking at fair use. And if the DOJ's theory was accurate, that would be wiped out, because notices would be sent for files without any idea if they were fair use or not.

There's a lot more in the document, but it basically picks apart the entire DOJ indictment, and points out that they're making up new criminal theories that they're not allowed to, and misrepresenting other claims at the same time. Thus, not only is it not clear that Dotcom did anything deserving of extradition, it's not even clear that he broke any laws at all.

Of course... whether or not the New Zealand court pays attention to any of this, remains to be seen -- but it is a strong argument from a well respected and knowledgeable source.

Filed Under: criminal copyright infringement, doj, extradition, kim dotcom, larry lessig, new zealand, secondary infringement
Companies: megaupload

Even If You Think Kim Dotcom Is Guilty As Sin, The US Government Stealing His Assets Should Concern You

from the it's-called-due-process dept

Earlier this year, we covered a very troubling situation involving Kim Dotcom and the US government. As you almost certainly already know, Dotcom is fighting extradition from New Zealand to the US to face a bunch of charges concerning criminal copyright infringement. We've written about those charges as well as the extradition fight many times. However, while all of this was going on, the Justice Department filed a separate lawsuit, not against Dotcom himself, but against all of his stuff. We've talked for years about the problems of the "asset forfeiture" program in the US, and Dotcom's case drives all of those points home. And, even if you think that Kim Dotcom is absolutely guilty, a horrible person, responsible for billions of dollars in losses to the film and music industries, you should still be concerned about the asset forfeiture aspects here.

Again, this lawsuit is technically entirely separate from the ongoing case against Dotcom himself. Instead, it's USA v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto -- which is a catchy name if you're trying to hide what you're really doing, which is stealing all the assets of someone in a foreign country. The Attachment A in the title of that lawsuit is basically a listing of all of Kim Dotcom's assets. In asset forfeiture cases, since the government is technically filing the lawsuit against the stuff, arguing that the stuff itself is guilty, it leaves only limited ability of the original owner of that stuff to try to block the government from taking it all. And, that was made much more difficult by Dotcom (who has never even been to the US) fighting extradition in the (entirely separate) lawsuit against him. The DOJ, somewhat perversely, used the extradition fight to argue that Dotcom is a "fugitive," to basically say that he can't try to block the forfeiture, and the judge agreed.

The end result? The court gave the DOJ a huge green light to legally steal millions of dollars worth of assets from Kim Dotcom despite the lack of any court ruling or admission of guilt. That seems like a rather big due process concern. While a New Zealand court has put a temporary stop to the US government taking the New Zealand portion of the assets, back in the US, there is an appeal going on over the initial ruling.

As part of that, three organizations that you wouldn't normally think of as associating themselves with the likes of Dotcom, have stepped up to argue that the whole civil asset forfeiture effort against Dotcom's stuff is a complete farce. The Cato Institute, the Institute for Justice and the National Association of Criminal Defense Lawyers have filed an amicus brief in the appeal arguing forcefully about how ridiculous this whole case is (not the case against Dotcom, but the case against all his stuff). As the Cato Institute notes in its blog post about this:

The Fifth Amendment’s Due Process Clause requires an opportunity to be heard and an opportunity to defend against government-initiated actions against your property. Unlike an escaped criminal appellant who is scorning the court’s jurisdiction, in civil forfeiture, it’s the government that has dragged Dotcom and the others into court. Moreover, given the amount of abuse in civil-asset forfeiture, the government shouldn’t be allowed both to profit from the forfeiture and suppress defenses by calling residents of other countries “fugitives.” Finally, the reasons for fugitive disentitlement in criminal appeals simply can’t be transferred to civil-asset forfeiture. When an individual is “on the run” from criminal prosecution, courts can’t enforce judgements against them, but a valid forfeiture order would be fully enforceable against Dotcom if the court has jurisdiction over the property. Fugitive disentitlement is also used to deter felons from escaping justice, but there’s no similar concern here, where the property can’t run away and the claimants are merely residing in their home countries. The Fourth Circuit should not only allow the Megaupload defendants to challenge the seizure, it should also consider striking down as unconstitutional all uses of fugitive disentitlement in civil-forfeiture cases.

