Auckland High Court justice Helen Winkelmann said the warrants "did not adequately describe the offences to which they related. Indeed they fell well short of that. They were general warrants, and as such, are invalid." She also found the release of cloned hard drives to the FBI for shipping to the United States breached the law.
"They [copyright holders] used the government as an arm to enforce their own private rights," says Kumar.
"Now they need to be thinking whether to stay the course, and try and win it the US or should they try to minimise the damage and get out now. In a civil case the rights holders could opt to settle out of court or by other means, but that's not open to them right now."
Kumar adds that although justice Helen Winkelmann's decision would be a blow to the prosecution case in New Zealand, it would not stop the copyright holders from pursuing a case against Dotcom.
"I don't think this will put a damper on it. Hollywood and the copyright industry have a long history of expanding their efforts in cases like this," says Kumar.
"If anything I think it's going to continue for many years."
On Justice Winkelmann's decision which found the release of cloned hard drives to the FBI for shipping to the United States breached the law, Kumar says this area of the law requires more inspection by the government and criminal forensic experts.
"The crown previously advanced an argument that by copying data and giving it to the defendant it would somehow weaken the data's integrity," says Kumar.
"This is something the industry and government need to inspect. Forensic copying of data is important, and something the government is actually quite good at."
"What this decision shows is anyone that argues that copying data somehow makes it less credible is probably incorrect."
Kumar says he has invited Dotcom to speak at InternetNZ's Net Hui conference next month to speak about the commercial aspects of creating a cloud business, but Dotcom has declined.
"I guess he's missed an opportunity to speak on that," he says.
US authorities claim Dotcom and co-accused Mathias Ortmann, Fin Batato and Bram van der Kolk used the Megaupload website to knowingly make money from pirated movies and games. They have charged him in the US with multiple copyright infringement offences. An extradition hearing has been set down for August 6.
Justice Winkelmann has ordered that an independent barrister be appointed to review "all items seized for the purpose of identifying irrelevant and privileged material".
She also ordered that the "clones containing only relevant and non-privileged material located on the seized electronic items (the disclosable clones) be created and provided to the United States authorities."
Justice Winkelmann will meet with lawyers on both sides on July 4.
Dotcom's San Francisco-based lawyer Ira Rothken told The Dominion Post he did not know what impact the ruling would have on an extradition hearing due to be held in Auckland on August 6.
"We are pleased the court ruled the US acted illegally by taking the hard drives offshore," he said.
However, when asked whether he believed the US Government would return the illegally seized information, he said: "We will analyse the [US] Government's conduct in light of this ruling."
The police have released the following statement in response to Justice Winkelmann's ruling: "The Police are considering the judgement and are in discussions with Crown Law to determine what further action might be required. Police will not be making any comment on the judgement until that process is complete."
Meanwhile Kim Dotcom has been keeping Twitter followers amused. He has posted the photo of a 'wanted poster' in which he held up a daisy, with the words "Kim Dotcom (mega pirate) underneath. In another tweet he there was a link to a photo of a computer screen with "police line do not cross" tape across it and the words "Excuse me, Can I borrow some scissors?"