483 1 IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 95B2143

RELIGIOUS TECHNOLOGY CENTER,

Plaintiff,

vs.

F.A.C.T.NET, INC., et al.,

Defendants.

REPORTER'S TRANSCRIPT

10 MOTION FOR PRELIMINARY INJUNCTION CLOSINGS

13 Proceedings before the HONORABLE JOHN L. KANE, JR.,

14 Judge, United States District Court for the District of

15 Colorado, commencing at 2:00 p.m., on the 12th day of

16 September, 1995, in Courtroom C401, United States Courthouse,

17 Denver, Colorado.

DEBORAH A. STAFFORD, Official Reporter

23 P.O. Box 3592

Denver, Colorado, 80294

24 (303) 5710530

25 Proceedings Reported by Mechanical Stenography

Transcription Produced via Computer

484

APPEARANCES

For the Plaintiff: EARLE C. COOLEY, ESQ.

3 Cooley, Manion, Moore & Jones

21 Custom House Street

4 Boston, MA 02110

5 TODD P. BLAKELY, ESQ.

Sheridan Ross & McIntosh

6 1700 Lincoln Street, 3500

Denver, CO 80203

ERIC M. LIEBERMAN, ESQ.

8 Rabinowitz, Boudin, Standard

Krinsky & Lieberman, P.C.

9 740 Broadway at Astor Place

New York, New York 10003

HELENA K. KOBRIN, ESQ.

11 7629 Fulton Avenue

North Hollywood, CA 91605

For the Defendants: THOMAS B. KELLEY, ESQ.

13 NATALIE HANLONLEH, ESQ.

Faegre & Benson

14 2500 Republic Plaza

370 17th Street

15 Denver, CO 80202

16 KEN LIEBMAN, ESQ.

Faegre & Benson

17 90 South Seventh Street

Minneapolis, MN 55402

19 * * * * *

20 P R O C E E D I N G S

21 THE COURT: Thank you be seated. I will listen to

22 your summations and then take a brief recess to collect my

23 thoughts and come back, and I will make a bench ruling in this

24 matter.

25 But I want you to understand that this case was

485

1 assigned to Judge Babcock, and I at his request took this

2 preliminary injunction matter because he was going to be gone

3 from the court on a well deserved vacation, and so he will be

4 returning. And under our practice here, it's entirely up to

5 him whether he keep this case or not. So because of that,

6 after I make a bench ruling, I am reserving to myself the

7 right to refine that ruling in a written order, and I will do

8 that as quickly as I can, and the reason I am doing that is to

9 memorialize my rulings and clarify them from the

10 extemporaneous for Judge Babcock's benefit and for the benefit

11 of the parties here as well. So in making your summation, you

12 might want to use the Gettysburg address as an inspiration.

13 It takes three minutes and 16 seconds to do, and I don't think

14 we have improved since that time. But go ahead, see if you

15 can.

16 MR. KELLEY: Your Honor, could I ask one question?

17 The Gettysburg address was given by just one person.

18 Mr. Liebman and I are dividing the argument between trade

19 secret and copyright.

20 THE COURT: I am not holding you to the standard of

21 Abraham Lincoln. I want you to emulate him to the extent you

22 can. Brevity being the mother of wit.

23 MR. KELLEY: In all aspects of life I have always

24 tried to, Your Honor.

486

1 CLOSING ARGUMENT

2 MR. COOLEY: I have difficulty saying my name in

3 three minutes, but I will do my best.

4 This case was preceded by the wholesale posting to

5 the Internet by a director of F.A.C.T.Net in Arlington,

6 Virginia. The FishmanGeertz affidavit containing, as it did,

7 O.T. I through VII materials. They were posted just wholesale

8 without any comment, no discussion, nothing. They were

9 Mr. Lerma says he got these materials from Mr. Wollersheim.

10 That when he got them, he knew his job was to scan them into

11 his hard drive and post them to the Internet. Mr. Wollersheim

12 denies this. So there is a credibility issue that the court

13 has to resolve between the two directors of F.A.C.T.Net. In

14 any event, there is no dispute that they were sent to

15 Mr. Wollersheim in his computer on July 30 and 31, 1995, and

16 they were posted to the Internet news group, Alt Religion

17 Scientology, on August 1, 1995 and August 2, 1995.

18 The Religious Technology Center which has the rights

19 to the copyrights and the trade secrets brought the litigation

20 against Mr. Lerma in the United States District Court for the

21 Eastern District of Virginia knew nothing about

22 Mr. Wollersheim's or F.A.C.T.Net involvement at that time and

23 did not bring any action against F.A.C.T.Net or Wollersheim.

24 However, on the 15th of August, 1995, Exhibit 70 was posted to

25 the Internet by Mr. Wollersheim, and I have picked out the

487

1 paragraphs that I want to bring to the court's attention, and

2 they are on that blowup. And what Mr. Wollersheim said was

3 that here in F describes F.A.C.T.Net and what it is. It says,

4 a lending library, but they have abandoned that here for the

5 purposes of this hearing. Arnie Lerma has been a member of

6 the board of director of F.A.C.T.Net since mid July '95.

7 Arnie Lerma's home was invaded and his records seized by

8 Scientology on August 12 after he posted an affidavit from the

9 FishmanGeertz case to the Internet. In distributing the

10 Fishman affidavit, Arnie Lerma was acting within his powers as

11 a member of F.A.C.T.Net's board of directors.

12 The seven key purposes of F.A.C.T.Net's library and

13 historical archive, again, when you abandon a library, you

14 abandon the historical archive because that all comes under

15 under Section 108, exemption exception, Title 18, and they are

16 relying upon 107 which is the fair use example. In any event,

17 he says that those guided Lerma's action as designated in

18 their corporate structure and in our IRS educational status.

19 He says the full board of directors stands behind its fellow

20 board member, Arnie Lerma, who acted in accordance with our

21 organizational purposes. When we saw that, we knew that Lerma

22 was acting for Wollersheim and F.A.C.T.Net when he did what he

23 did, and it wasn't until after that was posted that this

24 litigation was instituted, not as part of any devious plan to

25 get Mr. Wollersheim who is not a major factor in the planning

488

1 of the lives of Scientologists but because he was adopting his

2 directors' actions, and we felt living out here, as he did, we

3 couldn't very well sue him in Virginia or we'd probably have

4 problems doing that, so we brought the separate suit out here.