Frankly, if Dotcom is eventually found guilty of that which he is charged with (which is a separate issue altogether), then it could be perfectly reasonable to argue for asset forfeiture of the proceeds from such illegal acts. But to argue for civil asset forfeiture entirely separately from that process and to abuse the process by arguing he's a "fugitive" in order to get those assets is particularly ridiculous:

Under civil forfeiture laws, the government can take property without an underlying criminal conviction based only on the allegation of a crime. Those whose property has been seized can get it back by proving that their property is “innocent.” The government, however, is preventing the defendants from even making that argument. Using the “fugitive disentitlement” doctrine, the government is blocking the defendants from challenging the forfeiture.

Fugitive disentitlement has historically been applied only to criminals who escaped custody while appealing a conviction, the idea being that a court could decide to dismiss the appeal because any judgment would be unenforceable against an absent defendant. Here, the government has decided that, because the Megaupload defendants aren’t coming to the United States to defend their property, they are “fugitives” who have lost the ability to defend against that seizure — and the district court agreed.

As the filing itself notes:

Stripping the claimants of their due process rights isn’t just unconstitutional, it’s dangerous. There’s a growing literature on the abuse of civil forfeiture—and those abuses are directly tied to the protections given to the claimants here, as well as the ability of government officials to directly benefit from forfeitures. This court should not ratify a doctrine that would make abuses even easier.

Moreover, the reasons for invoking the fugitive disentitlement doctrine in criminal appeals are inapplicable to civil forfeiture actions. First, unlike an order against an absent criminal defendant, a valid forfeiture order where the court has rightful jurisdiction will be fully enforceable. Second, the claimants here haven’t scorned the district court’s authority as a fleeing criminal defendant would. Third, by appearing before the court via counsel, the claimants haven’t disrupted the court’s processes or offended its dignity. Finally, unlike with criminal appellants—who may need to be deterred from flight by the threat of disentitlement—the claimants are merely continuing to lawfully reside in their home countries.

Once again, even if you think Dotcom is the root of all evil in the world, even then you should be concerned about this particular aspect of the case(s) against him. It seems telling to me that, in the comment sections on our previous posts, those who have argued that Dotcom is clearly guilty, seem to have no problem with the asset forfeiture. They don't see it as any sort of due process violation because they've already decided he's guilty in their minds, just as the US government has. But that's not how due process works. You're supposed to be found guilty first. If these people are so sure that Dotcom is guilty, why not wait until that's shown in a court of law, rather than having to go through this separate process to take all of his stuff?

Filed Under: asset forfeiture, doj, due process, fugitive, fugitive disentitlement, kim dotcom
Companies: cato, institute for justice

New Zealand Steps In To Block US Gov't From Stealing All Of Kim Dotcom's Stuff

from the that's-not-how-the-law-works-there dept

Back in March, we explained the ridiculous process by which the US government was able to steal millions of dollars from Kim Dotcom. If you want the details, go read that post, but the shorter version is that entirely separate from the various lawsuits involving Dotcom, the US government filed a separate lawsuit against all of Kim Dotcom's stuff (literally). Using the highly questionable process of civil asset forfeiture, the government is able to declare the stuff guilty of a crime, and thus making it ripe for the government to just take and keep. There are, of course, all sorts of questionable things about civil asset forfeiture, but it got even more bizarre in this case. That's because, after Dotcom's lawyers sought to intervene (which is how you block this kind of theft), the government had Dotcom declared a "fugitive" even though they know exactly where he is and he hasn't "run" from anything. Then, as a "fugitive," it was deemed that he did not actually intervene, and thus, the government was granted a "default judgment" (what you usually get when someone doesn't respond at all to a case).

Any judicial system that actually believed in due process would at least wait until the rest of the legal issues played out, including Dotcom's extradition and, if he is extradited, his trial over the criminal charges against him. If he loses all of that, then it seems reasonable to seek to forfeit his assets. But without a trial and conviction, it seems ridiculous to even go through the forfeiture process. And to basically force him to lose by declaring him a "fugitive" is just spitting in the face of due process.

