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California courts can prevent Web sites from posting computer code revealing trade secrets without fear of trampling basic free speech rights, the state Supreme Court ruled last week. The court — in a case involving DVD encryption technology — said protecting trade secrets in such cases may trump the First Amendment. Computer code is not pure speech, the state high court held on Aug. 25, and thus does not enjoy absolute free speech protections under the state and federal constitutions. The unanimous ruling rejected a holding by California’s Sixth District Court of Appeal. The lower court had said that a preliminary injunction preventing computer code from being posted on the Web violated free speech rights. The Sixth District’s ruling had sent a wave of fear through some Silicon Valley companies that feared their trade secrets could be jeopardized. “Assuming, as we do, that the trial court granted injunctive relief under California’s trade secret law, its preliminary injunction burdens no more speech than necessary to serve these significant government interests,” Justice Janice Rogers Brown wrote. “The protection of trade secrets . . . depend[s] on the judiciary’s power to enjoin disclosures by those who know or have reason to know of their misappropriation.” Brown wrote that while the computer code was speech subject to First Amendment protections, it could be held to a lesser standard of review than pure speech. Intellectual property attorneys say DVD Copy Control Association Inc. v. Andrew Bunner reaffirms rights that trade secrets holders feared could be lost if the Sixth District was upheld. “This is a huge and complete victory, not just for the DVD Copy Control Association, but for owners of trade secrets in California and across the country,” says Robert Sugarman, a New York partner at Weil, Gotshal & Manges who represents DVD Copy Control. “There are a lot of trade secrets owners that breathed a sigh of relief in reading this decision,” says Gary Weiss, a Silicon Valley intellectual property partner at Orrick, Herrington & Sutcliffe. “[The court] strongly emphasized the public policy bases for the Uniform Trade Secret Act — incentive for invention and encouraging corporate ethics.” In 1999, the DVD Copy Control Association sued a group of Internet users for trade secrets misappropriation for posting computer code that stripped security protections from DVDs. Without encryption, users can duplicate copyrighted motion pictures stored on the discs. Technology companies formed the association to develop and protect DVD encryption technology. Andrew Bunner, a San Francisco programmer, was named as a defendant and was enjoined by a Santa Clara Superior Court from posting code on a Web site that cracked DVD security. Bunner challenged the injunction, arguing it violated his free speech rights. The Sixth District agreed, finding that even if the injunction was justified under California trade secrets law, it violated the First Amendment. The Supreme Court has remanded the case back to the Sixth District to re-examine the case and make sure the preliminary injunction is in line with California trade secrets law. Bunner’s attorney, Allonn Levy, says last week’s ruling ensured there was some level of First Amendment scrutiny for trade secrets injunctions. “You will have to consider the First Amendment when dealing with third-party misappropriation claims,” says Levy, an associate at San Jose, Calif.’s Hopkins & Carley. “You are going to have that heightened evidentiary standard. It’s not quite intermediate or strict scrutiny, but it’s in between.” Levy says he also doubted if DVD Copy Control could prove that the security-cracking code, first written by a 15-year-old Norwegian boy and then widely circulated on the Internet, was still a trade secret. But IP attorneys say the key to the Aug. 25 decision was that the Supreme Court defined the case as a trade secrets issue — not a free speech issue. “This is a very important decision for the software industry because for years, they assumed they had trade secret protections,” says Jonathan Band, a D.C. partner at Morrison & Foerster. “Now, if someone starts to post their trade secrets, they can go to state court and get an injunction and go back to work.” Chief Justice Ronald George and Justice Marvin Baxter concurred, along with First District Court of Appeal Justice Maria Rivera and Third District Justice Ronald Robie (who were sitting in for the case). Justices Kathryn Mickle Werdegar and Carlos Moreno wrote concurring opinions. Justices Joyce Kennard and Ming Chin recused themselves. Shannon Lafferty is a reporter at The Recorder, the American Lawyer Media newspaper in San Francisco.

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