Megaupload executives still eligible for extradition: summary of latest decision in Dotcom case

Article written by: Paul JohnsThomas Huthwaite    |   Wednesday 22nd February 2017

It has been more than five years since Megaupload’s cloud services were shut down, and its top executives arrested.  Now, two New Zealand courts have held that those executives, including Kim Dotcom, can be extradited to the US to face various criminal charges. The following article summarises issues the latest High Court decision raises related to copyright infringement in New Zealand.


Brief history

At its peak, Megaupload[1] was estimated to be the 13th most visited website on the internet, with 50 million visitors per day and 25 petabytes of stored data.  Due to its vast content and the number of takedown requests received while in operation, it is alleged to have been one of the biggest sources of internet piracy in the world.[2] Megaupload’s executives are alleged to have made millions from it.[3]

On 18 January 2012, the United States of America (the “US”) obtained warrants for the arrest of Megaupload’s executives.  Two days later, those warrants were executed at Kim Dotcom’s Auckland residence, by way of tactical police raid.  This was all part of a major cooperative effort between the US Federal Bureau of Investigation, the New Zealand Police, and the New Zealand Government Communications Security Bureau.

On 16 February 2012, the US filed an indictment[4] setting out 13 criminal charges against the Megaupload executives including conspiracy to commit copyright infringement and criminal copyright infringement.[5]  The US alleged a “Mega Conspiracy” by a worldwide criminal organisation engaged in criminal copyright infringement and money laundering on a massive scale, with estimated loss to copyright holders in excess of US$500million.  The US seeks the extradition of several executives, including Mathias Ortmann, Bram van der Kolk, Kim Dotcom, and Finn Batato (the “appellants”).

The main issue currently before the New Zealand courts is whether the appellants can be extradited to the US.  In order for this to happen, the conduct described in the indictment must fall within the type of offending listed in the US – New Zealand Extradition Treaty.  Mere civil liability would be insufficient.  Two New Zealand Courts have now held that the appellants can be surrendered to the US.  A further appeal to the Court of Appeal is likely.  A final appeal to the Supreme Court would require leave which may well be granted in a case of this nature.

Although the High Court considered various other issues, the following is a brief summary of the issues relating to copyright only.

 

Summary

On 23 December 2015 (following at least a dozen other judgments on other related issues), the District Court found the appellants eligible for extradition on all charges.[6]  The appellants, and the US, appealed to the High Court against almost every aspect of the judgment.

On 20 February 2017, Gilbert J in the High Court issued his appeal judgment.[7]  Although Gilbert J overturned one of the District Court’s core findings, he reached the same overall conclusion: the appellants are eligible for extradition on all charges for which their surrender is sought.

The major difference between the District Court and High Court judgments is in relation to the primary charges of copyright infringement.  In particular, Gilbert J held that section 131 of the New Zealand Copyright Act 1994 does not provide the necessary extradition pathway.  This section of the Copyright Act describes the types of infringement that are criminal offences.  The judge decided that this does not include online communication of copyright works to the public which is actionable only as a civil suit and is not a criminal offence.

Despite this, Gilbert J maintained that fraud, or dishonest obtaining of digital files is a crime and does provide the necessary extradition pathway.  Regardless of whether the relevant digital files are subject to copyright, those files are considered to be “property” and the appellants obtained that property by deception.

By way of background, this conclusion was made possible due to the Supreme Court judgment in Dixon v R.[8]  In that case, involving copying of CCTV footage to a USB drive, the Supreme Court held that digital files fall within the definition of “property” as defined in section 2 of the Crimes Act.  Dishonest obtaining and dealing in digital files may therefore amount to a criminal offence.  Although in this case the alleged dishonesty was wilful infringement of copyright, other forms of dishonesty could lead to dealing in digital files becoming a criminal offence even without infringement of copyright.

 

Criminal copyright infringement

The New Zealand Copyright Act provides that a copyright owner has various exclusive rights with respect to copyright works, including the exclusive right to communicate such works to the public.[9]  Since at least October 2008, this has included any online communication of copyright works.[10]  The Act also provides a definition of “restricted acts”, which includes communicating a copyright work to the public.[11]

If another person, without authorisation, performs a restricted act, copyright is infringed.[12]  This may give rise to civil remedies.

The Copyright Act also provides several criminal offence provisions.  These include, for example, offering for sale or hire, exhibiting in public or distributing, a known infringing copy of a copyright work.[13]  However, the majority of those criminal provisions still relate to “an object”.  In other words, online transmission or dissemination of copyright works has never been defined as a criminal offence.

Gilbert J was provided with detailed submissions on the history of the Copyright Act and its amendments.  The Copyright Act went through two major amendments in 2008[14] and 2011,[15] which followed consultation with industry and the public.  Despite this, the Copyright Act has not been amended to provide a specific criminal sanction for the online transmission of copyright works.  Gilbert J held that this indicates a deliberate choice on the part of Parliament not to provide criminal sanctions for such conduct.[16]

For this reason, the conduct alleged to amount to criminal copyright infringement is not an offence against section 131 of the Copyright Act.  That allegation cannot provide an extradition pathway.[17]

This is an interesting development in a case commonly thought of as a case of “copyright infringement”.

 

Conspiracy to commit a crime

Despite the above findings in relation to copyright infringement, Gilbert J went on to find that conspiracy to commit copyright infringement is a form of criminal conspiracy to defraud, and therefore engages the relevant article of the US – New Zealand Extradition Treaty.