At the end of that last post, however, we noted that the situation wasn't final. Since most of the assets were in New Zealand and Hong Kong, it was possible that he could get those countries to block the US from just taking those assets. And, that's exactly what's happened. A New Zealand court has ruled in Dotcom's favor [pdf], blocking the US from taking his stuff. The key issue: New Zealand takes a very different approach to these issues and (quite reasonably) finds the US process absurd. It starts out by pointing out that the whole "fugitive" designation is ridiculous, and that under New Zealand law, someone in the same situation would not be declared a fugitive:

While I accept that s 57 would permit the court to make a forfeiture order in the absence of a respondent, it does not expressly authorise the court to proceed on an ex parte basis or to decline to receive submissions made on behalf of an absent respondent who wished to be heard

The court also notes that just because Dotcom is fighting extradition in a New Zealand court it does not mean that he is "not amenable to justice" as is required for such a forfeiture of assets.

Further, the court recognizes the due process issue inherent in taking away all of the money from a defendant seeking to defend himself in court:

The application of the fugitive disentitlement doctrine to a person who is exercising a bi-laterally recognised right to defend an eligibility hearing, with the result that he is deprived of the financial means to mount that defence, is to put that person on the horns of a most uncomfortable and (the plaintiffs would say) unconstitutional dilemma.

And thus, after a lengthy discussion delving into many of the details about this, the judge concludes that she will not, in fact, allow the US government to take Dotcom's stuff, because doing so would be a huge burden on someone trying to defend themselves:

It is, I think, self evident from the above discussion that the plaintiffs have a substantial position to preserve and there will be very real consequences if it is not protected, pending final determination of the claim for review. If the provisional view I have formed about the unavailability of post-registration relief is correct, authorising the registration application to proceed now might deprive the plaintiffs of any ability to defend the extradition or to pursue their appeals against the forfeiture order in the United States.

I have little hesitation in concluding that interim relief should therefore be granted. Accordingly there will be a declaration that the Commissioner of Police is to take no further action that is consequent upon the decision by the Deputy Solicitor-General (Criminal) to authorise him to apply to register the foreign forfeiture orders made by Judge O’Grady in the District Court in Virginia on 27 March 2015 until further order of this Court.

This is far from over, as the New Zealand government is likely to appeal as well, but this whole process continues to be a fascinating power play by the US government -- with it repeatedly assuming that everyone will just follow what it wants. And, so far, the New Zealand courts have been ready to push back on the more extreme requests like this one.

Filed Under: asset forfeiture, default judgment, doj, fugitive, kim dotcom, new zealand, us

How The US Government Legally Stole Millions From Kim Dotcom

from the the-fun-of-asset-forfeiture dept

About a month ago we covered the basics of the lawsuit by which the US government was seeking to keep pretty much all of Kim Dotcom's assets, despite the fact that Dotcom himself hasn't been tried -- and, in fact, it hasn't even been determined if he can be extradited to the United States (a country he's never visited). This week, that case took another step, with the judge, Liam O'Grady, who had already ruled that Kim Dotcom could be considered a "fugitive," more or less finalizing the theft of Dotcom's assets by declaring a default judgment in favor of the US. This isn't the end of the process (not by a longshot), but it highlights just how the US government can use some ridiculous procedures to steal millions in assets from someone who hasn't been shown to be guilty of anything.

As we discussed last time, the story of the raid on Kim Dotcom's rented home in New Zealand, the seizure of all of his cars, money, bank accounts, computers, servers, etc. is well known. That was part of a case for which Kim Dotcom was indicted (under what appears to be questionable legal reasoning -- but that's a separate issue). As has been widely reported, that case is still on hold while Dotcom fights extradition from New Zealand. The extradition fight will finally go to a New Zealand court later this summer. Once that's done, if Dotcom loses, he'll be sent to the US, where he'll face a criminal trial based on the indictment.

But this is actually separate from all of that. You see, when the US government grabbed or froze all of Dotcom's assets, they did so using an asset seizure procedure. Asset seizure is allowed in such cases, but the government then has to give that property back. What the government really wanted to do is keep all of Dotcom's tens of millions of dollars worth of assets -- and in order to do that it has to go through a separate process, known as civil asset forfeiture. It's technically a civil (not criminal) case, but (and here's the part that people find most confusing), it's not actually filed against Kim Dotcom at all, but rather against his stuff that the government already seized. Yes, it's technically an entirely separate lawsuit, that was only filed last summer (two and a half years after the government seized all of his stuff and shut down his company), entitled United States Of America v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto. And, as we noted last time, Attachment A is basically all of Kim Dotcom's stuff.

