MegaUpload Battle Over Lawyers and Server Preservation Heats Up

Kim Dotcom and MegaUpload have beefed up their legal teams . News reports say prominent copyright lawyer Andrew Schapiro of Quinn Emanuel is joining the defense.

But there's a hitch. The Quinn Emanuel lawyers only want in if they can opt if the court decides they can't be paid from the funds seized from MegaUpload.

Checking the docket, Mr. Schapiro hasn't individually entered his appearance yet, but Paul Brinkman and William William Burck, other lawyers from his firm, Quinn Emmanuel, are trying to.

The Quinn Emmanuel lawyers (and long-standing MegaUpload lawyer Ira Rothken) are attempting to enter a special or limited appearance for the purpose of litigating the release of seized assets for attorneys' fees and issues related to the preservation of data on Carpathia's servers. [More...]

Brinkman and Burck of have filed a brief on the data preservation issue along with their motion to allow their special appearance. If the court denies the release of assets for attorneys' fees, they want the option of withdrawing as counsel. The Government objects to their entry of a special appearance and to the agreement MegaUpload worked out with Carpathia to transfer the servers to MegaUpload. A hearing is set for April 13.

The judge has granted the requests by lawyers for Paramount and the MPAA to appear in the case on the issue of preserving the data. They don't want the servers turned over to MegaUpload.

Quinn Emmanuel lawyers write in their brief seeking a limited entry of appearance:

Nothing in the Federal Rules or this Court’s Local Rules precludes counsel from making a limited appearance such as that proposed in this case. So long as the nature of the appearance is disclosed, the Court has broad discretion to permit counsel to enter a limited appearance and to withdraw at the conclusion of the part of the proceedings to which the appearance pertains.

But the Government is objecting:

Having procured sweeping pretrial seizures that rendered Megaupload and Mr. Dotcom effectively defenseless, the government has opposed our requests for permission to enter a limited appearance to challenge those seizures. The government has not identified any harm it or anyone else would suffer from allowing counsel to appear on a limited basis. Instead, it has argued that the Court should require counsel to enter a general appearance before filing a Farmer motion — something it knows that no firm is likely to do — to address a laundry list of complaints about the defendants’ meager efforts to date to defend themselves.

As to being hired by MegaUpload and Kim DotCom:

Megaupload and Mr. Dotcom have engaged Quinn Emanuel and the Rothken Law Firm to represent them in this case and have signed formal engagement letters to that effect. Megaupload and Mr. Dotcom have agreed, assuming we are allowed to do so by the Court, (1) that we will enter a limited appearance for purposes of filing and litigating a Farmer motion and seeking the preservation of evidence, including by filing a response to the motion for a protective order filed by Carpathia Hosting, Inc., and (2) that we will have the option of withdrawing from the case if funds are not released upon the resolution of the Farmer motion.

Carpathia filed a request to be able to delete the data since it is so expensive to maintain it. There are 1,103 servers with 25 petrobytes of data. The Government didn't copy all the data, just cherry-picked what it thought helped their case, and now says it has no obligation to make the rest available to the defense. The defense says without reviewing it, it can't know whether there's data on it that is helpful to its defense.

Carpathia charges $9,500.00 a day to host the servers. The cost of mirroring the data on the 1,103 servers would be $7.5 million. So Carpathia has agreed to sell the servers to MegaUpload for $1.5 million ( $465,000 of which represents back payment of the $9,500 a day server hosting fees) payable at the end of the case. MegaUpload's lawyers have promised the court the servers would be kept in the U.S. and only be accessible to the legal team for litigation purposes. No customers of MegaUpload would have access to the data on it without a court order. The Government is still objecting.

This data store contains much of the allegedly infringing materials on which the government’s charges are based. After copying only selected portions of this data, the government disclaimed any further interest in it and has taken the position that any preservation of the data was to be worked out between Carpathia and the defendants. Nonetheless, the government has consistently interfered with defendants’ efforts to preserve this data by, for example, asserting a general objection to a proposed transfer of the servers on which the data resides while refusing to specify its specific objections and declining to provide assurances that the government would not attempt to seize the servers as newly-acquired assets if Megaupload were to take possession of them.

