April 16, 2012 8:26AM

Asset Forfeiture Abuse Threatens Fair Trial in Copyright Case

For many years, my colleagues at Cato have spoken out against abuse of asset forfeiture, which undermines the rule of law by depriving defendants of their property long before they have been convicted of any crime. In the past, asset forfeiture abuse has mostly occurred in drug cases. But in January, the government used it against a defendant in a criminal copyright case. The government’s tactics threaten the defendant’s right to a fair trial and highlight the problematic nature of taking the property of defendants before they are convicted of any crime.

I should acknowledge at the outset that the defendants, Megaupload and its founder Kim Dotcom, are not very sympathetic. Megaupload was an online “file locker” service that had become one of the most popular platforms for distributing illegal copies of copyrighted movies and music. Whether Megaupload is liable for this illegal activity is a complex legal question, but most of the experts I’ve talked to say that Megaupload faces long odds.

Still, at least some legal experts think Megaupload has a shot at winning the case, and in any event our constitution requires that Megaupload be considered innocent until a jury decides otherwise. So it’s problematic that, at the time the government indicted Megaupload and Dotcom, it simultaneously shut down the company’s servers and froze all of Megaupload and Dotcom’s assets. And even worse, the government has objected to releasing the frozen assets even for purposes that are essential to affording Megaupload a fair trial.

Megaupload leased servers from a company called Carpathia Hosting. There were 1103 servers, worth more than a million dollars and containing 25 petabytes—that’s 25 million gigabytes—of data. When Megaupload’s assets were seized, the company was no longer able to pay its bills and Carpathia terminated Megaupload’s hosting agreement. Megaupload says that data from the servers will be needed to prepare its defense, and has asked for permission to buy the servers from Carpathia in order to preserve the data. But the government has objected to unfreezing the necessary assets, raising a number of objections. Carpathia has said that if it can’t find someone to pay for the servers, it will be forced to delete the data so it can make the servers available for other clients. If that happens, it could seriously damage Megaupload’s opportunity to defend itself in court.

Even more troubling, the government has objected to unfreezing assets so that Megaupload can hire a lawyer. The New Zealand courts unfroze some of Kim Dotcom’s assets in New Zealand (where he is fighting extradition) to pay his living expenses there. The US government has suggested that Megaupload could use those funds to pay its legal bills. But there are several problems with this. First, the released funds were earmarked for living expenses, not legal bills. Second, the Megaupload corporation is a separate legal entity from Kim Dotcom. Yet only Dotcom—not Megaupload—has funds available.

Most importantly, while the funds that have been made available to Dotcom might be sufficient to pay the legal bills of a defendant in a typical criminal case, this case is not typical. It involves complex legal and technical issues. Properly litigating them will require extensive computer forensics work, expert witnesses, and in‐​depth legal research. Even if the Dotcom money were available to pay Megaupload’s US legal bills, it wouldn’t come close to covering the costs of litigating such a complex case.

The courts have yet to rule on these issues; with luck the judge will overrule the government’s objections and unfreeze sufficient funds to allow Megaupload to buy the servers and pay its legal bills. But the fact that the government is even raising these arguments suggests a troubling lack of concern for the rule of law.