Kim Dotcom's lawyer has warned the US government's proceedings against his client could have an impact on everyone who uses the internet.

Defence lawyer Ron Mansfield said the US case ultimately put the onus on internet service providers to police those who used their technology.

The result, he said, would be websites having to investigate every file and every user - "privacy won't exist".

The FBI laid charges in January 2012 when Dotcom and three others - Mathias Ortmann, Bram van der Kolk and Finn Batato - were indicted on 13 charges including copyright infringement, racketeering, money laundering and fraud.

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Mr Mansfield opened the case on behalf of the internet entrepreneur at the extradition hearing before Auckland District Court today.

He said his 300 pages of submissions boiled down to core legal principles, which meant the men should be protected from prosecution under copyright law both in New Zealand and the US.

"There's a real competition in relation to the content holders and their right as they see it and the ability of a modern generation to use the internet," the defence lawyer said.

"What the US is effectively saying to internet service providers is: 'You need to actively investigate copyright infringement and stop it, because if you don't you'll not only be civilly liable but criminally liable'."

Mr Mansfield told Judge Nevin Dawson the Copyright Act did not provide a defence to the alleged offending but a complete bar from prosecution.

The Crown - representing the US government - said Dotcom and his co-defendants knew a slew of copyright-infringing material was being widely distributed.

But Mr Mansfield rejected that and said they were simply capitalists, ironically being prosecuted by the home of that ideal.

"There's no crime against making money from a brilliant idea," he said.

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"But somehow there's this suggestions coming up with a brilliant idea, bringing it to life through a website and marketing it ... is dishonest or corrupt."

The vast sums of money made by Megaupload came from subscribers and advertisers and were not made on false pretence, Mr Mansfield submitted.

He was also critical of the Crown's alleged lack of candour, which he said had resulted in intercepted communications between Dotcom and the others - predominantly via Skype and in German - being mis-translated to give a negative perception of the defendants.

Megaupload was set up in 2005 initially to store large file attachments that could not be sent by email and had millions of legal users, Mr Mansfield said.

This morning he submitted that those behind Megaupload should be legally protected from prosecution under the Copyright Act because they were an internet service provider.

"Internet giants like Google, Facebook and Twitter are immune from prosecution and to indict them would result in unprecedented public outrage," Mr Mansfield said.

He suggested Megaupload -- fronted by the German national, with his "flamboyant and extravagant reputation" -- was not so immune.

In a rare light moment a video advert for the website was played on big screens for the court showing a bevy of celebrities - Kanye West, Kim Kardashian, Serena Williams, Floyd Mayweather and Dotcom himself among them - encouraging people to "upload today".

The defence claimed it showed a clear legitimate purpose but Judge Nevin Dawson ordered the video be stopped halfway through and questioned its purpose.

Mr Mansfield is expected to detail Dotcom's case over the next three days.