The Treaty does not mention copyright infringement or conspiracy to commit copyright infringement specifically; it broadly encompasses a variety of ways in which offenders could conspire to defraud.  In particular, the Extradition Treaty specifically provides that extradition is permitted for:

  • Obtaining property, money or valuable securities by false pretences or by conspiracy to defraud the public or any person by deceit or falsehood or other fraudulent means, whether such deceit or falsehood or any fraudulent means would or would not amount to a false pretence.[18]

This closely follows the wording in the Crimes Act 1961 as it was at the time the Extradition Treaty was signed, describing the crime of “conspiracy to defraud”.[19] Although the Crimes Act no longer contains this wording, it does contain other offences held by the Court to apply to the alleged conduct in this case, in particular the offence of “Dishonestly taking or using a document.”[20]  Notably, this offence does not relate specifically to conspiracies or fraud.  The Court found that taking a document through wilful infringement of copyright (even if non-criminal) would amount to the required dishonesty.[21]

Gilbert J held that whether one considers the wording of the Treaty,[22] or the wording of the Crimes Act,[23] the allegations of conspiracy to defraud do provide an extradition pathway.  His reasoning follows, at least in part, from the significant Supreme Court decision in Dixon v R, in which digital material was held to fall within the definitions of “property” and “document” for the purposes of the Crimes Act.  In the present case, the US allegations focus on copyright works, but because such copyright works were specifically in the form of digital files, they too fall within the definitions of “property” and “document”.

For these reasons, Gilbert J upheld the District Court’s finding that conspiracy to commit copyright infringement is a form of conspiracy to defraud which specifically engages article II.16 of the Extradition Treaty.  The conduct alleged to amount to copyright infringement also engages current sections of the Crimes Act.  The evidence in this case is sufficient to establish a prima facie case and the appellants are eligible for extradition.

It remains to be seen whether this interpretation of the Crimes Act, and any appellate judgment on it, will make some types of copyright infringement criminal offences despite only being civil wrongs under the Copyright Act.

 

No safe harbour

The appellants also attempted to argue that they are provided safe harbour by specific provisions of the Copyright Act.  In 2011,[24] Parliament enacted safe harbour provisions for Internet service providers.[25]  The appellants argued that these shielded Megaupload from criminal liability under the Copyright Act, and provided a bar to extradition.

Gilbert J dismissed these arguments, holding that the safe harbour provisions do not provide an absolute shield against liability.  If the US proves that Megaupload’s operation was designed to profit from copyright infringement, the safe harbour will not avail the appellants.[26]  For example, the safe harbour provisions do not apply if an Internet service provider knows of the copyright infringement and fails to take steps to prevent that infringement from occurring.  Those are the allegations here, and the US has filed evidence that appears to support those allegations.

 

Appeal imminent

This decision is lengthy and thorough, due in part to the assurances of all parties that a comprehensive appeal is inevitable.[27]  We now await further news on that front, which would take the matter before the New Zealand Court of Appeal.

 


This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. If you would like further information, please contact a Baldwins representative.


[1] Megaupload was a digital locker, cloud, or file hosting service that allowed users from anywhere in the world to store and share their content online with other users.  This content was stored on Megaupload’s servers, rather than on the computers of individual users.  Content could be shared between users by providing a hyperlink to the relevant files or digital locker.  For more information, see our previous article at: https://www.baldwins.com/news/mega-misinformation-the-difference-between-cloud-computing-and-file-sharing

[2] The US evidence includes one use, known under the alias of “VV” who allegedly uploaded 17,000 different infringing files to Megaupload, accumulating over 334 million views. None of these files were deleted, even when takedown requests were made

[3] At the time of the appellants’ arrests, assets worth over $17 million were seized

[4] In the US District Court for the Eastern District of Virginia; see: http://www.washingtonpost.com/wp-srv/business/documents/megaupload-indictment.pdf

[5] Infringement of copyright can attract civil and criminal liability but criminal liability is limited to certain types of circumstances of infringement 

[6] Ortmann v the United States of America DC North Shore CRI-2012-092-001647, 23 December 2015

[7] Ortmann v the United States of America [2017] NZHC 189; http://www.courtsofnz.govt.nz/cases/ortmann-v-the-united-states-of-america/@@images/fileDecision

[8] [2015] NZSC 147; https://www.courtsofnz.govt.nz/cases/jonathan-dixon-v-r-1/@@images/fileDecision

[9] Section 16, and in particular 16(1)(f)

[10] Section 12 of the Copyright (New Technologies) Amendment Act 2008 substituted s16(1)(f) to provide an exclusive communication right that is technology neutral

[11] Sections 30 – 34, and in particular 33

[12] Section 29

[13] Section 131

[14] With the Copyright (New Technologies) Amendment Act 2008

[15] With the Copyright (File Sharing Infringing) Amendment Act 2011

[16] At [190] – [192]

[17] At [192], [591]

[18] At article II.16

[19] In particular, section 257, set out at [84]

[20] In particular, section 228, set out at [135]   

[21] At [141]

[22] At [127] – [133]

[23] At [112], [161] – [168]

[24] With the Copyright (File Sharing Infringing) Amendment Act 2011

[25] Sections 92A – 92E

[26] At [116] – [121]

[27] At [133]

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