United States: First Amendment Defense Fails in DVD Copy Control Trade Secret Case

Reprinted with permission from the IP Litigator, January/February 2004

Published by Aspen Law & Business

In DVD Copy Control Association, Inc. v. Bunner [31 Cal. 4th 864, 75 P.3d 1, 4 Cal. Rptr. 3d 69 (Aug. 25, 2003)], the California Supreme Court rejected a Web site proprietorís First Amendment defense against the DVD Copy Control Associationís (the Associationís) claim of trade secret misappropriation. At issue in that case was the right of Bunner, the Web site proprietor, to publish on the Internet a script of computer code used to de-encrypt DVDs, enabling them to be copied at digital quality. The trial court had found that Bunner obtained the computer code from a third party and that Bunner either knew or had reason to know that the third party had reversed engineered the code in violation of a license agreement. Accordingly, the trial court ruled that Bunnerís disclosure of the computer code on the Internet constituted trade secret misappropriation under the California statute and granted a preliminary injunction in favor of the Association. Bunner appealed.

Despite assuming that the Association would likely prevail on the merits and suffer irreparable harm, the appellate court ruled that Bunnerís publication of the computer code was "pure speech" and that the trial courtís injunction was an invalid prior restraint. The appellate court distinguished other cases in which courts had rejected a First Amendment defense to trade secret misappropriation, finding that those cases "involved the actual use of a trade secret or a breach of a contractual obligation." [Bunner at 874.] Here, the appellate court ruled that in the absence of an actual use or breach of duty, enjoining Bunnerís publication of the computer code would violate the First Amendment. The Association appealed.

The California Supreme Court granted the appeal to decide the constitutional question. The California high court followed the appellate courtís lead in assuming as true the trial courtís findings in support of a preliminary injunction. It was satisfied that under California law, a trade secret misappropriation includes the unauthorized disclosure of trade secret information by a person who knew or had reason to know that the information was obtained improperly. The court was further satisfied that the California statute empowered the courts to enjoin either actual or threatened misappropriation. Accordingly, the court narrowed the issue to "whether the preliminary injunction violated Bunnerís rights to free speech under the United States and California Constitutions." [Bunner at 875.] It did not otherwise review the merits of the Associationís trade secret claims.

The court first determined whether Bunnerís publication of the computer code was speech subject to scrutiny under the First Amendment. The court recited prior US Supreme Court precedents that extended First Amendment scrutiny to "the dissemination of technical scientific information, and scientific research, and attempts to regulate the publication of instructions." [Bunner at 876 (citations omitted).] The court concluded that computer code "is an expressive means for the exchange of information and ideas about computer programming" and joined other courts, holding that "computer code, and computer programs constructed from code can merit First Amendment protection." [Id. (citations omitted).]

The court next considered the level of scrutiny to apply in its constitutional analysis. The court explained that the critical question is whether the injunction was content neutral or content based. Content-based injunctions are subject to a heightened level of scrutiny, while content-neutral injunctions are subject to a lesser level of scrutiny. The court concluded that the trial courtís preliminary injunction in favor of the Association was content neutral. The court reasoned that the injunction was motivated by Bunnerís misappropriation of the Associationís trade secret property rather than by any disagreement with Bunnerís message or viewpoint. The court acknowledged that the preliminary injunction described the prohibited speech by referring to its content. The court explained, however, that it was necessary to refer to the content of the speech in order to identify the property interest to be protected and that doing so did not render the injunction content based.

Having decided that the injunction was content neutral, the court then explored "whether the challenged provisions of the injunction burden no more speech than necessary to serve a significant government interest." [Bunner at 880 (citation omitted).] The court enumerated several government policies in favor of trade secret protection. It noted, for example, that trade secret law encourages "the development and exploitation of those items of lesser or different invention than might be accorded protection under the patent laws, but which items still have an important part to play in the technological and scientific advancement of the Nation." [Id. (citations omitted).] The court was also persuaded that trade secret law helps maintain "standards of commercial ethics." [Bunner at 881 (citations omitted).]

Content that protecting trade secrets furthers a significant government interest, the court then determined that the preliminary injunction restrained no more speech than necessary to serve that government interest. At the outset, the court noted that trade secrets derive their value from nondisclosure. The court therefore reasoned that prohibiting the disclosure of the trade secret was the only way to preserve the property rights created by trade secret law and to promote the government interest underpinning that law. The court concluded that "because we assume for purposes of this appeal that the injunction is justified under Californiaís trade secret law, we also assume that this provision of the injunction is necessary to protect the Associationís property interest in the misappropriated trade secrets." [Bunner at 885.] The court therefore found that the preliminary injunction burdened no more speech than necessary to serve the significant government interest at issue.

Finally, the court analyzed whether the prior restraint doctrine would prohibit the preliminary injunction. The court acknowledged that "prior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights." [Bunner at 886 (citations omitted).] Nevertheless, the court cited authority for the proposition that the prior restraints doctrine applies only to content-based injunctions. Having found that the preliminary injunction was content neutral, the court concluded that the heavy presumption against prior restraints did not apply. The court emphasized that "this is not a case of government censorship, but a private plaintiffís attempt to protect his property rights." [Bunner at 886 (citations omitted).]

In conclusion, the court ruled that the protections under the California Constitution were coterminous with the First Amendment and that the preliminary injunction therefore did not violate California law. The court emphasized that it had merely held that "the preliminary injunction does not violate the free speech clauses of United States and California Constitutions, assuming the trial court properly issued the injunction under Californiaís trade secrets law." [Bunner at 889.] On remand, the California Supreme Court instructed the appellate court to independently examine the entire record to ensure that the preliminary injunction was warranted under Californiaís trade secret law.

Two concurring opinions were written, both of which emphasized the importance of a rigorous review of the likelihood of success before affirming a preliminary injunction aimed at speech. One of the justices expressed his view that the preliminary injunction should not survive that rigorous review. Accordingly, although the First Amendment defense failed in this case, the courtís decision demonstrates the added difficulty of obtaining preliminary injunctive relief against the publication and disclosure of trade secrets, especially when that relief is subject to constitutional scrutiny.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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