Megaupload Filings Show Massive Flaws In US Case, Ask Court To Dismiss

from the and-off-we-go dept

The Federal Rules of Criminal Procedure prescribe specific requirements for serving a summons on a corporate defendant in a criminal case. These requirements are neither vague nor optional – they quite explicitly require both service upon an agent of the corporation and a mailing to the corporation’s last known address within the United States. The Federal Rules do not contemplate service of a criminal summons on a wholly foreign corporation without an agent or offices in the United States. Wholly foreign corporations, therefore, may not be prosecuted for alleged violations of federal criminal law unless they waive service. In short, a corporation such as Megaupload cannot be brought within the jurisdiction of this Court for criminal proceedings absent its consent.

Federal crimes are delimited by statute. It is for Congress, not for the courts, to say (and to warn) what constitutes a crime. Dowling, 473 U.S. at 213-14 (quoting United States v. Wilberger, 5 Wheat. 76 (1820) (“It is the legislature, not the Court, which is to define a crime, and ordain its punishment”)). Courts interpreting penal statutes will exercise restraint and adopt a narrow statutory interpretation unless Congress has definitely indicated that it intended a harsher reading. Id. Because “[t]he Copyright Act does not expressly render anyone liable for infringement committed by another,” Sony Corp. of Am. v. Universal Studios, 464 U.S. 417, 434 (1984), reh’g denied, 456 U.S. 1112 (1984), the Act cannot be read to make secondary infringement a crime.

These omissions are not small, they are not subtle, they are not few, and they are not inconsequential. The Government has attempted to make out an all-encompassing case of an alleged criminal copyright conspiracy without bothering to allege concrete specifics of the actual infringement allegedly committed. It has attempted to build one of “the largest criminal copyright cases ever brought by the United States” out of conclusory ipse dixit, reciting statutory verbiage and nothing more. Certainly Counts Four through Eight do not reflect facts supplying requisite probable cause.

The Government seeks forfeiture of all of Defendants’ revenue because it has assumed all of the revenue is tainted by crime. But there is no probable cause to support that assumption, which by no means follows from—and is, indeed, at odds with—acknowledged aspects of Megaupload’s business that stand well removed from the alleged infringement. To put matters in perspective, consider the maximum statutory fine that might be imposed upon Megaupload and the individual Defendants were they convicted on all five criminal counts, Counts Four through Eight, concerning the alleged copyright infringement: The maximum fine per count for a first offense of criminal copyright infringement under 21 U.S.C. § 506(a) would be $250,000 for the individual and $500,000 for the corporation, see 18 U.S.C. §§ 2319(b), 3571(b)(3), 3571(c)(3), such that imposing the fine upon these Defendants consecutively across all five counts would result in a combined fine of $7,500,000.00 . Yet tens of millions of dollars, more than ten times the amount of that maximum fine, have been seized from these Defendants as derived from the business. The math does not compute.

The Government’s shuttering of Megaupload, purely on its own ipse dixit, is a modernday throwback to the unconstitutional prior restraints on speech that are a notorious enemy of the First Amendment. In Fort Wayne Books, Inc. v. Indiana, 489 U.S. 46 (1989), for instance, the State of Indiana filed a civil action against several owners of adult bookstores alleging RICO violations and, based on an ex parte showing of probable cause, seized “the real estate, publications, and other personal property comprising each of the three bookstores operated by the corporate defendants.” Id. at 51. Even assuming that the seized materials were obscene, and thus unprotected, the Court held that “our cases firmly hold that mere probable cause to believe a legal violation has transpired is not adequate to remove books or films from circulation.” Id. at 66; see United States v. Jenkins, 974 F.2d 32, 35 (5th Cir. 1992) (“It is, of course, well-settled that the government may not seize presumptively protected expressive materials without a prior judicial determination of obscenity”). The bottom line is that the Government cannot order seizure of “literally thousands of books and films [to be] carried away and taken out of circulation by [a] pretrial order” until “the claimed justification for seizing books or other publications is properly established in an adversary proceeding.” Fort Wayne Books, 489 U.S. at 67; see, e.g., Multi-Media Distributing Co., Inc. v. United States, 836 F. Supp. 606, 614 (N.D. Ind. 1993)...



