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Thursday, August 2, 2012
by Tamlin H. Bason
In Ananda's post earlier this week about a scrivner's error in Trademark Dilution Revision Act of 2006, he said the issue was of interest for "people who might occasionally enjoy delving into the minutiae of law and legislation." Those same people may be geeking out over an issue currently being weighed by the U.S. District Court for the Eastern District of Virginia.
First of all, it is interesting that the most substantive hearing (to date) in what is being hailed as one of the largest criminal copyright cases in U.S. history had nothing to do with copyright, and everything to do with procedure.
The case is United States v. Dotcom, and the July 27 hearing was on Hong Kong-based corporate defendant Megaupload Ltd.'s motion to dismiss for lack of personal jurisdiction.
For background information, on Jan. 17 the U.S. Department of Justice unsealed an indictment charging Megaupload, as well as seven individuals—including the company's founder, German native Kim Dotcom (he changed his name from "Kim Schmitz" a few years ago)—with wholesale criminal copyright infringement, racketeering, and money laundering.
A superseding indictment, filed in February, added counts of wire fraud. The government alleged that websites operated by the defendants resulted in more than $500 million in damages to U.S. copyright holders. The individual defendants were also apprehended Jan. 17, with Dotcom himself being nabbed from a safe room that he had taken shelter in in his multi-million dollar home in New Zealand. Those defendants are now fighting extradition. The government also seized more than $50 million in assets, some of which was in the name of the corporate defendant, Megaupload.
The problem, according to Megaupload's attorneys, is that the company was never served. Nor, in fact, could it be served, they argued. They point to Rule 4 of the Federal Rules of Criminal Procedure, the relevant portion of which states: "A summons is served on an organization by delivering a copy to an officer, to a managing or general agent, or to another agent appointed or legally authorized to receive service of process. A copy must also be mailed to the organization's last known address within the district or to its principal place of business elsewhere in the United States." Fed. R. Crim. P. 4(c)(3)(C) (emphasis added).
Megaupload argued that the test is a conjunctive one and that in order to effectively serve a foreign organization the government must both deliver a copy to an officer and mail a copy to the organization's last known address or principal place of business in the United States. Megaupload, however, pointed out that it does not currently have, nor has it ever had, an office in the United States. Accordingly, Megaupload's attorneys asked the court to dismiss the indictment.
The government argued in its brief in opposition to the motion that Megaupload's position "leads to the incredible conclusion that a foreign corporation can commit crimes in the United States and secure what amounts to complete immunity from prosecution simply by ensuring that it has no principal place of business here."
The argument clearly struck a chord with the court.
Judge Liam O'Grady opened the hearing by musing, "Surely the judicial body that formulated [Rule 4] did not intend for a foreign company to be able to violate our laws indiscriminately from an island in the South Pacific. ... But maybe they did."
The court ultimately has its work cut out for it in deciding what it was that the drafters intended when Rule 4 was drafted. Three factors highlight the difficulty of that task.
First, there is no case law directly on point instructing the court on how to proceed when a foreign corporate defendant simply cannot be served according to the proscribed rule. The lack of coherent case law led the court to ask each party whether they thought that his order (expected shortly) would be ripe for interlocutory appeal.
Megaupload's attorney, William A. Burck of Quinn Emanuel Urquhart & Sullivan, Washington, D.C., said he thought it was and he indicated that they would immediately appeal an adverse ruling.
Ryan K. Dickey of the Office of the U.S. Attorney for the Eastern District of Virginia, Alexandria, Va., was less certain that the U.S. Court of Appeals for the Fourth Circuit would be willing to take an appeal prior to the final disposition of the entire case, though he noted that the extradition issues in New Zealand could take up to a year to resolve.
Still, O'Grady at one point suggested that it may be appropriate to have the Fourth Circuit offer some guidance.
A second complicating matter is that the rule's counterpart on the civil side does in fact permit service on a foreign corporation by alternative methods, notably, pursuant to state law methods of service. The fact that such language is missing from the criminal rule seems to bolster Megaupload's argument that there was a reluctance to offer broad rules for service on foreign companies because corporations are creations of foreign governments, and thus their criminal prosecution in the United States raises issue of comity.
The government argued that even if service is not authorized under Rule 4, it can nonetheless be carried out through the Agreement between the Government of Hong Kong and the Government of the United States of America on Mutual Legal Assistance in Criminal Matters. But Megaupload pointed out that this agreement has not been used to effectuate service in a criminal case, and noted once again that unlike its civil counterpart, Fed. R. Crim. P. 4 does not authorize service by international treaty.
A third issue that the court must resolve is that Rule 4 is silent as to what happens if service cannot be completed in a timely manner. On the civil side, the rule requires that a court dismiss an action without prejudice if the defendant has not been served within 120 days of the filing of the complaint. Fed. R. Civ. P. 4(m).
Criminal Rule 4 has no such language, O'Grady pointed out. Accordingly, the court has no statutory remedy at its disposal if it determines that Megaupload has not, and cannot, be served. O'Grady thus asked Burck what remedy he would like to see.
When asked the same question earlier in the proceeding, Burke asked for a dismissal with prejudice. That drew a swift rebuke from O'Grady, who said, "Which has never been done by any court, ever."
The second time he was asked, Burck said a dismissal without prejudice, one that freed up Megaupload's assets, would be appropriate and would give the government an opportunity to try to bring the company back into the proceedings at a later date once the individual defendants had been extradited.
Dickey strongly objected to any sort of dismissal, arguing that reconvening the grand jury in order to get another indictment against Megaupload would be "a huge waste of resources."
The judge didn't tip his hand, though he concluded the hearing with a statement that is bound to resonate with procedural buffs.
"This is a really interesting issue," O’Grady said.
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