Megaupload founder is in hot water -

The Kiwi Government has delivered Megaupload founder a significant court defeat which could see him extradited to face a trial in a US kangaroo court.

A New Zealand court ruled that the search warrant used in the arrest of Megaupload founder Kim Dotcom on US online piracy charges was legal.

The decision will benefit US prosecutors who say the Megaupload website cost film studios and record companies more than $500 million and generated more than $175 million in criminal proceeds by letting users store and share copyrighted material, such as movies and TV shows.

If Dotcom is extradited, the ensuing copyright case could set a precedent for internet liability laws and, should he win, entertainment companies will have to rethink online distribution methods.

The earlier High Court judgment ruled that the search warrants were vague and enabled police to seize materials irrelevant to the charges against Dotcom. The appeals court said the warrants were adequately worded and should not have caused misunderstanding.

"There was no disconnect between what there were reasonable grounds to believe might be at the properties and what the warrant authorized the police to take."

It did not go all the US government's way. The appeals court upheld an earlier ruling that prosecutors had not been authorised to send clones of seized electronic evidence to the United States. This could mean that the New Zealand government could be sued by Dotcom for its role in the raid on the German-born, New Zealand resident's home.

However, what is probably messier for Dotcom is that he could find it difficult to challenge evidence at his extradition hearing set for July. A Supreme Court decision is pending on whether US prosecutors must disclose evidence to be used in the hearing.

Both Dotcom and US lawyers said they could also appeal to the Supreme Court to reverse the appeal court decision.