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updated 4/13/2012 6:15:23 PM ET 2012-04-13T22:15:23

It's a cache of data roughly equivalent to half of the Library of Congress and nobody quite knows what to do with it.

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Tens of millions of digital files kept on Megaupload.com went dark earlier this year. Megaupload was a cyberlocker of sorts, a service that offered individuals and businesses storage space for digital files. But in January, the federal government seized most of the company's assets and charged its founders with running a criminal enterprise designed to facilitate the illegal sharing of copyright-protected movies, music and TV shows.

A hearing Friday in U.S. District Court in Alexandria, Va. on what should be done with the data suggests just how intractable the problem is. Five different parties — including the federal government and the Motion Picture Association of America — weighed in with disparate views on what should happen. U.S. District Judge Liam O'Grady ordered the parties to negotiate over the next two weeks and come up with a solution acceptable to all sides.

Currently the data — 25 million gigabytes' worth — sits on 1,100 powered-down servers stored in a climate-controlled warehouse in Harrisonburg, Va. The company that leased the servers to Megaupload, Dulles, Va.-based Carpathia Hosting, asked the court for guidance on what it should do.

Megaupload had its assets seized and is no longer paying for the servers' upkeep, so Carpathia is paying thousands of dollars a day just to store the machines. They are also losing revenue that would be available if it erased the data and repurposed the servers for other uses. But Carpathia said it's reluctant to erase data that may serve as evidence in a criminal case.

The federal government and the MPAA contend the vast majority of the data on those servers is illegally pirated content, and that the people who stored those files with Megaupload should not get access to them.

But some of the people and small businesses that used Megaupload had perfectly legitimate files and did nothing wrong. Internet advocates, including the San Francisco-based Electronic Frontier Foundation, say a mechanism should be put in place so those users can get their data back.

Julie Samuels, an attorney with the foundation, suggested the burden should be on the government to create and pay for such a mechanism because it was the government's tactics in prosecuting Megaupload and shutting down the entire site that caused the problem.

"A lot of this chaos was of the government's making," Samuels said.

Megaupload's lawyer, Ira Rothken, said Megaupload needs the data preserved so the company and its officers — including eccentric founder and majority owner Kim Dotcom — can prove their innocence. Dotcom is currently in New Zealand fighting extradition to the U.S.

Megaupload cut a deal with Carpathia in late February to pay roughly $1 million to gain access to the servers and the files, but the government objected to the deal, fearful that Megaupload would move the servers to a foreign country and resume its criminal activity.

"It's like trusting the thief with the money," prosecutor Jay Prabhu told the judge.

Prabhu said the government, and therefore taxpayers, would have to spend millions of dollars to pick and sort through the files and return legitimate ones to their rightful owners. He said if anyone should bear that burden it's Carpathia. He suggested that the company was not the innocent third party it purports to be.

Prabhu said Carpathia made $35 million from Megaupload over the years and received thousands of notices that it was harboring pirated content. Therefore, Prabhu said, it can't claim to be shocked and caught off guard that the files and servers are now enmeshed in a criminal investigation.

The government said it has copied selected samples of what's on the servers and no longer needs the files as evidence. It also says it is prepared to share the data as required under federal trial rules with Megaupload.

Prabhu made clear at Friday's hearing that the government is not seeking the files' erasure. But he said it's not the government's duty to maintain the files and that ultimately the issue is a contractual matter between Carpathia and Megaupload that is not a matter of government interest. In court papers the government said while it's unfortunate that some lawful users of the site could lose access to their data, Megaupload's own terms of service warned users that they should store backup files elsewhere.

Judge O'Grady ordered the parties to meet under the supervision of a federal magistrate with a goal of reaching resolution. If that proves impossible, he said he would then wade in, but his preference was for a negotiated settlement, he said.

"Let's get together and see if you can't work it out," O'Grady said.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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