A New Zealand court has overturned the seizure of the Hong Kong-based Internet tycoon – and, according to the US government, intellectual property thief -- Kim Dotcom's property, cash and automobiles, ruling that his property was seized using a court order which should never have been granted.

The case is already controversial because the US government, alleging that Dotcom was running a the world’s biggest copyright theft enterprise through his Megaupload file-sharing family of websites, was infringing on US copyrights. Lawyers, however, questioned whether the US government had the power to execute such orders so far from American shores.

Justice Judith Potter on March 17 declared a restraining order seizing Dotcom’s property "null and void" and having "no legal effect," according to the New Zealand Herald, which suggested that use of the wrong court order could lead to the return of everything the New Zealand government seized from the German internet magnate after a dawn raid involving scores of police on his mansion several weeks ago.

Police commissioner Peter Marshall and the Government's legal advisers at the Crown Law Office admitted making a "procedural error" when filing documents to seize Dotcom's property, opting for one in which Dotcom was given no chance to mount a defense, according to the news story. Police reportedly seized US$200 million in assets, a string of luxury cars and Dotcom’s US$30 million mansion in North Auckland where he lived with his wife, Mona, and their three children.

Potter said Marshall had sought to correct the mistake after the raid by applying for the proper order, retrospectively listing assets already seized. However, the judge said, she will soon rule on whether the mistake meant the internet mogul should get his property back.

It was the second blow for the case, in which the US government demanded that Dotcom, who changed his name legally from Kim Schmitz, be held for extradition to the United States. However, Justice Timothy Brewer,in an Auckland high court, rejected the Americans’ argument, noting “the presumption at law that Mr. Dotcom should have his liberty,” and ordered that the defendant remain out of prison.

As Asia Sentinel reported on March 13, the judge did not address the larger question of how the US government could claim authority over Dotcom, a European who operated in Asia and Oceania. US federal courts have made it clear that US copyright laws apply only within the physical territory of the United States and do not apply outside the country.

“Copyright laws do not have extraterritorial operation,” according to the federal appeals court in New York. Its coordinate court in California agreed, thereby setting the rule for the country’s entertainment industry.

Then US Justice Department alleged that Dotcom allegedly had a banking relationship with PayPal and allegedly stored some data on a few servers in Virginia, possibly without his knowledge. He clearly operated outside the United States. His businesses are headquartered in Hong Kong, where authorities also swooped down on his properties and confiscated them.

Dotcom thus appears to have had nothing to do with the United States but rather holds passports from Germany and Finland under different names, all of which are legal, as the New Zealand judge noted in freeing him in the first place. His businesses are headquartered in Hong Kong. He lives with his children and pregnant wife in New Zealand.

In the current Auckland case, Judge Potter said the mistake was under the aegis of Attorney-General Chris Finlayson - who is also the minister in charge of the Crown Law Office, according to the New Zealand Herald, which said his authority was used to authorize the seizure of the goods, which was undertaken by police and the Official Assignee.

On Jan. 30, Crown lawyer Anne Toohey wrote to the court to explain the wrong sort of restraining order had been applied for, saying a "procedural error" had occurred, enclosing new legal papers to seek a replacement restraining order and outlined five errors with the initial application.

Dotcom's legal team, challenged the error, stating the seizure of the property was "unlawful". His legal team refused comment on the decision. However, the Herald said, “the move would be seen as a new victory for Dotcom although there is no guarantee that he will get his property back.