(Source: Rex Features)
MPAA and RIAA appear to be caught in framing attempt; Judge orders Mr. Dotcom's assets returned to him

"Drinkin' beer in the hot sun / I fought the law and / I won / I fought the law and / I won." -- Jello Biafra and the Dead Kennedies, 1987
I. An Epic Win
Kim Dotcom has never run from the fact that in the eyes of some he is a villain, a criminal.  Instead, he openly mocks them.

His Daimler AG (ETR:DAI) Mercedes-Benz sports cars bear the license plates "Good" "And" "Evil".  He once tried to fake his own death to escape prosecution on stock fraud charges.
But cloud storage's most contentious leader is today a more mellow and reserved man.  
Embracing the role of IT entrepreneur in his adopted home of New Zealand, he has fought tooth and nail to defeat a puppet prosecution, acting on the behalf of the U.S. government, which is in turn intimately tied to and acting on behalf of the big money U.S. entertainment industry.
And after a long fight Kim Dotcom is on a verge of winning.
This week a New Zealand judge struck down police requests to seize Mr. Dotcom's assets, which had been seized during a 2012 raid of Mr. Dotcom's New Zealand mansion where he lives with his wife Mona and kids.  With the order, police will have to return $16M USD in assets, including:
  • His wife's jewelry
  • Big screen TVs
  • Works of art
  • A collection of war memorabilia
  • 15 Mercedes-Benz automobiles
  • A pink General Motors Corp. (GM) 1959 Cadillac
  • Rolls-Royce Phantom
  • $10M USD in institutional investments
New Zealand police have two weeks to comply with the order.  But it appears that they've already begun to return some of the assets to Mr. Dotcom.
Mr. Dotcom himself announced the win via Twitter:
So who is Mr. Dotcom, and why is the U.S. so adamant about taking him down? To those not familiar with Megaupload or how this hulking "large-framed" hacker became the unlikely anti-hero of the internet, a quick refresher is in order.
II. Before He Was Dotcom
Born in Kiel, Germany to Finnish and German parents, under his birth name -- Kim Schmitz -- Kim Dotcom quickly found his passions lay in cyberspace.  He amassed a small fortune selling stolen corporate access information and other digital black market treasures. 

Kim Dotcom
Kim Dotcom in 1996 [Image Source: Wikipedia]

In 2001, he made over €1.1M ($1.5M USD) in net profit off a pump-and-dump scheme of dead dot-com venture, but that exploit led to him being charged with insider trading.  He received a suspended sentence from German authorities.  The legal troubles prompted him to permanently leave his native Europe, setting up shop in Hong Kong, where in 2003 he wound up in more trouble over unauthorized stock trades.
To his critics he was a criminal who continued to dabble in illegal enterprises even after appearing to "go legitimate".  But critics and fans alike will acknowledge one fact -- Mr. Schmitz was undeniably brilliant, and that brilliance allowed him to accrue a fortune.
In 2003, he set up the website that would accrue him most of his fortune -- and infamy -- the cloud storage site Megaupload (the name wasn't put in place until 2005).  
At its peak Megaupload was the internet's thirteenth most visited website, and was responsible for 4 percent of global internet data traffic.  It reportedly had 50 million visitors a day.  Kim Schmitz in 2005 celebrated the site's impressive successes, by changing his name to "Kim Dotcom".
His business quickly grew to by 2007 employ over 150 employees globally and made $175M USD in annual revenue (mostly from user subscriptions).


But Megaupload came increasingly under scrutiny when the entertainment industry caught wind that its users were engaging in rampant filesharing.  In 2007, Google Inc. (GOOG) voluntary blacklisted Megaupload from its advertising program, killing about a fifth of the site's revenue.
And that was just the beginning of Mr. Dotcom's legal woes.
III. Megalawsuit
On Jan. 5, 2012 the U.S. Department of Justice (DOJ), under pressure from the big money entertainment industry, filed an indictment against Kim Dotcom and Megaupload.  In the indictment, U.S. officials accused Kim Dotcom of conspiracy to commit copyright infringement.

Department of Justice
The U.S. DOJ declared war on Kim Dotcom in Jan. 2012. [Image Source: AP]

After similar takedowns of LimeWire, Kazaa, Napster, and others the case seemed like a slam-dunk to the casual observer.  But there were some crucial differences.
First, unlike its peer-to-peer filesharing brethren, Megaupload was more of a traditional file hosting site.  In many ways it had much more in common with legal services from companies such as Google,, Inc. (AMZN), and Microsoft Corp. (MSFT).
Second, by the time Mr. Dotcom was arrested and his assets were seized in 2012, he had been living in New Zealand for several months as a permanent resident.  By contrast, most other filesharing cases had played out in the U.S.  The foreign setting has made it exceedingly difficult for U.S. special interests effort to steamroll Mr. Dotcom.
Instead of a largely tidy case as the LimeWire and Kazaa affairs were, the treatment of Mr. Dotcom has been the subject of much controversy and has been politically damaging for the ruling regime in New Zealand.  New Zealand officials have both suffered under the persistent appearance of acting as lapdogs to the U.S. and have committed a series of critical areas that have threatened to blow up an already difficult legal campaign.

