(IANAL)

The key question is whether Mega is practicing "Willful Blindness" (http://en.wikipedia.org/wiki/Willful_blindness) by providing this service. The players involved, especially Dotcom, seem to have already "tainted" themselves as being _knowledgeable_ of infringement through their involvement in MegaUpload. So in what way is their "design" of a client-side encrypted system different from "designing" a drug trafficking briefcase so that the courier doesn't have a key? If the courier/service has reason to believe that the service is being used for copyright infringement, it could be argued that they are being criminally negligent by offering such a service.