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A New Zealand court has ruled that the warrants served on Kim DotCom’s home in January were invalid. But at this point, the decision is not a knockout blow to US case against DotCom.

A New Zealand court has ruled that police enforced illegal search warrants when they seized the assets of MegaUpload founder Kim DotCom.

What hasn’t been made clear is that this is not a final victory. The ruling as it stands does not impact DotCom’s extradition hearing on 6 August or the charges facing him in the United States, according to legal experts. A hearing on the MegaUpload case is still scheduled for tomorrow in US District Court.

On 19 January, New Zealand police, at the request of the United States, raided DotCom’s rented mansion just outside Auckland and seized most of his property and assets. The US Attorney’s office has charged the managers of MegaUpload, a once-popular cyberlocker service, with conspiracy and criminal copyright violations along with other related crimes.

The case is being watched closely. If DotCom goes to prison, it will set a precedent that allowing people to share media files via a cloud storage locker can land you in a cell. If the US government fails to make its case, it stands to be an embarrassing loss for the Obama administration, which has said it wants to get tough on piracy. A MegaUpload victory would also be the latest in a string of setbacks involving antipiracy efforts for the film and music sectors.

DotCom and six other MegaUpload managers are accused of pocketing US$175 million in illicit gains and costing copyright owners more than US$500 million in damages. MegaUpload allegedly encouraged web users from across the globe to store pirated movies, TV shows, and other digital media in MegaUpload’s storage lockers and share the files with each other.

Helen Winkelmann, chief justice of the High Court of New Zealand, ruled today that the search warrants used to make off with DotCom’s Cadillac, computer equipment and cash were too general, overbroad, and invalid. She also ruled that it was illegal for authorities in New Zealand to have shipped DotCom’s personal computer data to the FBI.

DotCom’s legal representatives said they were “pleased” with the decision. The US Attorney for the Eastern District of Virginia, the office that issued the indictment against MegaUpload and the company’s managers, declined to comment.

What happens now as a result of the ruling is still unclear. The first thing that Winkelmann, who has scheduled a 4 July hearing to discuss how the case should proceed, wants is for the FBI to return DotCom’s data. She also wants an independent party to go through and filter out data that is irrelevant to the case, so it can be returned.

According to Gary Gotlieb, a New Zealand legal expert who was interviewed by One News in New Zealand, MegaUpload can argue at the 4 July hearing that since the warrants were illegal, the entire seizure was unlawful and all property should be returned.

One News asked Gotlieb how big a win for MegaUpload was the court’s decision. “It’s a pretty major one,” Gotlieb said, “And it’s going to take some time to sort all this documentation out and I would imagine that the process will take considerably longer.”

Via CNET