But that hasn't stopped U.S. law enforcement and their "partners" in New Zealand from trying.
After the DOJ indictment, New Zealand police began to snoop on Mr. Dotcom.  New Zealand's Government Communications Security Bureau (sort of the U.S. National Security Agency of New Zealand) monitored Mr. Dotcom.  After two weeks of spying, New Zealand officials decided it was time to raid Mr. Dotcom's home.  They did so, seizing much of his property.  His employees were rounded up and arrested at gunpoint.
At the same time New Zealand police froze his international assets.



Megaupload seizures

Police seize Dotcom's cars
New Zealand police seize one of Mr. Dotcom's cars during the Jan. 2012 raid. 

In jail and with little free financial means to defend himself, things looked dire for Mr. Dotcom.  But he would prove to be a far tougher foe than his enemies believed.  And in the months since his arrest and eventual release on bail, he has slowly won back his assets and dealt New Zealand police a series of setbacks.
IV. New Zealand Police Commit Critical Errors in Investigation
One key win came when Mr. Dotcom challenged the spying campaign that led up to his arrest.  His lawyers contended that the GCSB's actions against him violated his rights as permanent resident of New Zealand.  Permanent residents, the lawyers asserted, are protected against warrantless spying, just like citizens.  As the GCSB had failed to obtain warrants before snooping on Mr. Dotcom, their actions appeared brazenly illegal.
Mr. Dotcom was very vocal in the local media about the spying issue, and soon the public was rallying to his support.

NSA spying
Courts ruled that it was illegal for New Zealand intelligence agents to spy on Mr. Dotcom without warrants. [Image Source: Whoviating]

New Zealand Prime Minister, John Key -- previously a harsh critic of Mr. Dotcom's -- was forced to make an embarassing apology to try to limit the political damage.  He released a statement, commenting:

I apologize to Mr Dotcom. I apologize to New Zealanders because every New Zealander…is entitled to be protected from the law when it comes to the GCSB Government Communications Security Bureau, and we failed to provide that appropriate protection for him.

In other words, the setup leading up to the raid was patently illegal.  Those that accused Mr. Dotcom of breaking the law admitted that they themselves had broken the law.

Kim Dotcom
The raid on Mr. Dotcom's New Zealand mansion (pictured) was ruled legal, but the procedure followed was ruled in violation of the law. [Image Source: Wired]

Chief judge Helen Winkelman of the High Court of New Zealand in Dec. 2012 ruled that the spying was illegal and that Mr. Dotcom could sue the GCSB for damages.  As New Zealand is a "dominion" of the British Empire, the United Kingdom's court systems (via the Queen of England) still represent a higher authority and have the right to appeal decisions by the New Zealand High Court.  And appeal they did, via New Zealand's attorney general -- the local officer of The Crown.  But they lost their case in March 2013 when New Zealand's Court of Appeal ruled in Mr. Dotcom's favor.
It was also revealed that during this time, the government knowingly violated Mr. Dotcom's rights by carrying out the wrong kind of seizure.

Kim Dotcom court
Police intentionally used the wrong kind of seizure warrant so they could take Mr. Dotcom by surprise and seize assets they were not entitled to seize. [Image Source: AAP]

Normally, a case such as Mr. Dotcom's would involve the court giving a notice to the suspect of the imminent seizure.  Instead, released emails and other documents reveal that New Zealand police and prosecutors knowingly filed a more severe type of order which allowed them to raid and seize Mr. Dotcom's property without warning.  Further they allegedly seized items of little value, but of importance to Mr. Dotcom's family, which High Court judges ruled was illegal to do.

Last, but not least, the Court of Appeals ruled in Feb. 2014, that while the basic seizure was lawful, the police had violated Mr. Dotcom's rights when they passed Mr. Dotcom's hard drives to the U.S. Federal Bureau of Investigation.  If Mr. Dotcom was to be tried, the court argued, police must investigate him themselves, not act as puppet police to the U.S. government.

And now the Court of Appeals has given Mr. Dotcom yet another win, ruling that the police must return most of his assets.

V. Up Next -- Extradition Hearing

Kim Dotcom still faces one major legal danger -- a July 2014 extradition hearing.  

The New Zealand government is under substantial pressure to extradite Mr. Dotcom to the U.S. where he faces up to 20 years in prison for his alleged role in copyright infringement.

