Megaupload founder Kim Dotcom allowed to sue New Zealand spy agency over illegal surveillance

Entrepreneur is seeking damages from the country's government over a raid at his home last year

The founder of the online file-sharing service Megaupload can sue New Zealand's spy agency for illegal surveillance, a court has ruled.

Kim Dotcom - real name Kim Schmidt - is seeking damages from the New Zealand government for its role on a raid on his home in January 2012, when local police swooped on his mansion at the request of US authorities, who are attempting to have the entrepreneur extradited to face charges of leading a group that copied and distributed copyrighted material worth more than $500m (£322m).

New Zealand's High Court ruled last year that the Government Communications Security Bureau (GCSB) could be held liable for illegally spying on Mr Dotcom and now the country's Appeals Court has rejected an application from the attorney general on behalf of the agency to have them excluded from the lawsuit.

The GCSB was found to have spied on Mr Dotcom in the run-up to the 2012 raid, prompting an apology from prime minister John Key.

Mr Dotcom is a German national with residency in New Zealand, which made the spying illegal.

Lawyers for the New Zealand government had argued that it should not be named twice - once for the GCSB and another for the police - in the lawsuit, but the Appeals Court rejected this.

Mr Dotcom's legal team will now be able to access some GCSB evidence related to the case.

William Akel, a lawyer for Mr Dotcom said: "This will strengthen our case in so far as GCSB remains a party to the proceedings."

The FBI accuses Mr Dotcom and his colleagues of online piracy, fraud and money laundering in relation to their file-sharing service, which hosted everything from family photos to blockbuster films until it was shut down last year.

He faces 20 years in prison if he is convicted in the US.

Mr Dotcom maintains that Megaupload simply provided storage to users and that he was not responsible for stored content.

He faces an extradition hearing August.

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