This whole process is known as an "in rem" proceeding -- meaning a lawsuit "against a thing" rather than against a person. And the "case" basically says all this stuff should be "forfeited" to the US government because it's the proceeds of some criminal activity. You would think that in order for such civil asset forfeiture to go forward, you'd then have to show something like a criminal conviction proving that the assets in question were, in fact, tied to criminal activity. You'd be wrong -- as is clear from what happened in this very case. Once the Justice Department effectively filed a lawsuit against "all of Kim Dotcom's money and stuff," Dotcom did what you're supposed to do in that situation and filed a challenge to such a ridiculous situation. And here the DOJ used the fact that Dotcom was fighting extradition to argue that he was a "fugitive." Judge O'Grady agreed with that last month, and that resulted in the decision earlier this week to then declare a "default judgment" in favor of the DOJ, and giving the US government all of Kim Dotcom's stuff.

A "default judgment?" As you know if you regularly read Techdirt, that's usually what happens when a defendant simply ignores a court case filed against him. As the court notes in this ruling, for that to happen in a civil asset forfeiture case, it means no one tried to block the claim:

Federal Rule of Civil Procedure 55 permits the court to grant a motion for default judgment when the well-pled allegations of the complaint establish plaintiff's entitlement to relief, and where a defendant has failed to plead or defend as provided by the rules.... In the civil forfeiture context, default judgment is permitted where no potential claimant has filed a response to the complaint...

A defendant in default, and a claimant who fails to assert a claim in rem, is deemed to have admitted all of the plaintiff's well-pled allegations of fact, which then form the basis for the judgment in the plaintiff's favor.

But, wait, you say: Kim Dotcom did file a complaint about the asset forfeiture, so how could a default judgment happen here? That's where the whole "fugitive" bit comes in. Because Dotcom won't come to the US, he's been deemed a fugitive, and thus the Judge simply hands over all of his stuff to the US government. And thus, without any sort of criminal conviction at all, the US gets to steal millions of dollars from Dotcom.

If that sounds insane, you're absolutely right. And, again, it is entirely possible that when all of this is over, Kim Dotcom will be found guilty of "criminal conspiracy." If that's the case, then at that point it's reasonable to discuss whether the government should get to keep all of his stuff. But it seems an absolute travesty of concepts like due process for the government to be able to take all of his money and stuff based on purely procedural reasons having to do with a separate criminal case that hasn't even been tried yet.

The process isn't over yet. Dotcom can still appeal this ruling, though the real problem is with the civil asset forfeiture process, rather than how it was applied in this particular case. Dotcom also has other options for the assets that are in New Zealand and Hong Kong, in using the local courts in those places to try to block the transfer of those assets to the US government. Not knowing enough about the law in either place, it's difficult to say what the chances of success of such a strategy would be. Either way, this seems like a classic case demonstrating how the civil asset forfeiture process appears to be little more than legalized theft by the US government.

Filed Under: asset forfeiture, civil asset forfeiture, copyright, criminal copyright, doj, justice department, kim dotcom, liam o'grady
Companies: megaupload

US Court Rules That Kim Dotcom Is A 'Fugitive' And Thus DOJ Can Take His Money

from the um. dept

In the long, convoluted and complex legal battles facing Megaupload founder Kim Dotcom, there was some bizarre stuff that happened late last year. As you may recall, early on, the US government seized basically all of his stuff and money. Dotcom has made efforts to get some of it returned, as it's tough to fight the most powerful government in the world when it's holding onto all of your money. Keep in mind from our previous discussions on asset seizure and forfeiture, the government can basically seize whatever it wants, just by claiming it was somehow related to a crime, but the seizure is only a temporary process. If the government wants to keep it, it then needs to go through a separate process known as civil asset forfeiture, which is effectively the government suing the assets. Back in July, the US government moved to forfeit everything it had seized from Dotcom in a new lawsuit with the catchy name USA v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto. As you may have guessed, Attachment A [pdf] is basically all of Kim Dotcom's money and posessions.

