1 IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
2
Civil Action No. 95B2143
3
RELIGIOUS TECHNOLOGY CENTER,
4
Plaintiff,
5
vs.
6
F.A.C.T.NET, INC., et al.,
7
Defendants.
8
9
REPORTER'S TRANSCRIPT
10 MOTION FOR PRELIMINARY INJUNCTION
11
12
13 Proceedings before the HONORABLE JOHN L. KANE, JR.,
14 Judge, United States District Court for the District of
15 Colorado, commencing at 10:00 p.m., on the 8th day of
16 September, 1995, in Courtroom C401, United States Courthouse,
17 Denver, Colorado.
18
19
20
21
22
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
2
1
APPEARANCES
2
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
7
ERIC M. LIEBERMAN, ESQ.
8 Rabinowitz, Boudin, Standard
Krinsky & Lieberman, P.C.
9 740 Broadway at Astor Place
New York, New York 10003
10
HELENA K. KOBRIN, ESQ.
11 7629 Fulton Avenue
North Hollywood, CA 91605
12
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.
DANIEL A. TYSVER, ESQ.
17 Faegre & Benson
90 South Seventh Street
18 Minneapolis, MN 55402
19 * * * * *
20 PROCEEDINGS
21 THE COURT: This is 95B2143, Religion Technology
22 Center against F.A.C.T.Net, Inc. and others, and the cause
23 comes on for hearing of the preliminary injunction. Before
24 the court came into session and for some days previous to
25 today, briefs have been filed, and in fact one this morning.
3
1 And it appears to me from an examination of the documents on
2 file that in all likelihood we are not going to finish today
3 with the hearing. And if that is the case well, Monday is
4 available, and we'll go over into Monday, if necessary. So I
5 do not want the attorneys thinking that somehow or other there
6 is a visage of the grim reaper with a stopwatch in his hand.
7 That does not mean I am inviting you to whetter on endlessly.
8 So we'll take what time the case needs, and we'll proceed, but
9 let's proceed expeditiously. Are you ready to proceed?
10 MR. COOLEY: Yes, Your Honor.
11 MR. BLAKELY: Yes, Your Honor.
12 THE COURT: Defendants ready?
13 MR. KELLEY: My office is in the process of
14 delivering my exhibit notebooks. They are not here yet. I
15 don't know what to say except that I am going crazy. I do
16 expect they will be here any minute. I have a couple of
17 preliminary matters I need we need to raise.
18 THE COURT: Be seated. Do you need your exhibit
19 notebooks before we hear any opening statement from the
20 plaintiff?
21 MR. KELLEY: No, not unless the Court does or
22 Mr. Case does.
23 THE COURT: What about your preliminary matters?
24 What are you talking about?
25 MR. KELLEY: We have a protective order I would like
4
1 to tender to the court and get that out of the way. I think
2 that's all I have.
3 THE COURT: Protective order regarding this hearing?
4 MR. KELLEY: Regards discovery and what happens at
5 this hearing with confidential matters, yes, sir.
6 MR. BLAKELY: It's a stipulated protective order,
7 Your Honor, because of the trade secrets that are involved in
8 the case.
9 THE COURT: Well, okay. I am willing to listen to
10 whatever you are talking about.
11 MR. KELLEY: We also have motions pro hac vice for
12 two other members of my firm from our Minneapolis office who
13 are not admitted in Colorado.
14 THE COURT: Okay. Well, I am going to grant the
15 motion for admission pro hac vice, but I do need to tell you
16 it says that Mr. Liebman graduated from Yale Law School, and
17 it's my understanding it's so hard to get there, that there
18 isn't one.
19 MR. LIEBMAN: I apologize for going there.
20 THE COURT: Don't they just give you a degree once
21 you get the admission standard?
22 MR. KELLEY: In redemption for or mitigation he is
23 steeped in midwestern values and only spent a brief period of
24 time out there.
25 THE COURT: Anybody from Minnesota is admitted.
5
1 What's next?
2 MR. KELLEY: Your Honor, we do have a stipulated
3 protective order, which I have signed, tender an original and
4 a copy to Mr. Case. The only thing I want to be on the record
5 is that at this stage that protective order does not permit me
6 to disclose confidential material to any insurer involved in
7 the defense of this case. We have agreed in principle that
8 order will be amended to so provide. We have to hammer out
9 the language simply. With that caveat, that order is tendered
10 as agreement of the parties. It deals with materials
11 exchanged during the course of the discovery that are claimed
12 to be confidential and trade secrets. I think it makes it
13 clear that however the court feels about confidentiality
14 matters, once they are offered as evidence is up to the court.