Here, the Government has effectively accomplished what Fort Wayne Books foreclosed. It has shuttered Megaupload, and, with it, a treasure trove of books, films, videos, photos, digital expression of every stripe, without any adversarial proceeding at all. What is more, if the Government had its way, 1,100-servers worth of that collection would have been wiped, with members of the public (including rightful owners of that material) left the poorer for it. In this sense, what the Government has done in this case raises further alarms, for it has seized not only allegedly infringing copies, but effectively taken down everything that was on Megaupload.com, taking works out of circulation entirely. See Heller v. New York, 413 U.S. 483, 492 (1973) (explaining that “a single copy of a book or film may be seized and retained for evidentiary purposes based on a finding of probable cause” but it is when a book or film is “taken out of circulation completely” that the seizure rises to the level of a prior restraint). The parallels between this case and cases in which prior restraints have been denounced as unconstitutional are unsettling and, if nothing else, warrant heightened judicial skepticism and scrutiny

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While we've been mostly focused on the New Zealand aspects of the Megaupload case, the company (and the individuals sued) have made two interesting filings with the district court in the US concerning the case. The first one (pdf) seeks a dismissal of the company from the case for an issue we discussed back in April: criminal law requires that the defendant be served, and you can't serve a foreign company. Thus, there is no legal way for Megaupload to be tried under criminal law:That is, however, separate from the cases against the individuals involved in Megaupload. However, as Megaupload's lawyer is suggesting if the case is dropped against the corporate entity, it may require dismissing the orders freezing the firms' assets.The second filing (pdf) doesn't get the same headlines, since it's not asking for complete dismissal, but in many ways it's the more interesting filing. That filing is an effort to get seized assets back in order to pay for their defense. But it also foreshadows the rather key issue in the case, which we've raised in the past about both this case and the Rojadirecta case : the US government is flat out making up a concept that inducement to infringe violatescopyright law.To be clear, under the Grokster decision, the US Supreme Courta concept known as "inducement" as violating copyright law. Such "inducement" is not found anywhere in the copyright statute. To do so, the court relied on principles found inlaw, not criminal law. Criminal law -- for hopefully obvious reasons -- has very different standards, and "inducement" is certainly not possible under criminal copyright law as it's written today. There is, of course, the concept of "aiding and abetting" within criminal laws, but there are clear limits in which that can be used -- and the US governmentto show all the necessary elements for aiding and abetting (in part because it tries to mix and match the actions of Megauploadwith the defendants -- but you can't do that). That is, whilemay have willfully infringed (one prong of criminal copyright infringement), the government needs to show that the defendants themselves were involved in direct willful infringement. Instead, the government assumes that if users were willful, but the defendants were not, it can simply use some sort of made up legal transitive property to pretend that they can hang the willful infringement on the defendants.What's amazing is that all of these issues were clearly raised in the Rojadirecta case, but as has been clear from the filings in that case, the Department of Justicedoesn't understand how it's mixing and matching the law here... so it just went ahead and did the exact same thing in the Megaupload case. Perhaps it realizes that it's making up a legal concept and just hoping that judges accept such things (which judges aren't supposed to do in criminal cases, since such common law rulings by a judge can only apply to civil law), or perhaps the Justice Department attorneys really don't understand the law. It honestly feels like it may be the latter.The filing also highlights, repeatedly, that the indictment fails to actually establish the basic facts necessary to bring the charges that are being brought:Separately, the filing points out that the government's claims presume thatby Megaupload was earned because of criminal activity. That, of course, is ridiculous for a number of reasons, not the least of which is that we know that there were a significant number of legitimate users and uses of Megaupload. Furthermore, the filing correctly points out that you can only use US copyright law against infringing acts that occurred inside the US, and yet the government assumes that every act of infringement is subject to US copyright law -- which is simply false -- and has resulted in much more straightforward cases being dismissed The filing also points out that Megaupload has substantial non-infringing uses, effectively using the Betamax ruling as a defense. I'm not sure this actually applies in the criminal context, but does raise some reasonable questions about whether or not you could even make a legitimate civil case against Megaupload.Finally, the filing notes the basic First Amendment questions raised by the seizure itself, citing the Fort Wayne Books case:I'm sure we'll see these arguments show up again in a motion to dismiss, but for now, they're just being raised in an effort to get access to some of the seized funds. Either way, the further this case moves forward, the worse it looks for the feds case, which increasingly looks insanely weak (and highlights just how ridiculously over-aggressive the US government has been in pursuing the case).

Filed Under: criminal procedure, doj, first amendment, forfeiture, seizure

Companies: megaupload