The court heard the computers contain encrypted information and are protected by passwords.
Mr Davison said the police had seized all of Dotcom's computers and hard drives - at the request of the US government - despite some of them having no relevance to the case.
He asked the court to set up a "judicially supervised process'' where the hard drives could be looked at by an independent body to determine their relevance.
"It is unusual but this case is unusual.''
Crown lawyer Mike Ruffin, on behalf of the US Government, said he was "encouraged'' by Dotcom's willingness to give up his passwords under certain conditions.
He said the FBI had told him that it would be "inconsistent with sound criminal procedure'' to allow Dotcom to have his computer data back before he had provided the passwords.
Mr Ruffin said investigators in the US had to examine all the digital data before they could decide what is relevant and what is not.
He said it was inevitable that some data unconnected to the case would have been caught up in the police search.
Justice Helen Winkelmann queried what the police were authorised to take under the search warrant.
"They were clearly entitled to search and seize evidence in relation to the copyright but that did not give them carte blanche to take everything.''
Earlier in the day, the court heard that Dotcom is planning to lodge a complaint against "excessive police action'' and wants officials to return his computers containing CCTV footage of the raids on his rented mansion in Coatesville, north of Auckland.
Mr Davison said Dotcom had a sophisticated high-definition security system which would have captured officers abseiling out of helicopters in a "urgent, sudden surprise'' raid.
"And that was just the beginning.''
He said the CCTV images were crucial to the complaint but they were held on hard drives seized by the police.
Mr Davison said other hard drives included private information and family home movies that went back decades.
He said the search warrants allowed police to carry out a "wholesale sweep'' of electronic equipment because the search warrant used broad language.
"This was just a household emptied out.''
The hearing will continue tomorrow.
