Megaupload argues in Supplemental Brief that Government Misled Court on Core Evidence in Domain Seizures

Megaupload submitted to the United States Federal Court in Virginia today a legal brief arguing to the Court that the DOJ's core evidence submitted under seal in the secret domain name seizure process was misleading and asked the Court for a remedy.

In the brief Megaupload argued that:

This Court recently ordered the unsealing of the documents previously submitted by the United States to support taking down the Megaupload cloud storage site by seizing the domain name(s) --- such unsealing lays bare a crucial omission the Government made to the Court in the secret process.  Specifically, the Government’s affidavits underpinning the warrants omitted critical, exculpatory information regarding whether, why and how Megaupload knew it was hosting criminally infringing files.  The Government represented that, “[o]n or about June 24, 2010, members of the Mega Conspiracy were informed, pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing copies of copyrighted motion pictures were present on their leased servers at Carpathia Hosting, a hosting company headquartered in the Eastern District of Virginia,” and that, “[a]s of November 18, 2011, thirty-six of the thirty-nine infringing copies of copyrighted motion pictures were still being stored on servers controlled by the Mega Conspiracy,” after it was informed of the infringing content. (See Dkt. 145-1 at 11, 38, 61, 84, 105-106)  This snippet—which appears in each relevant affidavit and is the only direct, corroborated evidence the Government purports to offer as proof that Megaupload had requisite knowledge—suggests that Megaupload was warned of its potentially criminal complicity yet persisted in hosting the files without concern for their illegal content.  The affidavits, in short, paint Megaupload as a brazen scofflaw. 

The truth, as the Government well knows, is quite different.  Megaupload had every reason to retain those files in good faith because the Government had sought and obtained Megaupload’s cooperation in retrieving the files and warned that alerting users to the existence of the warrant and the Government’s interest in the files could compromise the investigation.  Carpathia informed Megaupload that the warrant was sealed, and that only Carpathia and Megaupload, not the users of the infringing files, were to know of its existence, and at the Government’s request provided Megaupload a copy of the sealing order. The Government selectively parsed its account so as to exclude critical facts that negate any notion that Megaupload had criminal mens rea to retain the infringing files.  The Government deliberately neglected to apprise the Court that:

•       Megaupload received the June 24, 2010 warrant in the course of cooperating with a Government investigation; 
•       Megaupload was informed of the June 24, 2010 warrant by its vendor, Carpathia Hosting (“Carpathia”), with the Government’s consent and for the express purpose of obtaining Megaupload’s voluntary assistance with executing the warrant;
•       The Government declined to communicate directly with Megaupload about the warrant, instead deputizing Carpathia to communicate on its behalf;
• Carpathia directed Megaupload not to open “EM7 tickets” on the infringing files—which would have alerted a larger number of people to the existence of the warrant and jeopardized the secrecy of the investigation—“[b]ecause of the Government’s seal on the warrant,” asking that Megaupload instead deal directly with a single person at Carpathia;
• Megaupload’s preservation of the status quo, particularly by not taking down or otherwise disturbing the files identified in the June 24, 2010 warrant, was faithful to the Government’s express desire, reflected by the Magistrate Judge’s order sealing the warrant (provided to Megaupload by Carpathia at the Government’s request) and by Carpathia’s instructions on the Government’s behalf, for Megaupload to ensure that evidence would remain preserved and that the target users would remain unaware of the investigation; and
• Consistent with its stated desire that the warrant and investigation remain confidential so as not to tip off the target users, the Government—neither directly nor through Carpathia—ever requested that Megaupload take down the files identified in the June 24, 2010 warrant.

Although it is now apparent that Megaupload, itself, was the target of a criminal investigation at the time it received the June 24, 2010 warrant from Carpathia, Megaupload was led to believe otherwise at the time.  Indeed, it was steered to cooperate with the Government by Carpathia’s express assurance that the Government had given it “no reason to believe the [sic] MegaUpload is the target of the investigation.”  (See June 25, 2010 email from Phil Hedlund to Mathias Ortmann and Kim Dotcom, attached as Exhibit 1.)  By all indications, the Government tapped Carpathia to convey the June 24, 2010 warrant to Megaupload, thereby planting what the Government would later claim, for purposes of this case, amounted to criminal knowledge that Megaupload was hosting infringing files, while simultaneously lulling Megaupload into thinking it was not a target of its ongoing investigation (which the Government dubbed its “Mega Conspiracy” investigation)—and, what is worse, affirmatively leading Megaupload to understand from the warrant’s sealing order and Carpathia’s representations that Megaupload should take no action with respect to the infringing files lest it tip off the ostensible targets.  In sum, the Government came to paint as criminal the very course of conduct by Megaupload that the Government had induced in requesting good-faith cooperation with an investigation that was to remain secret.  Most incredibly of all, however, the Government then came before this Court, ex parte, with a selective, distorted account whereby the Government omitted mention of facts—well known to the Government—indicating that Megaupload was of an innocent state of mind in cooperating with what it was told was an ongoing, secret investigation of the infringing files at issue.  The Government deliberately misled the Court that signed the search warrants and failed to disclose material exculpatory information in violation of Brady v. Maryland, 373 U.S. 83 (1963).

A warrant is defective—and the resulting search and seizure are unlawful—if the affiant was dishonest or reckless in preparing his affidavit in support of the warrant, and if the allegedly false statement is necessary to the finding of probable cause, regardless whether a searching officer proceeded in good faith.  United States. v. Leon, 468 U.S. 897, 926 (1984); Franks v. Delaware, 438 U.S. 154, 156 (1978).  A court may order return of property pursuant to Rule 41(g) on the basis that the warrants authorizing seizure of property were invalid.  See United States v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1105 (9th Cir. 2008) (“Comprehensive Drug Testing I”), opinion revised and superseded in part by 621 F.3d 1162 (9th Cir. 2010) (“Comprehensive Drug Testing II”).