Megaupload, meet Morrison

By Alison Frankel
January 24, 2012

I like to think of the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank as Godzilla, rampaging across the landscape of civil litigation as plaintiffs’ lawyers scramble away in horror. Morrison, as you know, was a securities case, and in the narrowest sense, the ruling simply precluded securities-fraud suits based on foreign-traded shares. But the Court’s warning that U.S. laws shouldn’t be presumed to apply overseas unless the statute’s language specifies it has turned out to be a powerful weapon for foreign defendants in all sorts of civil cases, from antitrust and trade secrets to racketeering and Securities and Exchange Commission enforcement.

Can Morrison now save the accused online pirates at Megaupload?

The U.S. government is accusing the file-sharing service and seven of its executives of conspiring to commit racketeering, conspiring to commit money laundering, and engaging in criminal copyright infringement. All of the Megaupload defendants are foreign. The company is based in Hong Kong, and the indicted execs have ties to Hong Kong, various European countries, and New Zealand. None is a citizen or resident of the United States. (Here’s Reuters’ story on the charges, and here’s the Justice Department’s press release.)

The 72-page indictment is nevertheless littered with references to activity that allegedly took place in the Eastern District of Virginia, where the case was filed and where Megaupload leased servers from a company called Carpathia Holding. (The Washington, D.C.-based Cogent Communications was allegedly an Internet service provider for Megaupload.) The government asserts the Eastern District is an appropriate venue because allegedly illegal uploading and downloading took place there, and because Megaupload did business, via the Internet money processer PayPal, with users who live in eastern Virginia.

But that’s not the test Morrison dictates. The Supreme Court’s decision holds that the language of the relevant law is what counts. And under that test, as the New York Law School blog Legal As She Is Spoke (yes, that’s really its name) was the first to note, the government’s criminal copyright-infringement and racketeering counts could be in trouble.

If the current copyright laws applied to overseas activity, after all, there would have been no need for the much-maligned (and now apparently dead) Stop Online Piracy Act and Protect Intellectual Property Act. There’s also considerable precedent on racketeering and Morrison. In a pair of rulings just months after Morrison came down, the U.S. Court of Appeals for the Second Circuit concluded that the civil Racketeer Influenced and Corrupt Organizations law does not extend to overseas conduct. And in the most significant Morrison ruling in a RICO case, Washington, D.C., federal court judge Gladys Kessler found in March 2011 that the U.S. government has no racketeering case against British American Tobacco — even though she’d already entered a final judgment against BAT. (Here’s a comprehensive analysis of RICO and Morrison from the Vanderbilt Journal of Transnational Law.)

Morrison hasn’t been as deeply tested in criminal cases as it has on the civil side. If Megaupload defense lawyers try to dismiss part or all of the indictment on Morrison grounds, prosecutors from U.S. Attorney Neil MacBride’s office will counter with a 1922 Supreme Court opinion called United States v. Bowman, which holds that extraterritorial jurisdiction can be inferred from U.S. criminal laws. As I’ve reported, another D.C. federal district judge recently agreed with the government’s interpretation of Bowman. A Second Circuit panel has also rebuffed a Morrison defense in a criminal case, although not on Bowman grounds.

Even if Megaupload’s legal team (which no longer includes Robert Bennett of Hogan Lovells, as Reuters reported) manages to knock out the racketeering and criminal copyright-infringement counts via Morrison, I think they have a much tougher Morrison argument on the government’s money laundering allegations. The money-laundering statute specifically references United States jurisdiction over “foreign persons,” and includes a prohibition on moving money into and out of the country illicitly. Obviously, Megaupload and its executives can argue that they weren’t engaged in money laundering, but for Morrison purposes, the law does appear to have extraterritorial reach.

I left a message with Megaupload counsel Ira Rothken (here’s a Q&A he did with the Washington Post on the case) but he wasn’t immediately available.

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