For those that either do not know what we are talking about or do not remember; the US raided and seized all assets of the file sharing site Megaupload and 5 of its managers. They accused the site of willful and criminal Copyright infringement, Conspiracy, Wire Fraud and more. Some of the charges appear to have been thrown in simply to allow seizure of property before and during the trial. However, all has not been so clean and clear. According to New Zealand the warrants used to raid the Dotcom mansion were illegal as was the wiretapping of Dotcom’s phones. After that the US FBI took evidence back to the US before it could be reviewed making some of it inadmissible in court in New Zealand.

Now it seems that part of the case against Megaupload and its managers could be from an unusable source. The problem with the US DoJ’s claim that Megaupload knew about the criminal copyright infringement is that they were cooperating with the US DoJ in an investigation into other sites that were using Megaupload as a repository.  If this is true, then the original warrants were baseless as is the indictment against them. Of course the US case has been crumbling for some time and it has not been helped by comments from the MPAA that they are going to use this as an example to anyone thinking of setting up a file sharing site or allowing one to be hosted on their servers (they also made a comment to the effect that win or lose they wanted to bankrupt Megaupload).

Here is a critical piece of the filing from Megaupload:

“Notably, the Government avoided communicating with Megaupload directly, instead deputizing Carpathia to do so on its behalf. (See June 25, 2010 email from Phil Hedlund to Mathias Ortmann and Kim Dotcom, Ex. 1 ("Please know that we attempted to convince the Government to work directly with Mega on this matter, but given the complex jurisdictional issues, they have been unwilling").) Far from warning Megaupload that the Government considered it to be part of a worldwide criminal organization, which the Government even at the time was terming the "Mega Conspiracy," the Government, through its anointed agent Carpathia, represented to Megaupload that "[w]e have no reason to believe the [sic] MegaUpload is the target of the investigation."

Megaupload cooperated with the Government and voluntarily arranged with Carpathia to supply the Government with the files identified in the sealed warrant. In accordance with the Government's express admonitions--as conveyed to Megaupload through the sealing order and Carpathia's instructions--Megaupload avoided signaling that anything was afoot or otherwise compromising the investigation, preserving the files in their original condition without alerting users or the public that anything had changed. At no time did the Government or Carpathia indicate that Megaupload could or should remove the files identified in the warrant from its cloud storage platform without compromising the stated secrecy of the investigation, much less did they suggest that Megaupload was legally obliged to do so lest it be complicit in an ongoing criminal conspiracy. “

In response the US DoJ is claiming that they never communicated this to Megaupload. This is technically true, but skirts the fact that Megaupload is not claiming that the DoJ told them this directly. Instead the claim is that they were told by Carpatia hosting about this as a “deputy” of the DoJ. The DoJ fails to refute this claim completely and, as we have said before, they are looking very foolish for this oversight.

The interesting thing about this case is that we do not think the US wants to win any longer. We see them continuing the siege of Megaupload in an effort to bankrupt them and to send a clear warning message to file sharing sites, hosting services, and users; If you try to run or use one of these we will make you pay. Right both Megaupload and Carpathia hosting are losing money rapidly. Megaupload is losing money simply because their business is shut down and Carpathia is losing money because they must maintain the servers without being paid (Megaupload cannot pay the bills because all of their money has been sized with a few exceptions). In the meantime many innocent users of the service are without their files and could lose everything they had stored on Megaupload servers simply because the MPAA, RIAA and other US Copyright holders wanted to send a message…

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