Megaupload Say US Gov't Is Trying To Steal Assets Based On Crimes That Are 'Figments Of The Gov't's Boundless Imagination'

from the civil-fofeiture dept

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.

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. 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.

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.

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).

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.”

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 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.

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).

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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 secondaryliability 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, 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. 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 thatis 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.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.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.In a footnote, it also points out that Megaupload likely isn't even subject tosecondary infringement claims, let alone criminal ones:Furthermore, the ruling points out that the DMCA did not codify secondary liability, but, rather, did the opposite: it sought to establish standards toservice providers from secondary liability for copyright infringement.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: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.On top of everything else, the government doesn't even properly make, with all of the necessary attributes of such a claim:And of course, for it to be, 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 theof Megaupload were both infringing willfully and, 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 ofthe filing questions why the government is seeking to seize. Not only has it not shown a reason to seize any of the assets, it appears to be arguing thatof 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.

Filed Under: aiding and abetting, asset forfeiture, civil asset forfeiture, copyright, criminal copyright, kim dotcom, secondary liability, seizure

Companies: megaupload