Kim Dotcom's lawyer says New Zealand's copyright law provides a safe harbour for his client which should end the United States' extradition bid.
The long-awaited hearing follows FBI charges laid in January 2012 when the internet entrepreneur and three others - Mathias Ortmann, Bram van der Kolk and Finn Batato - were arrested on charges of criminal copyright violation.
Though the Auckland District Court case began this morning, legal arguments about the order of proceedings are expected to dominate most of the day, with the extradition hearing proper to begin on Thursday.
Ron Mansfield said Megaupload was effectively an internet service provider and as such, under the Copyright Act, could not be prosecuted.
It was the first time the issue had been raised in reference to Dotcom's case.
Mr Mansfield expected the Crown - on behalf of the US government - to forward a "competing interpretation" of the law but he said if the court saw it from Dotcom's point of view it would put the kybosh on extradition proceedings.
Because of its importance, he asked Judge Nevin Dawson to hear that issue before the proposed extradition eligibility hearing this week.
Mr Mansfield said the Crown's suggestion the defendants had used disruptive tactics was "misleading rhetoric".
The fact Dotcom and his associates had been unable to access funds to obtain US legal and technical expertise was due to intentional delays imposed by the Crown, he said.
"We have effectively had out hands tied behind our backs," Mr Mansfield said.
He was also keen to point out that his client was not trying to avoid the impending extradition hearing.
"This prosecution both in the US and the application to remove him are false and misguided and for him the sooner the court can hear that application ... the better," he said.
Earlier, legal wrangling around the Dotcom extradition case began with allegations of disruptive tactics "lacking an air of reality".
Christine Gordon, QC, on behalf of the US government, said starting with the extradition eligibility hearing before hearing three different applications for a stay of proceedings was the "practical and rational" way forward.
Counsel for the four respondents want each application for a stay of proceedings to be heard, and ruled upon, first.
Ms Gordon slammed a memorandum that was filed last week by lawyers for Ortmann and van der Kolk, which challenged the appropriateness of Crown Law to represent the US government.
"The allegations of a conflict [of interest] are baseless and a barely disguised attempt to disrupt this hearing," she said. "The court should not entertain them.
"The tactic - let's call it what it is - falls well short of the mark."
In the months leading up to today's hearing, defence counsel filed applications for a stay of proceedings.
One of them contained "wide-ranging allegations against various New Zealand agencies and government departments revealing an alleged abuse of process warranting a stay of the extradition proceedings", according to Ms Gordon.
But she called them "mostly speculative and lacking an air of reality".
The application also contained a suggestion the US directed the New Zealand government to give Dotcom permanent residency so they knew where he was.
"All supposition and drawing of links without basis," Ms Gordon said.
She told Judge Nevin Dawson that hearing the stay applications first might lead to another "major phase of litigation" and portions of evidence would be heard twice.
The court will hear from lawyers for the four respondents this afternoon about the order of proceedings.
Dotcom is seated at the back of the courtroom in a large leather seat. In front of him are nearly a dozen lawyers representing the various parties.
Ortmann's lawyer Grant Illingworth, QC, said he and other counsel had been deliberately restricted from accessing US expertise by Crown lawyers.
"This case is being touted as the biggest copyright case in the history of the United States," Mr Illingworth said.
"It inevitably involves the need for us to engage advisers in US law and advisers concerning the way cloud storage facilities operate. Those issues are embedded in the US case."
They had asked for clarification regarding funding to retain the overseas experts in April but only received a response from the Crown in September.
He said the amount involved was proportionately small compared to the large sums the on which the case was based.
Mr Illingworth called it a "deliberate tactical decision" to hinder their defence and was an abuse of process.
Accordingly, he said the application for a stay of proceedings on that point should be heard before the extradition eligibility hearing.
Otherwise, they would not have all the information they required to effectively challenge extradition, Mr Illingworth said.