5 A seizure order was issued that applied to O.T. I through VII

6 and upper level materials, advanced technology, but to all

7 writings of L. Ron Hubbard that were found in his possession.

8 And of course in that connection we seized and found both

9 advanced technology and huge quantities of copyrighted

10 published material.

11 Over here we have the hard copy infringements that

12 were seized from the computers, and we found 427 infringements

13 of O.T. I through VII. 28 infringements of other advanced

14 technology and 5,039 infringements of published works. The

15 published work that will be added by amendment here, but at

16 this point it's suggested that they are highly relevant in

17 view of the intent with which Mr. Wollersheim was acting.

18 Now, for three days we operated on the basis that

19 they were claiming a library archive exception exemption under

20 Section 108. They receded from that this morning, but at

21 least for the purposes of this hearing. And I think for good

22 reason, because it's very clear that the archive exception

23 exemption does not apply to electronic or digitally reproduced

24 copies but only to facsimile copies and that has been made

25 very clear in the White paper put out by the copyright office,

489

1 citing the legislative history of the statute. The library

2 exemption doesn't apply and it's significant that abandonment

3 of that issue for the purposes of this hearing came after I

4 had asked Mr. Wollersheim two questions directly out of the

5 statute, and he answered in a way that negated the factors

6 that were required. Those two factors right off the bat

7 and I never had to ask any more because then the matter was

8 withdrawn.

9 Where does that leave us? That leaves us in my view

10 a clear mandatory case for an injunction under the copyright

11 violation also under trade secret. I am going to deal with

12 copyright first because, in my view, there is no way that they

13 can Mr. Wollersheim and F.A.C.T.Net can escape from under

14 this copyright matter. They are relying on some concept of

15 fair use. Let's have that likelihoodofsuccess chart. These

16 charts I have just prepared as an aid to the court in making

17 my argument. They are argument points. If Your Honor will

18 see and I will have smaller ones if Your Honor wants

19 them or if you want to have them for your law clerk.

20 If you look at copyright infringement, R.T.C., they

21 started these hearings not challenging R.T.C.'s rights for the

22 purpose of this hearing or the copyright registration or the

23 validity of copyrights. They say they are going to save that

24 for a trial on the merits, so we'll cross that bridge when we

25 come to it. We have the wholesale copying. This isn't small

490

1 copying. This is wholesale copying, and I have indicated the

2 427 infringements of O.T. I through VII and 28 advanced the

3 other advanced technology, and 5,000 something infringements

4 of published works.

5 F.A.C.T.Net is not a library for the purpose of this

6 hearing. It had unauthorized possession of the published

7 works. It was never authorized by the owner that they had. I

8 believe that there is significant evidence from which the

9 court can conclude that the materials are being used for a

10 commercial purpose, to wit, consulting with lawyers who are

11 engaged in litigation against Scientology for considerable

12 fees being paid to Wollersheim and to F.A.C.T.Net. I believe

13 also the evidence well, the evidence clearly shows that

14 multiple copies of the database, multiple copies were found in

15 the database of F.A.C.T.Net.

16 These copies were not used for research on

17 Wollersheim's own testimony. Not used at all. The only use

18 that he's attempting to persuade this court to sanction is

19 that he wants to have them to try to establish with the help

20 of some politcally connected law firm Washington, D.C. that

21 the Church of Scientology in the dissemination and practice of

22 its central religious practice, auditing, is through its

23 religion causing suicides which is the most outrageous recent

24 contrivance that I can imagine. And that he wants to try to

25 use them to get the Church of Scientology indicted. I dare

491

1 say there isn't a case in the history of copyright law that

2 permits any such use of copyrighted trade secret material.

3 And if that's all that Mr. Wollersheim can come up with, I

4 respectfully submit that it's a bankruptcy of ideas because he

5 cannot come within the statute.

6 It's a very difficult thing, Your Honor. Whenever we

7 are in a courtroom with a new judge and these attacks are made

8 on the religion of Scientology and these charges are made that

9 have no bearing on the issues that we are trying to present,

10 the temptation is powerful to respond to them and that

11 response could have been made with respect to Mr. Wollersheim,

12 with respect to Mr. Young, with respect to the outrageous

13 charges that have been made against the church, against

14 virtually everybody in the church by implication against its

15 counsel. If I had undertaken that, we would be here for a

16 long time. And when I am confronted with that alternative, I

17 always have to ask myself what price are you paying for not

18 making this into a sideshow and falling into the trap set by

19 the defendant to go into diversionary and unsubstantiated

20 charges that I would spend the rest of my life answering if I

21 listened very long to Mr. Wollersheim. I really submit that,

22 well, I took the chance that it wouldn't prejudice Your Honor,

23 that the real issue is the intellectual property issue, and I

24 tried to focus on that. And I trust and I observe from the

25 court's demeanor and conduct that I think that I have made the

492

1 right choice.

2 With that in mind, we look at this fair use defense

3 because that's what we come down to. This morning the

4 stipulation was made, we assert no defense under 108. It's

5 all under 107. The fair use matter. There cannot be first

6 of all, I will get to trade secrets. There is no fair use

7 defense available for trade secrets. Now, with respect to

8 fair use, while it's possible that unpublished works might

9 under the amended statute be permitted, commented on under a

10 fair use doctrine, even though it's unpublished, there is not

11 a case in the country that has failed to count the factor of

12 unpublished work as a factor on the ledger side of the

13 copyright owner and against the the claimed fair use. So

14 the fact they are unpublished from the outset, militates

15 against any finding of fair use, but more importantly, fair

16 use I think the best language that I have ever heard on

17 fair use comes out of the Supreme Court of the United States

18 in the case of in the case or Harper & Row. I wanted to get

19 the exact language.

