The criminal charges against Kim Dotcom in the United States may never get to trial, the judge overseeing the case has told the FBI.
United States district court judge Liam O'Grady said he didn't know if "we are ever going to have a trial in this matter" after being told Dotcom's file-sharing company had never been formally served with criminal papers by the US.
The comment has been seized on by Dotcom's lawyers, who say it could lead to the extradition case in New Zealand being tossed out.
It follows a paperwork error by New Zealand authorities, who seized Dotcom's property without giving proper notice. The restraining order on his property was finally granted last week.
Megaupload was the world's biggest file-sharing website and claimed it was responsible for 4 per cent of internet traffic.
Dotcom faces a court hearing for extradition to the United States after a warrant was issued for him and six others on criminal copyright charges relating to music and movies on its computer servers.
Lawyers acting for the US have said they will argue Dotcom should be extradited because he was a member of an organised criminal group, which carries a sentence of five years.
The US Government needs to get over the hurdle of a five-year jail sentence to meet the criteria for extradition. Copyright charges in NZ carry a maximum of four years.
Judge O'Grady raised the prospect of there being no trial while hearing arguments over FBI applications to wipe Megaupload's vast database of members' files.
He said further study needed to be made of the failure to serve Megaupload, adding; "I frankly don't know that we are ever going to have a trial in this matter."
He said the arguments around the future of the data on the 1100 computers servers seized from Megaupload could be "premature". He wanted more information on why Megaupload had not been served.
The FBI's lack of service meant Megaupload was "kind of hanging out there", Judge O'Grady said.
Dotcom's US-based lawyer, Ira Rothken, said it was the defence's understanding that it was not legally possible for Megaupload to be served with papers accusing it of criminal acts.
He said it would be possible to serve the company with papers for a civil case and - as happened in NZ - for individuals to be remotely charged with crimes.
"My understanding as to why they haven't done that is because they can't. We don't believe Megaupload can be served in a criminal matter because it is not located within the jurisdiction of the United States."
Mr Rothken said he would have expected the FBI to have had the same legal advice, having described the case as the "largest copyright case in the US, which also means the world".
Mr Rothken said a key defence against extradition was the claim by Dotcom and others that they were accused of offences not covered by the law on extradition.
Prosecutor Jay Prabhu told the Virginia court hearing it might not matter because Dotcom owned 68 per cent of the company.
He said it was not a case of a corporation which might normally turn up. "It's seven people who actually don't want to show up."
Meanwhile, legal negotiations are under way to have jewellery and personal effects belonging to Dotcom's wife, Mona, returned.