15 THE COURT: Well, that's all I am really concerned
16 about. The agreement you have for things that happen before
17 or after court are entirely up to counsel. What happens here
18 is another matter.
19 MR. KELLEY: I understand that and attempted to make
20 that very clear.
21 THE COURT: Okay.
22 MR. COOLEY: May it please the Court.
23 THE COURT: Yes.
24 MR. COOLEY: With respect to that last point, we'll
25 be presenting in the course of the evidence in support of the
6
1 application for preliminary injunction the materials that were
2 located on the computers and in the hard copies of the
3 defendants pursuant to the Order of Seizure. And we'll have
4 notebooks for the court comparing those infringing materials
5 with the actual materials. We would ask that those
6 notebooks that Mr. McShane will be the witness, that he
7 compare, he point out the portion of the notebook that makes
8 the comparison but that those matters not be made a matter of
9 public record because that of course would expose us to losing
10 the secrecy that we are here trying to protect. We, of
11 course, will have copies of those books for counsel and for
12 the court, but we would ask that under the protective order
13 that the counsel have all agreed to that the matters be
14 designated as confidential and that we not in the course of
15 litigating the matter lose the very rights we are trying to
16 protect.
17 THE COURT: To the extent we can, that's fine. I
18 respect trade secrets. I do not respect confidential court
19 hearings. That's the problem.
20 MR. COOLEY: I understand. Sometimes, however, the
21 courts have entered these kinds of procedures to protect
22 against a pyrrhic victory with the thing being disclosed on
23 the record.
24 THE COURT: We'll try to avoid that. I understand
25 what you are saying. All right. Did you get your exhibit
7
1 books?
2 MR. KELLEY: No, I have not seen the doors part and
3 exhibits come in. All I can do is apologize, Your Honor.
4 THE COURT: That's all right but can't we go ahead
5 now.
6 MR. KELLEY: I can go ahead if everyone else can.
7 THE COURT: All right, okay.
8 MR. COOLEY: Your Honor, I have one housekeeping
9 matter Your Honor mentioned that you received a brief from the
10 defendants this morning.
11 THE COURT: I think it was this morning. It could
12 have been late last night.
13 MR. COOLEY: It was served on us around late
14 yesterday afternoon, so I don't know when it was filed. We
15 didn't file anything since we were in discovery the last
16 couple of days and we have been in Virginia. I had been
17 informed that this court had a 72hour rule, and I didn't want
18 to run a foul of it, so I obviously was too late to meet it
19 and I didn't expect that I would be I was going to ask the
20 court permission this morning to file something.
21 THE COURT: Sure you can.
22 MR. COOLEY: If the court is going to consider that
23 brief.
24 THE COURT: I am going to consider any briefs that
25 are filed, and you have permission to file them. The 72hour
8
1 rule doesn't apply to extraordinary proceedings which by
2 definition an injunction is. We wouldn't that's the reason
3 we have preliminary injunctions is to suspend the normal rule.
4 If you want to file something, you go ahead, and if you want
5 me to wait to make up my mind until you get it, why, I will do
6 that.
7 MR. COOLEY: That will be fine. Thank you, Your
8 Honor. I had planned to make an opening statement if it meets
9 with the Court's approval.
10 THE COURT: Sure. I want to hear from you then. I
11 will hear from Mr. Cooley, and then we'll start with the
12 testimony.
13 OPENING STATEMENT
14 MR. COOLEY: This case is here because of
15 trademark of copyright infringement and trade secret
16 misappropriation. That's what the case is all about. The
17 Complaint in this case was filed. A temporary restraining
18 order was entered against the defendants as well as an
19 impoundment order and a seizure order. Seizure was executed
20 under the supervision of the United States Marshals, and we
21 have continuously through an independent computer expert been
22 conducting the searches for infringing material. Over here
23 are the boxes of the infringing material that have been taken
24 from the computers and the hard copies of the defendants.