20 Yes. Here it is. As a general matter, says Harper &

21 Row leading case as a general matter, the fair use

22 doctrine operates to permit copyrighted material uses of

23 copyrighted materials to which a reasonable copyright owner

24 would have assented. Harper & Row, 471, United States, at

25 550. 105, Supreme Court, at 225. Viewed in that context and

493

1 against the evidence in this case, the claim of fair use in

2 this matter is absolutely ridiculous. Moreover, I defy the

3 defendants to produce a single fair use case in which the kind

4 of wholesale copying that was done here and posted without a

5 single word of comment has ever been held to be fair use. I

6 am not aware of a single case that permits it. You may deal

7 with a snippet of material here and a little bit there in a

8 fair use context, provided that sometimes even the smallest

9 use can be held to not be fair use, because it cuts across the

10 central theme or let's say discloses the climax or ending or

11 key part of unpublished work. But never have I seen a case

12 with the kind of copying that was here involved published to

13 the Internet without comment adapted by Mr. Wollersheim as the

14 appropriate act of his fellow director held to be fair use.

15 There was no element of fair use involved in any way. And so

16 I respectfully submit that fair use should not even be

17 considered.

18 Now, Mr. Wollersheim in his deposition throughout

19 I asked him what is F.A.C.T.Net. It's a library and a

20 preservational archive. This business about being a newspaper

21 is a recent contrivance because they took a look he took a

22 look finally at his claim of archival preservation and at his

23 claim of being a library, or someone took a look for him, and

24 it fell on its face and wasn't there. So he had to come up

25 with something to justify what his and his fellow director had

494

1 done and sanctioned. What they came up with is this newspaper

2 concept. If he is right in that approach, anybody with a

3 computer is a library and anybody with a computer is an

4 archive and anybody with a computer is a newspaper. If you

5 look at the newsman exemption here in Colorado, the shield

6 law, you will see talk of mass media and television and cable

7 works, and Mr. Wollersheim, to begin with, has testified that

8 he rarely posted to the Internet. Maybe ten times in his

9 history. And this concept of this newsletter that he is

10 putting out, he is claiming that he has some kind of a newsman

11 privilege. But where does it exist? He says to this court in

12 his testimony, he never intended to use it. He never wanted

13 to use it. Just had it in the archive. And the only thing I

14 want to do is to get the church indicted with it. So where is

15 the business about being able to use it in his newsletters

16 because he is a news man? That isn't what he wants to do at

17 all. So the purposes for which he wants to keep them in his

18 archive I think are stated in a disingenuous way. What he

19 wants to have them for is this litigation support service that

20 he is running which is his principal support of livelihood.

21 Talk about damage to him. He never had a salary

22 until we sued him and people started sending him money

23 because, as he put it, the Internet is angry at us and they

24 are.

25 I concede that because the Internet has on it mostly

495

1 very fine and committed people, but there is the lawless

2 element on that Internet that believes intellectual property

3 law has been repealed by the new technology. The White

4 paper the copyright office indicates that's not so, and

5 what a disaster that would be if it were so.

6 On this question of fair use, also, I pointed out

7 there is no criticism or commentary. I just pointed out there

8 is no news reporting. There is wholesale copying, potential

9 market diminution of value. One of the most important things

10 of all, what they are attempting to do here is take away the

11 all important crucial right of first publication which

12 includes the right not to publish at all or to decide when and

13 if you ever will publish. They are attempting to rob from

14 Religious Technology Center.

15 As far as trade secret misappropriation is

16 concerned let me deal a little bit more with fair use.

17 They cite the Cox Broadcasting Corporation v. Cohen in their

18 brief. The facts are entirely different. The case deals with

19 publication of information related to the identity of a

20 deceased rape victim, learned at a criminal trial, information

21 that came out and belonged in the file. There is nothing to

22 do with trade secrets and copyrights of unpublished work. The

23 documents at issue in the Fishman case were not relevant to

24 anything in the case and were filed in the case for private

25 spite. Judge Hupp refused to even look at them. Told

496

1 Mr. Berry, get these away from me. These have nothing to do

2 with the issue and of course they didn't. They were

3 gratuitously thrown in there for the exact purpose being

4 derived here.

5 There has been an attempt in the Lerma litigation and

6 here to keep harping on this public record unsealed file. The

7 fact of the matter is, as Mr. McShane has testified, and it's

8 amazing but true, they kept a watch over those files every

9 single day. Day in and day out. From morning until the close

10 of the clerk's office. Nobody ever copied them until the

11 Post came in there and the clerk at that point said, Well, I

12 don't know. I had better do it. It's a big newspaper.

13 Brought down the president. I don't want them bringing down

14 me. Gave them a copy. As soon as Judge Hupp heard about it,

15 he sealed up that file. By the time the Post published, the

16 file was the file was sealed.

17 With respect to trade secret further on fair use,

18 the limitations on copying in the case of Williams and Wilkins

19 v. United States is also in opposite the facts are totally

20 different. They were published not trade secret materials in

21 that case. Virtually none of the cases that are cited by the

22 defendants deal with the facts of this case. And I think that

23 in this case, the case that is of seminal importance is a

24 Tenth Circuit case called Gates Rubber Company v. Bando,

25 Limited, 1993 case at 9 F.3rd 823 when I hear that we are

497

1 into the F.3rd, I know I am getting old this circuit, '93.

2 In that case the court held that the existence of the

3 documents there in the file and an unsealed manner did not

4 compromise the did not compromise the trade secret and did

5 not compromise any copyright and emphasized the importance,

6 the vital importance of everything that the defendant (sic)

7 did to protect the trade secret.

8 The important point is that under Colorado law, as

9 pointed out I'm sorry the plaintiff I didn't mean the

10 defendant. What the owner of the trade secret must do is take

11 reasonable measures to preserve the confidentiality. Absolute

12 secrecy has never ever been required to sustain a trade secret

13 matter.

14 Wollersheim argues that the secrets are in the public

15 domain. Once disclosed, a trade secret loses its protection.