The Government has seized $67 in assets from MegaUpload and Kim DotCom. The Government says MPAA, which it refers to as the victim in the criminal case, wants the money to facilitate recovery in civil suits against MegaUpload. It writes in its objecton:

MPAA, a victim in the criminal case, has requested preservation to facilitate potential civil claims against the defendants.

The Government wants it both ways. While it acknowledges the Court only has jurisdiction over the criminal case and "may not rule on speculative matters affecting civil lawsuits that have not yet been filed (and may not be filed at all)", it argues:

Even if Carpathia were entitled to some form of compensation for preserving the Carpathia Servers, it would be improper to compensate Carpathia out of seized assets, which may eventually be restored to victims as restitution.

Carpathia is asking for an order allowing any of the following:

(1) allowing Carpathia to reprovision the Mega Servers after a brief period of access has elapsed; (2) requiring one or more of the parties to this action to take possession of the Mega Servers in exchange for reasonable compensation to Carpathia; or (3) requiring any and all interested parties to compensate Carpathia for the substantial costs of transporting and continuing to maintain the Mega Servers until the conclusion of this action.

This should be an easy one in my view. MegaUpload is entitled to the data on the servers to prepare their defense in both the criminal and civil cases. The Government should be happy MegaUpload and Carpathia have found a way to accomplish this without making the Government pay for it. If the transfer request is denied, I hope the Judge orders the data preserved and makes the Government and the MPAA and the studios pay the continued hosting cost at $9,500. per day.

William Burck is a former deputy counsel to President George W. Bush (2005-2009.) Before that he was an AUSA in New York. He helped prosecute Martha Stewart. He also clerked for both Supreme Court Justice Anthony Kennedy and 9th Circuit Judge Alex Kozinksi.

Andrew Schapiro was widely praised for his work defending You Tube and Google against Viacom. (Although just this week Viacom won an appeal and the case is headed back to the trial court.) He also got an acquittal for a securities fraud client. He is a former Federal Public Defender who clerked for Supreme Court Justice Harry Blackmun and 7th Circuit Judge Richard Posner.

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  • Display: Sort:
    has the issue of the incorrect warrant issue been (none / 0) (#1)
    by cpinva on Sun Apr 08, 2012 at 07:57:48 AM EST
    resolved? it seems if the judge decides that subsequently filing the correct form doesn't perfect the original error, and orders the seized assets returned, this may render this whole issue moot.

    i am also beginning to suspect (yeah, i know, conspiracy theory) that MPAA is using the govt's of both the US & NZ to do its dirty work. it knows it won't ever actually win its infringement case, making the criminal case a huge waste of time and money, someone else's time and money. however, by bringing all this to bear on MegaUpload, it will force them to capitulate to an out of court settlement, a settlement mr. dotcom & co. would have told them to go take a flying leap on otherwise.

    not yet (none / 0) (#2)
    by Jeralyn on Sun Apr 08, 2012 at 11:04:03 AM EST
    No ruling on that yet. Or a new challenge to a subsequent seizure application:

    The Crown has applied to place a foreign restraining order on the assets seized from the Megaupload founder during the January raid on his Auckland mansion, meaning his possessions could be held for up to two years.

    However, Dotcom's defence lawyers say the wrong person has authorised the order and therefore it should not be granted.

    One thing that I don't quite understand.... (none / 0) (#3)
    by EL seattle on Sun Apr 08, 2012 at 01:56:42 PM EST
    ...Is exactly what "assets" are covered (or not covered) by this screw-up? Is it just the cars and cash and personal stuff that was seized at Dotcom's NZ residence? Or are any of the business assets involved (I'd guess that things like the servers that the US government currently controls are covered by a different seizure/shutdown process, but I haven't seen any details about the way that works). And what about the money that was in various bank accounts?

    I've sort of assumed that this seizure mix-up only involved the material that was in the mansion when it was raided... but I haven't read any press reports that listed the complete details.