Fight Over Megaupload's Frozen Assets Heats Up

Court decisions in New Zealand and Hong Kong could soon decide whether Kim Dotcom gets access to millions of dollars.
Kim Dotcom

In April, Hollywood studios launched a copyright infringement lawsuit against Megaupload and its founder, Kim Dotcom. The action was taken as U.S. authorities continue to push for Dotcom's extradition from New Zealand to answer charges of criminal copyright infringement and racketeering. The civil lawsuit is likely to follow the criminal prosecution, and as everyone awaits the latter, a developing fight is underway over Dotcom's significant assets.

STORY: Record Labels File Copyright Infringement Lawsuit Against Megaupload

On Tuesday, 20th Century Fox and other studios updated the situation in a response to Megaupload's motion for a stay of the civil lawsuit. The plaintiffs say they don't oppose the delay, provided that they can continue efforts to serve Megupload, reserve the right to amend their complaint and continue to take actions to preserve Megaupload's riches. The assets of a company accused to have enriched itself by over $175 million appear to be the central worry of the copyright holders.

After New Zealand law enforcement raided Dotcom's mansion in January 2012, his assets were frozen both in New Zealand and Hong Kong. The New Zealand government recently applied to extend the asset freeze, but after an objection from Dotcom, the New Zealand High Court declined in April to exercise its discretion to defer to a Virginia federal court's restraining order. The New Zealand assets remain frozen pending an appeal.

Meanwhile, in Hong Kong, Megaupload applied to the Court of First Instance on April 9 in an attempt to set aside a restraining order regarding assets held there. The company argued that the U.S. Justice Department had not served Megaupload a criminal summons in accordance with United States federal law nor explained how it intended to comply with the service of process requirements. The Hong Kong court gave U.S. authorities until June 4 to respond. A hearing is scheduled for July 10.

This has the studios concerned that Megaupload might be making headway on recovering its millions. According to the studios' legal papers on Tuesday, "Defendants have or have had sophisticated global business interests, and accordingly they have the ability to move assets offshore quickly and immediately."

STORY: Hollywood Studios Launch Lawsuit Against Megaupload

To counter this, the studios say they have initiated their own civil proceedings in New Zealand to ensure that Megaupload’s assets remain frozen pending the U.S. civil lawsuit. The studios also say they are considering taking action in Hong Kong as well. "If Defendants are successful in their efforts to unfreeze their assets in Hong Kong, there is a significant risk that those assets will be dissipated in very short order," they say.

Ira Rothken, Megaupload's attorney, tells The Hollywood Reporter, "The studios are engaging in a procedural game to try to freeze assets so they and the DOJ can win on procedure and not on the merits. If the DMCA safe harbor stands for one thing, it stands for the proposition that Megaupload and Kim Dotcom are entitled to assert the safe harbor, and that ought not be meddled with in a single hearing based on a flimsy record and prior to a civil trial on the merits. Indeed a number of studios applauded Kim Dotcom and Megaupload in writing for their track record in handling takedowns. Trying to freeze Kim Dotcom's assets in New Zealand is in essence trying to win the U.S. civil and criminal cases prior to trial, as such litigation costs millions of dollars and the studios and the DOJ have a healthy concern that if Kim Dotcom can mount a fair defense, he and the others will prevail."

Twitter: @eriqgardner