16 It's interesting to note not one of them Lerma, not

17 Wollersheim, not anyone ever claimed that they got it out of

18 the court file, to begin with. They all got it from Mr. Berry

19 who had his own agenda in publishing these documents. But

20 even distributions the question of the absolute secrecy not

21 being required I cite Restatement Third, Section 39,

22 Comment F, 1995. National Computer Systems, 214 U.S. Patent

23 Quarterly, 918924, a Minnesota case in 1982. An even

24 distribution to thousands of people does not destroy the

25 status of trade secret. The Data General Case stands for that

498

1 proposition, 357 Atlantic 2d., 105. That's out of Delaware

2 Chancery in 1975. Only reasonable efforts to maintain secrecy

3 are required.

4 Here the efforts on the part of the Church of

5 Scientology, Religious Technology Center, go beyond anything

6 that's reasonable. It goes to the most committed efforts to

7 maintain the secrecy that one will ever find. I cite the

8 court to National Legal Research Group v. Latham, 1993 W.L.

9 169789. That's out of the Western District of Virginia in

10 '93. And DuPont v. Christopher, 431 F.2d 1012, Fifth Circuit,

11 '70. Secret status protection is not lost because the

12 documents are filed in court. That's the all important Gates

13 Rubber Company, 9 F.3rd, 823 out of at 831 out of the Tenth

14 Circuit in '93. The key point is that the mere fact that the

15 materials may have been available for copying such as in court

16 files or on the Internet does not mean that secrecy status is

17 destroyed.

18 Your Honor, here Mr. McShane testified that the

19 universe of people is the proselytizing area for the Church of

20 Scientology. Out of that universe of people to suggest that

21 the trade secret has been lost if we have 4 billion people in

22 the universe, all I am sure considered by all religions to be

23 appropriate subjects for proselytizing to their religion in an

24 free society. And that's what the First Amendment protects in

25 this country and most people cherish around the world. Then

499

1 you are dealing with a tiny, tiny segment of that population.

2 Any exposure that has occurred of these trade secrets and the

3 value of these trades secrets has not been lost under any

4 circumstances. And piecemeal disclosure doesn't do the job.

5 The bootstrapping argument they are on the Internet.

6 They put them on the Internet. Wollersheim and Lerma put them

7 on the Internet and are now trying to gain advantage from the

8 fruits of their own misconduct and that is not permitted.

9 What we are dealing with here are documents that were stolen

10 from England and Denmark in late mid 1983 in England and in

11 December of 1983 in Denmark. They were transported to the

12 United States.

13 We brought lawsuits against Mr. Mayo and his people,

14 got an injunction and got the documents turned into the court,

15 the operation perished for failure to be able to use them.

16 Then they started showing up in the Wollersheim matter in '84

17 after the theft. And so the O.T. I through VII stolen over

18 there suddenly came into the possession of Mr. Wollersheim's

19 lawyer on the round Robin through Mayo who received them in

20 this country to Schomer (phonetic) to Wollersheim's lawyer,

21 and they were attempted to be put into the case. And I

22 objected to it. I tried that case. We fought it, and the

23 judge did not allow those materials in. They never entered

24 the case.

25 Now, for a brief moment the window was open when a

500

1 sealing order was vacated around ten o'clock and reinstated

2 around noon, so in that twohour window they are claiming that

3 the Los Angeles Times got them and others got them. That's

4 nonsense. There were 1,500 Scientologists in line, and nobody

5 got to those documents in that two hours and Mr. McShane has

6 testified to that. There is no evidence that secrecy has been

7 widely breached and overwhelming evidence that the plaintiff

8 undertook every precaution that was available. Wollersheim

9 argues we haven't established economic value. Mr. McShane has

10 given you the testimony that shows huge economic value in

11 these trade secrets both to R.T.C. and to Scientology at

12 large. Both in terms of the survival of the church and the

13 survival of income necessary for R.T.C. to function. I

14 believe he testified it was over 90 percent of their total

15 income, 6 percent of donations that they received with respect

16 to the use of those materials. It's only because we have

17 succeeded in protecting those secrets there presently are no

18 viable competitors but there were and those competitors had

19 those materials taken away from them by court order, ceased to

20 be able to function profitably. So both history and the

21 future and the past show that both the history of the

22 litigation that we have had and the history of the use of the

23 materials show that their value is incalculable to R.T.C. and

24 to the and to Scientology at large. The Dean case that we

25 have cited to the court before out of the United States

501

1 District Court for the Southern District of California held

2 that as a matter of law these very materials with which the

3 court is confronted were trade secrets as a matter of law and

4 granted summary judgment on the same arguments that are trying

5 to be made here. Fair use. No way.

6 THE COURT: Mr. Cooley, your time is up. If you need

7 a few more minutes to wrap it up, go ahead.

8 MR. COOLEY: Okay, Your Honor. I knew this was going

9 to happen, but this whole question of balancing the hardships

10 I think we have established that as a matter of law that we

11 are entitled to a preliminary injunction having established a

12 reasonable likelihood of success on the merits. The bank of

13 the hardships should be a slam dunk here for the plaintiff.

14 Mr. Wollersheim testified yesterday that these materials don't

15 contribute one bit to the viability of his company.

16 Therefore, there is nothing that he can point to that arises

17 to the dignity of any harm to himself other than the claimed

18 ability to go to a politicallyconnected firm to try to get

19 the church cited. The injury to the church clears the

20 balancing of the hardships so much in favor of the R.T.C. it's

21 ridiculous. Finally, the public interest the cases hold

22 that the public interest is served by upholding copyrights.

23 And that Carey case that we have cited to the court and many

24 other cases point out that that is the public interest.

25 Copyright and protection of intellectual property have been

502

1 recognized in the constitution of the United States before the

2 First Amendment was ever enacted. Before the Bill of Rights

3 were ever passed and that deserves recognition. What

4 Mr. Wollersheim is attempting to do here is destroy and wipe

5 out the First Amendment rights of Scientologists everywhere of

6 Religious Technology Center in pursuit of fictitious rights of

7 his own, manufactured without any factual support and without

8 any basis in law claiming all manner of things to try to

9 justify it. First, a library, then an archive, then

10 abandoning that. And now he is a newspaper, trying to rise to

11 the dignity of the Denver Post or whatever. I don't think the

12 evidence supports it, and I don't think that this court will

13 or should find it. With respect to the Virginia case, I would

14 simply say even this and we have a rehearing pending

15 going back Friday to argue that one. The judge there refused

16 to allow told the Washington Post they can't make any

17 copies. And they can't distribute what's in their possession.