Back in November, the DOJ argued that it should get to keep all of Kim Dotcom's money and stuff because he's a "fugitive", which is a bizarre and ridiculous way to portray Kim Dotcom, who has been going through a long and protracted legal process over his potential extradition from New Zealand (though he's offered to come to the US willingly if the government lets him mount a real defense by releasing his money). Dotcom's lawyers told the court that it's ridiculous to call him a fugitive, but it appears that Judge Liam O'Grady didn't buy it.

In a ruling [pdf] that was just posted a little while ago, O'Grady sided with the government, and gave the DOJ all of Dotcom's things. You can read the full reasoning here and it seems to take on some troubling logic. Dotcom's lawyers pointed out, as many of us have, that there is no secondary copyright infringement under criminal law, but the judge insists that there's enough to show "conspiracy to commit copyright infringement." But the reasoning here is bizarre. Part of it is the fact that Megaupload did remove links to infringing content from its top 100 downloads list. To me, that seems like evidence of the company being a good actor in the space, and not trying to serve up more infringing downloads. To Judge O'Grady and the DOJ, it's somehow evidence of a conspiracy. No joke.

The government has alleged that the conspirators knew that these files were infringing copyrights, as evidenced by their exclusion of infringing files from the "Top 100" list. The "Top 100" list purported to list the most frequently downloaded files on Megaupload.... According to the government, an accurate list would have consisted almost entirely of infringing content, so the claimants "carefully curated" the list to make the site look more legitimate.... Additionally, the claimants regularly told copyright holders, including many U.S.-based organizations, that they would remove infringing content, when in actuality they only removed particular links to the files.... The actual infringing files remained on the Mega-controlled servers and could be accessed from other links.

As for that latter part, there are tons of perfectly legitimate reasons to only remove the links and not the underlying files. If Megaupload was doing deduping, then some version of the same file could be perfectly legitimate. Let's take an example: say that you and I have an MP3 of a Katy Perry song. I upload it to Megaupload to keep as a backup. You upload it to distribute to the world. Megaupload dedupes it, and just has the file stored one time. Your link could be potentially infringing if you distribute unauthorized copies, whereas my copy may be a legitimate personal backup. Given that, Megaupload should only delete the links that are called out as infringing, rather than the underlying files, which -- depending on their use -- may or may not be infringing. But the court just takes the DOJ's version and says "good enough for me."

The court also has no problem with the fact that most of the assets aren't in the US, noting that since some of the "conspiracy" took place in the US, that's good enough. It more or less brushes off the concerns raised by Dotcom and the other defendants that this appears to violate existing treaties between New Zealand and the US -- basically saying that because Dotcom refuses to come to the US, it's not "punitive." Huh? On top of that, the judge says that taking all of Dotcom's assets shouldn't interfere with the legal process in New Zealand, because the New Zealand courts could (yeah right) reject the DOJ's request after this ruling to hand over Dotcom's assets.

Then we get to the whole "fugitive" bit. Judge O'Grady notes that the statute does allow him to call anyone who "declines to enter" the United States a fugitive, and argues that Dotcom fits that description. Furthermore, he actually argues that Dotcom's offer to the DOJ to come willingly to the US if the money is freed for his defense actually works against Dotcom, and gives weight to the fugitive claim:

As demonstrated, Dotcom need not have previously visited the United States in order to meet the prerequisites of § 2466. The statute is satisfied where the government shows that the claimant is on notice of the criminal charges against him and refuses to "enter or reenter" the country with the intent to avoid criminal prosecution. Because the court assesses intent under the totality of the circumstances, it is certainly relevant that Dotcom has never been to the United States and that he has lived in New Zealand since 2011, where he resides with his family. This tends to show that he has other reasons for remaining in New Zealand besides avoiding criminal prosecution. However, the existence of other motivations does not preclude a finding that he also has a specific intent to avoid criminal prosecution. Dotcom's statements, made publicly and conveyed by his attorneys to the government, indicate that he is only willing to face prosecution in this country on his own terms. See Technodyne, 753 F.3d at 386 (2d Cir. 2014) ("The district court was easily entitled to view those [requests for bail], evincing the [claimants'] desire to face prosecution only on their own terms, as a hallmark indicator that at least one reason the [claimants] declined to return in the absence of an opportunity for bail was to avoid prosecution"). Dotcom has indicated through his statements that he wishes to defend against the government's criminal charges and litigate his rights in the forfeiture action. If it is truly his intent to do so, then he may submit to the jurisdiction of the United States.

