Mega risks of doing business online with US companies

PUBLISHED : Monday, 30 January, 2012, 12:00am
UPDATED : Monday, 30 January, 2012, 12:00am

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Be careful where you click! If you conduct business online, you could be arrested for violating the United States' intellectual property laws - even though you haven't set foot in the country.

Technically, the US Copyright Act does not apply outside the nation's borders. Tell that to Kim Dotcom, who is currently being held in a New Zealand jail for allegedly violating American online piracy laws. Dotcom, a flamboyant Hong Kong resident known for his opulent lifestyle, is the founder of Megaupload, a file-sharing and storage site. Over the Lunar New Year holiday, the US Justice Department instigated his arrest and, in addition, seized the Megaupload domain names, froze millions of dollars in the company's accounts worldwide and prevented users from accessing their data.

But how does the US claim jurisdiction over a man who is reportedly a German and Finnish national and who appears to live and work in Hong Kong and New Zealand? After all, the Ninth Circuit, the federal appeals court presiding over California, ruled in 1994 that 'the United States copyright laws do not reach acts of infringement that take place entirely abroad'.

The key word is 'entirely', and federal prosecutors have latched onto the term with disquieting vigour. According to the 72-page indictment, American jurisdiction is founded principally on Megaupload's banking relationship with PayPal and on the fact that 39 copyrighted films were housed on servers leased from a company in Virginia.

That's a weak jurisdictional foundation, and the indictment feels insubstantial on the merits as well. The bulk of the counts allege conspiracy, racketeering, and aiding and abetting - classic filler that prosecutors use to pad out a case and exert pressure on co-defendants. One of the copyright infringement counts is based on the pre-release upload of a single movie, the forgotten Liam Neeson thriller Taken.

But it's the long arm of US law that should concern Chinese citizens and expats. As of this moment, Dotcom's business is shuttered, his ability to finance a defence for himself and his employees is compromised, and he is confined to a cage. Yet he has not been convicted of anything, and he has not been afforded the opportunity to challenge the government's evidence in open court (as would happen in a civil injunction or attachment hearing). Instead, American agents presented a palpably one-sided case behind closed doors, and the entire exercise was premised on Megaupload's handful of garden-variety contacts with US companies.

The lesson is clear: avoid dealing with American businesses. Even governments which are friendly with Washington have taken the hint. The Australian Defence Signals Directorate, an intelligence agency, has recommended that only Australian contractors be hired to store data. The Information and Privacy Commissioner for the Canadian province of Alberta likewise suggested in 2006 that the government avoid US firms because the Patriot Act's 'overwhelming condition of secrecy makes it unreasonable to rely on trust to assure privacy protection from American national security authorities'.

Extraterritorial assertions of jurisdiction will be one of the principal legal and foreign policy issues of this decade. Countries with technology and might are rewriting the concept of borders, arrogating the right to intervene wherever they can mine data or exert deadly force - which is everywhere, as far as the US is concerned. No one can be free of a polity so powerful and so adamant.

The Albertan commissioner is correct in saying that the American government, whether led by an unapologetic interventionist or a supposedly progressive internationalist, cannot be trusted to leave the rest of the world alone or to demonstrate a sense of proportion.

If you do business over the internet with the US, it has an excuse to take away your livelihood, your property and your freedom.

Paul Karl Lukacs is an attorney and writer. pkl@pkllaw.com