18 They can make some fair use and we are going to argue that

19 question on Friday because they went beyond the bounds. It

20 wasn't just Xemu and Galactic Confederation. Went into the

21 issues of what was done to the person and how it was to be

22 handled, and that's the secret that we protected and are

23 entitled to continue to protect, and I respectfully ask the

24 court to do so.

25 THE COURT: Thank you.

503

1 MR. KELLEY: Thank you, Your Honor. The plaintiff is

2 here asking this court for what has been said by the United

3 States Supreme Court to be the most severe and least tolerable

4 of all remedies under the First Amendment. We are seeking it

5 in the context of trade secrets and copyright, and I am going

6 to deal with the issue of trade secrets.

7 Your Honor, when the argument is over, we are going

8 to ask the court to return to my client the seized materials,

9 his hard drive in tact with all materials on it without any

10 limitations on his right to discuss the ideas and the subject

11 matter of the information on those electronic media and on the

12 hard copies, subject only to the doctrine of fair use under

13 the copyright laws which Mr. Liebman will address. The

14 plaintiffs have come to this court largely because of

15 religious concerns, and that's okay as long as they don't seek

16 relief because of their religious concerns. They say they are

17 seeking relief strictly because of trade secrets. And if

18 that's the case, they simply have not shown grounds for

19 relief. Because what we are dealing with here is not a trade

20 secret. Your Honor, in order to establish a trade secret,

21 there simply has to be some semblance of secrecy to what's

22 being claimed. What we have here is a set of creation myths

23 analogous I suppose to that which exist in many other

24 religions, and I am not here to deprecate those notions

25 about how those have made the condition of man less fortunate

504

1 than it should be and techniques on how to eradicate those

2 things. Your Honor, the evidence is that from the very

3 beginning the secrecy of those materials has been impossible

4 to maintain. The plaintiffs deprecated what Mr. Young had to

5 say from his book, Exhibit double H from the very beginning.

6 It's obvious that these materials were out and in the

7 plaintiffs' own publications they were declaring people fair

8 game and looking for the return of these documents. From

9 Mr. Young's testimony, it's obvious that there were many ways

10 in which these materials were leaked during the early years.

11 Now, they claim that notwithstanding publicity, article after

12 article talking about the story of Xemu, none of this involves

13 any of their secrecy. Well, Your Honor, if there has been a

14 switch in this case, that's it.

15 My client claims to be a library and archive and

16 still claims to be a library and archive. He claimed to be an

17 electronic newspaper in which he publishes regularly and

18 claims to be a hard copy newspaper. But up until Monday of

19 this week, the claim of the church was that everything

20 contained in the O.T. series, including the story of Xemu, was

21 a trade secret. Your Honor will see that in Exhibit double N,

22 which I believe is the deposition of Mr. McShane, where he

23 makes it very clear that he considers the entirety, including

24 the story of Xemu, to be a trade secret. Double O, answer to

25 interrogatories, the exact same thing. Your Honor, in Exhibit

505

1 double P on the 51 page of that exhibit, what you will see is

2 the first page of O.T. III. That appears in plaintiffs'

3 Exhibit 79, tab one. And that is the page where Mr. McShane

4 stood on the witness stand and said none of that dealing with

5 the catastrophe 75 million years ago, including the story of

6 Xemu, was part of our secret.

7 But Your Honor will see when Your Honor looks at this

8 exhibit and the deposit which was made in 1987, that that

9 entire page is masked, and there was a place in the mask where

10 the word Xemu showed through, and someone went to the trouble

11 of crossing that out, a black magic marker, thus, the

12 contention that none of the stuff that's in the public domain

13 now really involves their secret is not credible nor is

14 their claim that it's not secret any more.

15 Your Honor, the testimony of Professor Cleek was that

16 the FishmanGeertz affidavits, whatever the source, all over

17 the Internet, are posted on a regular basis I through VII.

18 The plaintiffs attempt to shut them down, and they are back up

19 again. He testified that this happened on a regular basis

20 throughout 1995. When he came to court, he testified to

21 something known as the SCAMIZDAT postings, which he said

22 contained all of the O.T. I through VII series posted

23 throughout posted throughout 1995. He said some was

24 actually still out there, and he pulled them down to come to

25 court to testify, and these are in the SCAMIZDAT exhibits and

506

1 the Court will see that they contain the O. T. series, except

2 for I believe I, IV and VI, all of which involve only a couple

3 of pages on the Fishman affidavit. It's the Fishman affidavit

4 materials we are talking about here. Those happened

5 throughout 1995, before my clients had anything to do with it.

6 They happened after August 22, 1995, after the plaintiffs have

7 any every bit of my clients' materials.

8 Your Honor, whether the plaintiffs like it or not,

9 those materials are no longer a secret. They are available to

10 the entire world on the Internet and available to a witness

11 who wanted to come to this court to take them off the Internet

12 to testify.

13 Now, our position is that even if a claim could be

14 made, a thin claim that these are trade secrets, the First

15 Amendment bars the relief here, and I have gone through the

16 reasons we believe this in our brief. The defendants got

17 these documents as litigants in a case two cases. In one

18 case he received it from an attorney in the case with a file

19 stamp on it. Counsel points out that he didn't actually go to

20 the clerk's office and get it from there, but he received it

21 while it was an open record from counsel. Obviously, it would

22 make a lot of sense to go get another copy from the clerk.

23 Likewise, the documents from Mr. Wollersheim's own case were

24 documents that were obtained lawfully. They weren't obtained

25 while he was under any contract with the church. They were

507

1 obtained independently of that relationship, and there hasn't

2 been a scintilla of evidence that he acted in any way

3 improperly in coming by those documents.