Kim Dotcom
Kim Dotcom is still fighting to escape extradition to the U.S. where he faces likely prison time.
[Image Source: Fairfax NZ]

Mr. Dotcom has alleged that the charges -- spearheaded by U.S. Attorney General Eric Holder -- were the result of cronyism.  He points to the close relationship between U.S. Vice President Joe Biden and former Democratic Senator Chris Dodd, who today is the acting chief of Motion Picture Association of America (MPAA).

Chris Dodd
MPAA's corpulent CEO Chris Dodd
[Image Source: Scott J. Ferrell/Congressional Quarterly/Newscom]

Following the rejection of the "Stop Online Piracy Act" (SOPA) (H.R. 3261), Senator Dodd in January 2012 threatened to cut off the flow of movie industry money to the Obama administration.  While VP Biden and AG Holder would surely claim otherwise, it certainly seems circumspect that the charges against Megaupload were filed shortly after the movement to kill SOPA was reaching its climax and MPAA fury at the feds was peaking.
Mr. Dotcom himself is no stranger to the benefits of bribing government officials.  Mr. Dotcom allegedly used campaign donations to help grease his way into New Zealand.  Money helped New Zealand elected officials ignore Mr. Dotcom's legal troubles in Hong Kong at the time.
But now Mr. Dotcom finds himself up against a much deeper pocketed special interest.
VI. Dotcom Bomb: RIAA and MPAA Uploaded Copyrighted Works to Megaupload
But much as the New Zealand police's fumbles have threatened to undermine the case, the MPAA and its sister agency, the Recording Industry Association of America (RIAA) appear to have committed a fatal error of their own.
In court the MPAA's lawyer, Steve Fabrizio contended:

Megaupload was built on an incentive system that rewarded users for uploading the most popular content to the site, which was almost always stolen movies, TV shows and other commercial entertainment content.

But a new analysis of Megaupload's database by TorrentFreak reveal that the MPAA and RIAA themselves were uploading many files to Megaupload.  The analysis showed 490 accounts, including 181 premium accounts, registered to users accessing the site from MPAA or RIAA IP addresses.  These accounts were responsible for uploading 16,455 files -- 2,097 GB of material.
Illegal download
MPAA poster: irony is thy name...

This kind of bombshell could destroy the entire case against Mr. Dotcom.  Recall that we saw similar mischief occur during the case against Google's YouTube, in which Viacom, Inc. (VIA) was caught uploading its own copyrighted materials in an apparent framing attempt.

The piracy police yet again have committed piracy against themselves... whoops.
[Image Source: Sodahead]

While the accusation still needs to be further confirmed, it's increasingly appearing as if the MPAA and RIAA at best were breaking the law in the exact way they're accusing Mr. Dotcom of doing, and at worst were committing a deliberate attempt to frame Mr. Dotcom.
Indeed big media always seemed to have a fascination with Megaupload.  RIAA artist Swiss Beatz had agreed to serve as the U.S. "CEO" of Megaupload, and other top musicians had also marketed the site.  Emails published by TorrentFreak reveal that at the time of the 2012 takedown Fox (News Corp. (NWS)), Warner Bros. (Time Warner Inc. (TWX)), and The Walt Disney Comp. (DIS) were all proposing details to either advertise on or distribute content via Megaupload.
Now we know that the big money movie and music studios were not only interest in doing business with Megaupload, their employees were actively uploading files to it, including -- reportedly -- copyrighted works.
This isn't all that surprising.  Indeed, even aside from the Viacom debacle, big media and Congressional staffers alike have often been caught engaging in internet piracy.
VII. Poll: 77 Percent of Young New Zealand Voters Support Dotcom, Internet Party
Meanwhile, Mr. Dotcom is ratcheting up the pressure on New Zealand officials.  He’s launched a new cloud storage service, Mega, which utilizes strong encryption to safeguard his users -- and the site itself -- from special interest threats.

Mega launch
Kim Dotcom presides over the flashy launch party for Mega. [Image Source: Reuters]

At the same time he's launched a new political party, the Internet Party.  Similar to the Pirate Party, the Internet Party calls for copyright and law enforcement reform.  It is gaining significant support since its March 2014 launch in New Zealand.  A recent poll suggested as many as one in five New Zealand adults would consider voting for its candidates in the upcoming September election.  Even more impressive, in a poll of younger voters 30 out of 39 voiced support for the Internet Party.
Now New Zealand government officials must tread lightly.

With the courts increasingly acknowledging the growing body of evidence that U.S. special interests have committed to an illegal and dishonest campaign to first patronize then pummel Mr. Dotcom's business, pressure is on John Key and his ruling National Party.
At the same time don't expect the MPAA and RIAA -- and their hired help in the U.S. government to let the case go easily.  If Kim Dotcom wins he will have done what only Google has thus far successfully been able to do -- repel big media's war party.

Sources: Kim Dotcom, Torrent Freak

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls

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