Kim Dotcom's lawyer has told the Supreme Court cinema warnings over copyright infringement are "propaganda" because there is only limited criminal liability in New Zealand.

"That little promo at the start of the movie is nothing more than propaganda or scare tactics to make you think it was theft," he said.

Instead, Ron Mansfield described a legal environment in New Zealand which was deliberately permissive to allow internet service providers to flourish.

The argument is important because the United States needs to show the actions of those involved in Megaupload would have broken New Zealand law to make a successful case for extradition.

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Dotcom, Mathias Ortmann, Bram van der Kolk and Finn Batato are asking the Supreme Court to throw out a decision by the District Court they are liable for extradition to the US to face allegations of massive copyright infringement through Megaupload.

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Copyright sits at the heart of the case, with allegations of money laundering and racketeering stemming from the core allegation.

The "propaganda" claim was directed at statements by Justice Susan Glazebrook earlier in the hearing that warnings in cinemas were clear and most people knew "they shouldn't copy (a movie) and put it on the internet".

Mansfield said the law in New Zealand had limited criminal threat around online copyright infringement because politicians who created the law knew it was a modern fact of life.

He said Parliament found a way to craft the Copyright Act that would not stifle internet growth.

"We struck our own balance. We need internet service providers, in the community and commercially."

The Megaupload accused in 2012 - Bram van der Kolk, Kim Dotcom, Mathias Ortmann and Finn Batato. Photo / File
The Megaupload accused in 2012 - Bram van der Kolk, Kim Dotcom, Mathias Ortmann and Finn Batato. Photo / File

He said during the drafting of the law, industry producing copyrighted work complained the regime would not be strict enough.

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He said the law allowed for copyright holders to take people to court and seek damages or other court orders but that did not include criminal convictions or jail.

"You would have civil liability - that was always the way Parliament intended."

Mansfield said there would be few in the court who had not made a mixtape - a compilation of songs - for friends.

"Our Parliament never intended users - mum, dads and kids - to be criminally exposed (through the criminal provisions of the Copyright Act).

Mansfield said Megaupload met the definition of an internet service provider and qualified for the "safe harbour" provisions in the Copyright Act.

He said there was general knowledge and acceptance existed across all ISPs and it was accepting the reality of this which led to the "safe harbour" provisions.

Kim and Liz Dotcom, who recently qualified as a lawyer and has joined his legal team for the Supreme Court hearing. Photo / Supplied
Kim and Liz Dotcom, who recently qualified as a lawyer and has joined his legal team for the Supreme Court hearing. Photo / Supplied

"Safe harbour" is the carve-out in copyright law which provides immunity to ISPs if they take particular steps to deal with infringing material when they learn of it.

"Every single service provider will have copyright infringement every second of the day."

Megaupload, he said, hosted material for users and removed infringing content to which it was alerted. If there was infringement, it was by users.

Communication between the Megaupload accused which the US had presented as evidence in its case was "a generalised understanding of infringement" by users.

"There is no infringement by Megaupload."

Mansfield also raised his intent to argue the Copyright Act was the only legislation which could be used in relation to allegations about copyright in the case. He said the US could not shop around other legislation - like the Crimes Act - to find other offences which could replace copyright infringement if the court accepted his arguments around criminal liability.

As the day ended, Mansfield was taking the Supreme Court on a legislative tour of the Copyright Act to make his case, diving back into Parliament's drafting of the law. His argument was intended to support his claims around how the Copyright Act should be interpreted.