4 Your Honor, there is a line of cases which hold that

5 when a citizen comes across information legally without

6 violating the law, he cannot be enjoined from publishing that

7 information. Not only can he not be enjoined from publishing

8 it, he cannot be subjected to after the fact punishment. Even

9 when as in the Florida Star case where the information was

10 obtained from public police records, the publication of that

11 information is going to cause devastating injury to a rape

12 victim. Even where in the Hustler Magazine v. Falwell case

13 the information was going to cause severe emotional distress.

14 Surely, if those tort labels are not enough to support an

15 injunction for information obtained lawfully, they don't apply

16 to trade secrets, and we cited at least one case that

17 recognizes that in our brief.

18 There are things about this case that in addition I

19 might out. There is the case of CBS v. Davis which says that

20 the injunction is not even appropriate when it is obtained

21 legally.

22 There are additional things about this case in

23 addition to the lack of secrecy that make this an important

24 First Amendment case. The first is we are dealing with a

25 public controversy in which my publishers the Church of

508

1 Scientology publishes the record is full with a heated

2 controversy. This is my client's sole interest is not in

3 putting together a Grand Jury indictment. He testified that

4 it's important to him to be able to argue that the rituals and

5 the procedures and the methods in this information causes

6 injury to victims of Scientology. We are not here to have

7 this court resolve that dispute either, but simply to have the

8 court note that it's an intense public controversy right now.

9 In the trade secret claim, we have a problem that we

10 don't have in the copyright claim. In the law of copyright

11 it's well established that in some cases injunctions are

12 allowed. Because the only thing prohibited is the copying of

13 the expression of the material and not discussing the idea

14 discussion of the ideas in a noninfringing way. In the trade

15 secret context they are trying to freeze the entire subject

16 matter, saying it can't be discussed at all.

17 Your Honor, about these documents obtained, legally

18 they are available to anyone on the Internet right now. What

19 these plaintiffs are asking in effect is for the court to hold

20 that my clients are the only ones in the world that are not

21 entitled to have these documents and make fair use of them.

22 As far as harm, most of the harm claimed is spiritual

23 harm, concern about ridicule, concern of nonadherence. Those

24 are the kinds of commercial injury that are relevant in a

25 trade secret case. They worry about competitors and wonder if

509

1 they could do a competitive operation with the Fishman

2 affidavit.

3 Mr. McShane is not clear but it's clear from his

4 testimony this is meaningless without the guidance that the

5 works get from the church when they are presented, and it's

6 clear that if someone could do it with the Fishman affidavit,

7 they could do it without the Fishman affidavit.

8 On the other hand, the detriment to my clients is a

9 prior restraint, the treading of the right to speech on the

10 subject matter that we are talking about here and to express

11 the ideas as opposed to the expression of the ideas involved

12 in this material, which they feel is highly damaging.

13 There are problems of accountability on the Internet.

14 My clients are accountable. They are here. This is not a

15 case to come down on someone that is not showing to be abusing

16 the anonymity aspects of the Internet. My client would be

17 angry if I didn't express some outrage at the way his house

18 was raided, his belief that this is really being used to

19 gather intelligence. He is concerned about his victims. That

20 those are matters that are going to have to await further

21 litigation in this case.

22 I will turn it over to Mr. Liebman.

23 THE COURT: Thank you.

24 MR. LIEBMAN: Good afternoon, Your Honor. In five

25 minutes I know I can't do justice to the four different issues

510

1 I want to discuss. I will try my best. I want to start with

2 two rhetorical points and get directly into these issues.

3 The first point is I nearly jumped out of my chair

4 when Mr. Cooley in his opening statement talked about the

5 copyright law preceding the First Amendment in the

6 constitution. The First Amendment emanates from something

7 called the Declaration of Independence and inalienable rights,

8 including the right of liberty which the government can't take

9 away. Copyright is a government created monopoly, and it's

10 absolutely critical because it's bound by that monopoly.

11 Copyright under Nimmer, monopoly is for the benefit of the

12 public.

13 The second rhetorical point is this. To say that

14 it's an unusual case understates it. Mr. Cooley properly

15 quoted from Harper & Row. As a general matter, this case is

16 unique. These set of cases involving Scientology are unique

17 because of the subject matter involved, the controversy

18 involved, the method that the copyright protection has been

19 sought and enforced. I won't be able to discuss all of that,

20 but the point is this is a rare case.

21 Now, to come to the first of four issues I want to

22 discuss. In opening statement, we indicated we would not

23 raise we didn't plan to raise issues with respect to the

24 with respect to the registrations. We were unable to obtain

25 the deposits. We asked for the deposits, and they were

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1 provided. And then on Friday Mr. Kelley asked Mr. McShane,

2 could you please identify the deposit for O.T. III? And it

3 turned out it hadn't been provided to us, and that got me a

4 little worried. We obtained it on Monday. We still don't

5 have the certified copies from the copyright office, but we

6 obtained it. We have no reason to believe that the copy was

7 altered. We accept that it was the deposit that was

8 registered. Then on Monday there was, as Mr. Kelley said, a

9 change in the testimony. There are other points in this case

10 and elsewhere where R.T.C. has gone on record firmly without

11 equivocation with respect to trade secret status of the entire

12 O.T. I through VII materials, including O.T. III, and all of

13 it. Interrogatory No. 13, we said, identify your trade

14 secrets. They said all of it is a trade secret, its entirety.

15 Mr. McShane's declaration in support of the Temporary

16 Restraining Order, paragraph 34. They are masked to prevent

17 the contents from being read as is permitted for special

18 registration of confidential materials. He also said or the

19 R.T.C. elsewhere said trade secret materials may be deposited

20 with the copyright office, and Mr. McShane explained how they

21 were deposited with the copyright office. That type of

22 registration deposit is critical because if you start an

23 infringement action without the deposits, it's critical,

24 separate from registration, because any work that's registered

25 goes into the National Library. It becomes the official

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1 record of that work. And any person in the world can walk

2 into the Library of Congress and read it, unless special

3 relief is granted with respect to trade secrets in those

4 works.

5 We have a doctrine in copyright law, it's phrased

6 several different ways. One is fraud on the copyright office.