25 There are two boxes of unpublished upper level materials on
9
1 their computers. There are two boxes of unpublished materials
2 in hard copy. Since the order extended to all writings of
3 L. Ron Hubbard, we located 12 boxes of published materials
4 that are copyrighted in hard copy and on the computer and six
5 boxes of published material and a copyright of some of the
6 unpublished upper level O.T. II material which were on CDs,
7 and copy of which F.A.C.T.Net distributed for $200 or $225 a
8 piece. This massive infringement search is not complete
9 because there are huge quantities of documents on tapes that
10 Mr. Wollersheim and apparently Mr. Penny have made that are
11 encrypted. And at his deposition the day before yesterday,
12 Mr. Wollersheim was asked to furnish us with the encryptions,
13 so we could examine those to determine the existence of
14 infringing materials there, and he refused to do so. My
15 colleague, Mr. Blakely, has a motion with respect to that
16 refusal, and we cannot complete the search until we have that
17 encryption. In any event, we have this massive quantity of
18 material that we believe more than supports a preliminary
19 injunction. What we are dealing with here is Mr. Wollersheim,
20 a former Scientologist who has been for 15 years obsessed with
21 the destruction of the Church of Scientology and the religion
22 of Scientology and has come upon the device of applying for
23 and obtaining from the Internal Revenue Service a 501(c)(3)
24 status for his corporation, F.A.C.T.Net, by parading himself,
25 parading that corporation, as an electronic lending library
10
1 and an archive preservation site. In fact, the evidence which
2 we'll introduce will show that under the false cover of that
3 socalled charitable educational enterprise, what in fact is
4 going on is that Mr. Wollersheim in conjunction with another
5 man that is going to testify here today, apparently a
6 Mr. Vaughn Young, are running a litigation support service for
7 lawyers who are engaged in litigation against the Church of
8 Scientology or who are planning litigation against the Church
9 of Scientology.
10 In Mr. Wollersheim's case this takes several forms.
11 In addition, to being a director of F.A.C.T.Net, he has his
12 own private business, a consulting business, in which among
13 other things he furnishes consulting services to lawyers in
14 connection with suits against the Church of Scientology. He
15 gets paid for that, but he uses the F.A.C.T.Net database in
16 furnishing that service. He then pays F.A.C.T.Net a portion
17 of his income, and we have uncovered some 20 to $30,000 of
18 that and from his testimony. And sometimes F.A.C.T.Net does
19 itself permit Mr. Wollersheim with his F.A.C.T.Net director
20 hat on or employee hat on to furnish these services which in
21 fact is going on right now in litigation with Time Magazine.
22 The database of F.A.C.T.Net is being employed to mount a
23 litigation campaign against the Church of Scientology.
24 Mr. Vaughn Young who is described by Wollersheim as a
25 voluntary worker for F.A.C.T.Net is engaged in the same
11
1 business. In fact, I know of no other business that he is
2 beyond working for lawyers engaged against the Church of
3 Scientology. I raise this because it impinges upon the claim
4 rather directly that Wollersheim that F.A.C.T.Net is a
5 quote "library" end of quote or a preservation archive which
6 is entitled to some lofty constitutional protection that
7 permits it to destroy the constitutional protections that
8 pertain to the Religious Technology Center and the religion of
9 Scientology which it protects.
10 There is no doubt whatsoever that there is a twofold
11 purpose that is going on here. The publication of the posting
12 of the upper level materials O.T. I through O.T. VII to the
13 Internet by Arnaldo Lerma, a resident of Arlington, Virginia,
14 and a director of F.A.C.T.Net without any comment, just
15 putting them on, according to Mr. Lerma, was done upon receipt
16 of those materials in the Fishman affidavit from
17 Mr. Wollersheim. Mr. Wollersheim denies that that happened.
18 So we have the unusual circumstance of one director of
19 F.A.C.T.Net saying one thing, and the other director of
20 F.A.C.T.Net saying another. We'll point those contradictory
21 pieces of testimony out to you in the deposition excerpts that
22 we have for Your Honor's consideration.
23 The purpose that is involved here is to destroy the
24 Church of Scientology in a twofold manner. One, by cutting
25 off at the entry level, the opportunity for the church to
12
1 proselytize and expand and like all proselytizing religions
2 the church considers the entire world a proselytizing area.
3 The upper level materials are a sacred part of the religion
4 that by religious doctrine are not made available to a
5 parishioner until he has gone through the gradient steps
6 necessary to bring him there and then and only then is he
7 entitled to see them. There is no more deeply held religious
8 belief, conviction in the church than that. The plan is to
9 take those upper level materials and expose them before their
10 time and before people are ready to so as to ridicule and
11 demean the Church of Scientology by preventing people or
12 discouraging people from entering and exposing them to
13 materials that they should not as a matter of religious
14 conviction have been exposed to until they had gone through
15 the other gradient steps. This has a doublebarrel effect of
16 wiping out the church's First Amendment rights under the
17 banner of somebody else's First Amendment rights, wiping out
18 the church's intellectual property rights, which incidentally
19 have root in the constitution of the United States that
20 predates the Bill of Rights even. Copyright and protecting
21 original writings has been recognized in the constitution
22 before we even had the First Amendment. But in any event,
23 this has a double barrel impact.
