The saga of Nicholas Merrill's fight with the U.S. Justice Department began in 2004 with a strange phone call.

"They just said this is so-and-so from the FBI and we're going to send somebody by with a letter," says Mr. Merrill, the founder of a small New York Internet service provider called Calyx. I didn't really take it seriously. I just said, 'OK, that's nice,' and went back to my work."

Then...