7 One is unclean hands, and the other misuse of let me see

8 if the claimant willfully misstates or fails to state a fact

9 that, if known, might have caused the copyright office to

10 reject the application, the registration must be invalidated.

11 Further, if the register consents to issue a certificate but

12 does so under applications of false pretenses, as a material

13 fact, then the infringement action is barred.

14 I would like to bring to your attention 891 F.2d 452,

15 Whimsicality v. Rubie's. I have copies for the court. There

16 is another case which is on point with respect to deposits

17 which is Upjohn v. Grundberg, which I will submit. Your

18 Honor, the O.T. III materials, page where is the masked

19 one is 51.

20 Your Honor, in my lexicon on copyright law, this is

21 the smoking gun. This is a material misstatement. In order

22 to mask what they said was a trade secret when they got the

23 TRO, what they said was a trade secret in their papers and

24 then what they denied was a trade secret in order to protect

25 themselves on a trade secret case Your Honor, they made a

513

1 flat change in position. And this is fraud on the copyright

2 office. The consequences of that fraud are up to you. The

3 copyright can be invalidated voided entirely. The court

4 can find there can be no enforcement of it on grounds of

5 unclean hands. I haven't been able to look at O.T. IV through

6 VII, but I think I heard from the testimony there are other

7 references to Xemu, and I note particularly Xemu is blacked

8 out where there is no interlineation. They purposely kept the

9 word Xemu from being in this deposit, so no one could go to

10 the copyright office and find out that O.T. III mentioned the

11 word Xemu, which they now say is not a trade secret. So under

12 the doctrine of unclean hands, they are not entitled to

13 enforce any of their copyrights because of unclean hands.

14 Under the doctrine of invalidity of the registration,

15 we have to look at them on a onebyone basis. I haven't been

16 able to look at all of them yet. I think for purposes of the

17 injunction proceeding we have demonstrated enough that their

18 injunction should be denied on this basis alone. This is

19 exactly why we have this doctrine, so people can't come into

20 court and get TROs and exparte seizures and then change their

21 testimony.

22 The second point, second issue, is this is the first

23 copyright case I have been involved in where the works are not

24 in evidence and the infringements are not in evidence. There

25 has been a lot of talk about a lot of infringements. But

514

1 let's look at what the evidence is. Did the R.T.C. ever put

2 in the works themselves that they say are registered and

3 deposited with the copyright office. They appear to have put

4 in portions. Did they ever put in evidence of the

5 infringements? The Fishman affidavit materials are in

6 evidence. We put them in evidence. The upload that they have

7 talked about that was scanned in, that's not in evidence. The

8 Fishman posting onto the Internet is not in evidence. The

9 Fishman EMail to Mr. Wollersheim I understand is the

10 portion of Exhibit 79 which is which is on the lefthand

11 side. That's the typed portion, and that's the Email, and

12 perhaps the Email posting on the Internet was the same.

13 There are a number of cases that say you don't

14 establish a prima facie case of copyright infringement unless

15 you put your works in, and that's not a technicality. You

16 can't substantiate similarity without the works. Cases to

17 that effect, Seiler v. Lucasfilm, Lampert v. Hollis Music.

18 As I said, this is a unique case. None address the facts

19 exactly like this, but as I said, this is a unique case. Take

20 a look, Your Honor.

21 I know the order is written, and I know we haven't

22 raised take a look at one of the actual infringements

23 that's alleged. I took a look during the break at O.T.V.

24 O.T.V, according to Mr. McShane, consists of 35 pages, that's

25 what he put in paragraph 14 of his declaration in the Erlich

515

1 case. He said Mr. Lerma posted two pages. The actual

2 deposit, the work itself is not in evidence. The masked copy

3 is not in evidence. All that's in evidence is Exhibit 79. If

4 you look behind the tab that says O.T.V, the index says one.

5 If you look there and O.T. V has one page. It's a little out

6 of order. I'm sorry, Your Honor. O.T. V has one page of

7 handwritten materials. We checked this against the deposit

8 copy that they gave us and verified that it's genuine. This

9 is the only evidence, one page. This is the only evidence of

10 what O.T. V consists of. The rest is not in evidence at all.

11 Then if you compare what the infringement is supposed

12 to be, Your Honor. Take a look at the page on the left side

13 immediately preceding it and tell me I'm sorry, Your Honor.

14 If I speak that way there are snippets which are

15 paraphrases of that handwritten page. I mean snippets, a

16 number of words. That's not wholesale copying. That may in

17 fact be de minimus in the context of a work which consists of

18 35 pages. Or even if you take the deposit, 16 pages, if you

19 take a sentence, okay, there are lots of cases that say that's

20 not infringement, or in the context of a fair use defense

21 there are good reasons why that should be fair use.

22 Then take a look, if you will, at the Fishman

23 materials themselves in O.T.V in there. We tried to match it

24 up with that one page of handwriting. We can't match it up.

25 First of all, the Fishman materials are typewritten materials.

516

1 The deposited materials are handwritten. So with respect to

2 O.T.V, I don't think they have proven any case of

3 infringement.

4 Now, if I had four hours, I think we could go through

5 a lot of this, but I don't. I'll use that as an exemplar.

6 It's fair use. Fair use has gone to the Supreme Court three

7 times in recent history. Each time the District Court ruled

8 one way and the Court of Appeals ruled the other way, and the

9 Supreme Court turned around and ruled another way for

10 different reasons. This is probably the most difficult area

11 of copyright law, as it should be, because what it is

12 equitable reasons that looks at all these different factors.

13 There is no bright line and there are no disqualifying

14 factors.

15 Mr. Cooley made a point of the works being

16 unpublished. It's true that they are unpublished, but this

17 sort of work or these sorts of works are not like the other

18 unpublished works which have been at issue in these prior

19 cases.

20 Normally, you have an author who has a manuscript

21 this is in the Harper & Row case, and it hasn't been

22 disseminated at all other than to his own publisher. Here

23 what the church has done is taken advantage of the rule of

24 limited publication to extract over the years millions of

25 dollars. They have gotten the economic benefit out of these

517

1 materials through very clever lawyering. They may have

2 preserved the right of limited publication, but in terms of

3 what drives the argument for there being a fair use defense

4 for unpublished work, it doesn't apply in this case.

