DVD CCA AND WEB SITE OPERATOR BOTH CLAIM WINS IN CAL. CASE

DVD CCA counsel Robert Sugarman said it was a win not only for DVD Copy Control Assn. (DVD CCA) but for all trade secret holders because it made clear that First Amendment didn’t ban issuance of a preliminary injunction. Decision -- in DVD Copy Control Assn. v. Bunner -- also is good news for Netizens because it requires courts to consider an individual’s free speech rights before barring publication of publicly available information, said Allonn Levy, of Hopkins & Carley, one of the attorneys for defendant Andrew Bunner.

Case arose in 1999 when Norwegian resident Jon Johansen reverse-engineered a software license for technology that decrypted Content Scrambling System (CSS) used by movie industry to protect DVDs from being pirated. He posted source code for DeCSS online in Oct. 1999, court said. Soon afterward, Bunner and others posted DeCSS on their Web sites. When he refused to take down site when requested to do so by MPAA, DVD CCA sued, seeking an order enjoining Bunner and others from either disclosing information or linking to other sites where it appeared.

Trial court issued a preliminary injunction, saying DVD CCA was likely to prevail on merits and would suffer irreparable harm from violation of the state’s trade secrets laws without the relief. Bunner appealed to Cal. Court of Appeal, which reversed, finding that even if the injunction were justified under Cal.’s trade secret law, it was an invalid prior restraint on free speech because DeCSS was “pure speech.”

For purposes of the appeal, state high court accepted that DVD CCA was likely to prevail on its claims that: (1) DeCSS technology and its master keys and algorithms were trade secrets. (2) Publication of those trade secrets online hadn’t destroyed their trade secret status. (3) Publication of DeCSS disclosed those trade secrets. (4) DeCSS’s creator improperly acquired the trade secrets. (5) Bunner knew or had reason to know that DeCSS disclosed trade secrets obtained through improper means. Court also assumed DVD CCA would suffer irreparable harm and that an injunction would cause minimal harm to Bunner.

The “narrow question,” court said, was “whether the preliminary injunction violates Bunner’s right to free speech under the United States and California Constitutions even though DVD CCA is likely to prevail on its trade secret claim against Bunner.” Court found, among other things, that: (1) Restrictions on dissemination of computer codes in form of DeCSS were subject to scrutiny under First Amendment because computer code was an expressive means for exchanging information and ideas about computer programming. (2) The injunction barring publication of DeCSS was content-neutral because its underlying basis was trial court’s ruling that Bunner had violated trade secret law, and not an attempt to stifle his communication. (3) The injunction’s being content-neutral meant it was not subject to strict scrutiny. Rather, high court said, test for a content- neutral injunction was whether it “burdens no more speech than necessary to serve a significant government interest” -- here, safeguarding the property interest created by trade secret law. (4) The injunction wasn’t a prior restraint on speech.

However, court said, “our decision… is quite limited” to assumption that trial court was correct in issuing injunction under state trade secret law. The court remanded case to the appellate court to determine validity of that assumption. It ordered lower court to review entire record to determine whether injunction was warranted.

In a concurring opinion, Assoc. Justice Carlos Moreno argued that preliminary injunction amounted to subject-matter censorship. “If the alleged trade secret is not in fact a trade secret, then the court will be enjoining protected speech,” he said. To balance free speech protections against an alleged trade secret holder’s property rights, Moreno said, a court asked to issue an injunction should make the plaintiff produce enough evidence up front to actually establish a likelihood of prevailing on the merits and that the balance of harms was in his favor.

There’s “no likelihood” that DVD CCA would prevail on the merits, Moreno said, because “DeCSS was not demonstrably secret in this case when Bunner republished it, and Bunner was neither alleged to be the original misappropriator” nor to be connected to the original. It’s up to the DVD CCA to show that trade secret is still a secret despite its posting on the Internet, Moreno said: “Nothing in the record indicates that the DVD CCA met that burden.”

DVD CCA is “very pleased with the decision,” Sugarman said. It upholds the right of trade secret owners to protect their secrets through resort to the courts, he said, and says the First Amendment isn’t a bar to preliminary injunctions in such cases. “We respectfully disagree with Judge Moreno’s opinion,” Sugarman said, and will take the opportunity to litigate that issue in the appeals court. However, he said, the fact that the high court ruled in DVD CCA’s favor on the key issue means the decision is a “complete victory” for the group.

But Levy called the decision “another setback for the motion picture industry in their ongoing DVD/DeCSS litigation” because the Cal. Supreme Court recently threw out cases against several out-of-state defendants, saying it lacked jurisdiction. The ruling is a “partial constitutional victory” because it faults the trial court for not considering Bunner’s free speech rights, Levy said. “I would have liked the court to have gone farther and to have performed a more stringent First Amendment analysis,” he said, “but at least the court agreed with our position that some First Amendment analysis was required.”

Cindy Cohn, legal dir. of the Electronic Frontier Foundation, co-counsel on the case, said: “The appeals court can now examine the movie industry’s fiction that DeCSS is still a secret and that a publication ban is necessary to keep the information secret. DeCSS is obviously not a trade secret since it’s available on thousands of Websites, T-shirts, neckties and other media worldwide.”

Internet lawyer James Tyre said he was “heartened” by the fact that all 7 justices thought the appeals court should have reviewed the trial court’s findings independently because of free speech implications and that, based on that review, it might have found the injunction wasn’t warranted even on trade secret grounds. However, Tyre agreed with Justice Moreno that the high court should have conducted that review itself rather than sending the case back down: “The remand serves only to delay and to add to the cost of resolution of an extremely important issue regarding computers, reverse engineering and the Internet.”

There’s a “huge irony here,” said Morrison & Foerster attorney Jonathan Band. The case in many ways has become “completely irrelevant” to the parties because of a ruling -- by the 2nd U.S. Appeals Court, N.Y. in Universal v. Corley -- upholding the constitutionality of the Digital Millennium Copyright Act and finding that DeCSS violates it, Band said. That makes the Cal. decision a “side show,” he said.

On the other hand, Band said, the Cal. Court of Appeals’ holding that trade secret injunctions violate the First Amendment had a “potentially huge collateral impact” on the software industry, a problem the Cal. Supreme Court has now resolved. The appellate court decision was “very bad for software companies,” Band said, and its reversal is “very good.” But for Bunner and the DVD CCA, he said, the decision won’t make a bit of difference.