A major ruling looms in the high-profile copyright piracy case against Megaupload Limited, the Internet file-hosting empire whose websites were shutdown and whose domain names were seized by the US Department of Justice in January following the indictment and arrest of the company’s owners in connection with their alleged operation of an organization dedicated to copyright infringement. Attorneys for the Hong Kong-based company, whose file-hosting services at one time claimed 180 million users and allegedly generated hundreds of millions of dollars by encouraging users to post movies, music, and other copyrighted material that the company knew was stolen, have filed a motion to dismiss the government’s charges, arguing that a foreign corporation that lacks a US office is not subject to jurisdiction within the United States.

While prosecutors claim that Megaupload’s argument “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 failing to maintain a physical address in the United States, the company’s attorney argued before the US District Court for the Eastern District of Virginia that the US government must be forced to “play by the rules,” which “are designed in part to protect the foreign sovereignty of nations.” Holding otherwise, Megaupload suggests, would mean that “any corporation in the world could be the subject of prosecution by overzealous US prosecutors merely because they use servers located in the United States.”

The stakes are high in the court’s much-anticipated ruling, which could have major implications for both U.S. copyright holders as well as the operators of foreign file-sharing websites. While Megaupload’s supporters argue that the case is about Internet freedom, the Motion Picture Association of America responds that it is really about preventing “a career criminal and his associates [from] profiting by stealing the hard work of the people who make creative works [that] audiences love.” Any US company with substantial intellectual property assets should therefore pay close attention to this case.

Arent Fox is continuing to monitor this case. Please contact Anthony Lupo, Sarah Bruno, Amy Salomon, or Anthony Peluso with questions.