5 Mr. Cooley also said that wholesale copying of works

6 is never fair use. I don't think that's true. Sony case, for

7 example, Supreme Court, involved complete copying of works by

8 millions of people. That was found to be fair use, and the

9 legislative history of the Copyright Act includes a reference

10 to a news broadcast being used by a voter, a voter taking a

11 copy of a news broadcast. A news broadcast is an unpublished

12 work even though millions of people see it, it's never

13 distributed as a hard copy. That's an example. I cannot

14 think of an example of a wholesale copying of unpublished work

15 in a court. That's not what we have here.

16 What we have here are pieces of paraphrases and

17 pieces we don't have the case that they have been trying to

18 show, so this mountain of supposed evidence I know this is

19 a preliminary injunction, and we can't look through all the

20 evidence, but it's not there, and it's their burden to

21 establish a prima facie case.

22 Mr. Cooley mentioned or made a strong argument about

23 this being commercial. I would like to mention one quote or

24 paraphrase from the Nimmer treatise. The

25 commercial/noncommercial distinction is "of questionable

518

1 validity. Publishers of educational textbooks are as profit

2 motivated as publishers of scandalmongering tabloid

3 newspapers. And a serious scholar should not be despised and

4 denied the laws protection because he hopes to earn a living

5 through his scholarship."

6 Your Honor, I don't know whether this is particularly

7 commercial use. I think not because none of these materials

8 in issue were sold. Mr. Wollersheim's testimony over these

9 past two days has established what his real use is. I think

10 the trier of fact should find that this use here is genuinely

11 to protect victims, genuinely to help out what he believes to

12 be a criticism of what he believes to be a nefarious

13 organization.

14 I am not going to try to argue to the court what the

15 result of that debate should be, one way or the another. The

16 church is entitled to its beliefs. But the use here is not

17 what we think of when we think of commercial use. These

18 things aren't being sold. He may make money as a consultant

19 in cases, but that's not the use of these works for commercial

20 purposes. Even if it was, it wouldn't be particularly

21 relevant.

22 Let me try to address the points that were raised in

23 this exhibit, that there is no criticism or commentary. All

24 that's on the Internet is commentary. There is this running

25 dialogue. I don't think the court has addressed the sort of

519

1 instance where you have commentary not in the context of a

2 single piece of paper, but over time and over different pieces

3 of works, as far as I know, this is no instance of wholesale

4 copying.

5 I have already addressed the deletion of the

6 potential marks. One of the factors to be considered, some

7 courts have said it's the most important. The Supreme Court

8 in Campbell says there is no presumption of market harm.

9 Criticism of the copyright owner is not the sort of harm

10 that's cognizable under fair use analysis. It said also where

11 other factors point to fair use, some loss should not affect

12 the outcome. The copyright owner is always going to object to

13 some loss. Lerma counsel in that decision I think analyzed

14 very well the difference between the works themselves here and

15 the services that the church performs, and that in fact there

16 is no substitution particularly there is no substitution

17 when you have partial snippets or distributions of pieces of

18 work. They cannot be substituted for that what the church

19 does.

20 There is another case Galoob v. Nintendo. I

21 apologize. I don't have the cite. But it's very instructive

22 here. In that case Nintendo which makes video game players

23 said that an addon disk which caused its video games to speed

24 up or skip levels affected the market adversely, and

25 therefore, there was no fair use. Challenged that not just

520

1 rhetorically but with evidence. What they showed, there was

2 no evidence of actual market harm. The same issue was pending

3 in AcuffRose v. Campbell. Let's look to real harm. Let's

4 look to the evidence. The church has reasonable theories of

5 harm. They can't be excluded. These materials have been

6 circulating in one form or another for some time. There is no

7 evidence, okay, that these postings on the Internet that

8 Mr. Wollersheim's possession has caused any actual harm to the

9 R.T.C.

10 Finally, I would like to talk about an injunction.

11 It used to be the injunctions were automatically copyright

12 cases. There would be a presumption of irreparable injury.

13 That's not the law any more. Nimmer on copyright has been

14 very influential. This the Supreme Court in Campbell,

15 footnote 18, indicated there may be a situation where an

16 injunction is not appropriate. There are many other cases now

17 which are starting to say this. Professor Boorstyn

18 Mr. Boorstyn is another copyright expert. And he was noticed

19 as the expert for the plaintiff. He did not appear here. I

20 am not saying his testimony would have been adverse. I am

21 using this for another point. He is a very noted expert. I

22 would like to read to you a quote from his treatise which is

23 apropos of whether or not injunction should be granted. Even

24 if the plaintiff should prevail and the fair use defense

25 should be denied, Mr. Boorstyn wrote while there may be times

521

1 when the finding of fair use should be denied to protect the

2 copyright's owner recognizes an injunction should be denied

3 to protect the public interest, the press, and free public

4 interest where the interest of free speech overwhelming

5 outweighs the copyright owner's interest, in an injunction

6 such relief may be denied to avoid injuring the public.

7 Your Honor, this is that time. That is an unusual

8 case. The public discussion of these issues is paramount.

9 And Your Honor this is an unusual case where you should not

10 issue an injunction even if you found likelihood of

11 infringement, which I believe you should not find, because the

12 copyrights are invalid. R.T.C. has committed unclean hands

13 coming in here. They haven't shown a prima facie case, and

14 they haven't shown that there is no fair use. Thank you, Your

15 Honor.

16 THE COURT: Thank you.

17 MR. COOLEY: Your Honor, I have a motion on one of

18 those arguments that's the argument with respect to unclean

19 hands and the attack on the copyrights be stricken.

20 Mr. Kelley specifically stated at the outset of this case that

21 unclean hands or anything related to the validity of the

22 copyrights were not contested for the purposes of this

23 hearing.

24 THE COURT: Copyrights are valid for the purpose of

25 this hearing. All right. We'll be in recess. I expect to be

522

1 back in half an hour, but it might be a few minutes longer

2 than that.

3 (Recess.)