In short, damned if you do, damned if you don't. This is the justice system, ladies and gentlemen. The DOJ gets to seize and keep all your money, and merely asking for access to it to fight to show your innocence is used as a reason to allow the DOJ to keep it. So he comes to the US and has to fight criminal charges without his own money, or he stays in New Zealand and the government uses it as an excuse to keep all the money. How is any of this even remotely fair? Where is the "due process" in totally handicapping Dotcom from presenting a defense?

Again, it is entirely possible that Dotcom and the others broke the law -- though the case certainly does look pretty weak to me. But what's really astounding is how far the DOJ appears to want to go to make it absolutely impossible for Dotcom to present a full defense of his case.

Filed Under: asset forfeiture, conspiracy, copyright, copyright infringement, criminal copyright infringement, doj, fugitive, kim dotcom
Companies: megaupload

Megaupload Programmer Takes Plea Deal, Though It's Still Unclear What Criminal Law He Violated

from the out-of-options dept

A few days ago, it came out that programmer Andrus Nomm had flown to Virginia to be arrested. Nomm had worked for Megaupload in Europe and had been listed in the criminal case against Megaupload and its various employees. His name had mostly fallen off the radar, since he wasn't down in New Zealand with most of the rest of them. It was obvious in his move to come to the US and be arrested that he must have worked out a plea deal with the feds, and that's confirmed today with him pleading "guilty" to criminal copyright infringement with prosecutors asking for a year and a day in prison, which the court granted. Kim Dotcom noted that he has "nothing but compassion and understanding for Andrus Nomm."

It seems clear that Nomm agreed to some sort of deal to get the overall threat off of his back and to be done with it. It's very, very, very likely that part of the "deal" is to testify against Megaupload and all of his former colleagues. But, reading through the Justice Department's self-congratulatory pat on the back over this plea deal and the indictment against the Megaupload team, I'm still confused as to how this is a criminal charge at all. It seems like he may very well be guilty of civil copyright infringement in personal downloads that he admitted to. But the rest... I don't see how it meets the requirements of criminal copyright infringement. Here's the DOJ statement:

In court papers, Nomm agreed that the harm caused to copyright holders by the Mega Conspiracy’s criminal conduct exceeded $400 million. He further acknowledged that the group obtained at least $175 million in proceeds through their conduct. Megaupload.com had claimed that, at one time, it accounted for four percent of total Internet traffic, having more than one billion total visits, 150 million registered users and 50 million daily visitors.

In a statement of facts filed with his plea agreement, Nomm admitted that he was a computer programmer who worked for the Mega Conspiracy from 2007 until his arrest in January 2012. Nomm further admitted that, through his work as a computer programmer, he was aware that copyright-infringing content was stored on the websites, including copyright protected motion pictures and television programs, some of which contained the “FBI Anti-Piracy” warning. Nomm also admitted that he personally downloaded copyright-infringing files from the Mega websites. Despite his knowledge in this regard, Nomm continued to participate in the Mega Conspiracy.

Of course, the statements about how much "harm" was caused, and even how much money Megaupload made are meaningless. Pretty much everyone knows that anything signed in a plea agreement doesn't mean anything. The more important question is how the rest of it is criminal copyright infringement. For it to be criminal, it has to match certain criteria, and working on a software platform that is used for others to infringe certainly does not reach that level. Nor does knowing that some movies -- uploaded by others -- with the FBI anti-piracy warning message were uploaded (that message, by the way, has basically no legal power). Finally, as for his own personal downloads, those, too, would be civil infringements, not criminal.

And it seems like that may be the only thing he really did wrong from the explanation. He worked for a site that some people used for infringement -- but that's true of lots of internet companies. And he personally downloaded some stuff -- which is also true of a huge number of people. How does he end up in jail for a year other than because the US government came down on him, and he had no other option?

Frankly, this is embarrassing for the DOJ. I wouldn't be putting out a press release for them. Yay, they railroaded a programmer who worked on an internet platform into a "guilty" plea and a year in jail because he helped build a cloud computing system not particularly different than many others out there? What sort of "law enforcement" is this?

Filed Under: andrus nomm, copyright, criminal copyright, doj, kim dotcom, mega conspiracy, plea deal
Companies: megaupload