24 It has an economic impact of huge dimensions because
25 the church depends upon the churches that use these
13
1 materials depend upon the influx of parishioners who provide
2 fixed donations for these materials. So it's a double
3 barreled economic impact of huge dimensions, combined with the
4 intention to wipe out the religion by strangling it
5 financially and destroying its rights under the First
6 Amendment to the free exercise of its religion. That's what's
7 going on here. This is not a case of any attempt on the part
8 of Religious Technology Center or the Church of Scientology to
9 interfere with anybody else's legitimate First Amendment
10 rights. Those rights they have. There are thousands and
11 thousands and thousands of postings on this religion,
12 Scientology, attack on the Church of Scientology and
13 Scientologists in the most scatological materials, in
14 particular, obscene and vial terms applied to my woman
15 colleague, Helena Kobrin, who has been working on this
16 litigation. No finger has been raised to seek judicial
17 intervention in this matter until we got into the area of
18 copyright infringement and trade secret infringement. When
19 that happened, Ms. Kobrin started giving notices of
20 infringement and warnings to cease and desist. Instead of
21 following that, Mr. Wollersheim and people like him
22 participated in an effort to execute this plan that had been
23 articulated on the Internet.
24 They can sue ten of us. They can sue 20 of us, but
25 they cannot sue 10,000 of us, so copy, copy, copy, copy.
14
1 That's the game plan. That's the game plan that
2 Mr. Wollersheim is about. He is not about it in any
3 educational context. That simply is not so. He is relying
4 upon an exception for a library archive under 17 U.S.C.
5 Section 108. This exception only applies to unpublished works
6 that are properly in the possession of an archive in the first
7 place. That is in this Carey case at 873 F.Supp. at 889. It
8 says Congress did not intend Subsection 108 to apply to
9 photocopying and distribution of unpublished work by libraries
10 or archives for their patrons. Once the copyright owner has
11 made the decision not to publish, this choice must be honored.
12 It goes on, if the archive could copy and distribute this
13 material, it could also copy and distribute any author's
14 creative work though unpublished.
15 MR. KELLEY: Your Honor, this is more of a closing
16 than an opening.
17 MR. COOLEY: I am trying to set the legal context in
18 which the evidence is going to be introduced, Your Honor.
19 THE COURT: It's all right. It's to the court. Go
20 ahead.
21 MR. COOLEY: So long as the materials came into the
22 archive's possession, says the archive could copy and
23 distribute this material and could also copy and distribute
24 any author's creative material, so long as the materials came
25 into the archive's possession. Solely, if the possession was
15
1 by illegitimate means, such a result would be totally at odds
2 with the intent of Congress with enacting the Federal
3 Copyright Act.
4 That's an important concept, legitimate means,
5 because there is a red herring that has been drawn across the
6 path here and will be placed in front of the court. And that
7 is that this material, O.T. I through VII that is involved
8 here was in a court file in the United States District Court
9 for the Central District of Los Angeles for a period of time.
10 That allegation lends nothing to the defendants' position.
11 The mere existence of a file in a court file does not destroy
12 copyright, and it does not destroy trade secrets. In that
13 case, the socalled Fishman case, the material was dumped into
14 the record after the case was dismissed in ostensible support
15 of a motion for fees and costs, and the Judge said what is
16 this? This has nothing to do with it and wouldn't consider it
17 in any way. We then attempted to get it sealed. It went to
18 the Ninth Circuit, went back to Judge Hupp for findings and
19 that was completed and was awaiting an order when the only
20 person ever to go to the clerk's office and obtain it out of
21 the file was a representative of The Washington Post, which
22 then proceeded to publish material from it.
23 Parenthetically, the defendants have in the papers
24 filed with you today or last night included our position
25 our Motion for Reconsideration before Judge Bringama in the
16
1 Eastern District of Virginia on that Washington Post matter.
2 They mischaracterized our position, so we have made the full
3 submission to the court, so the court will see what our
4 position is there and what the issues are that are involved to
5 the extent that the court considers them relevant for its
6 consideration.
7 In any event, nobody ever obtained these documents
8 from the Church of Scientology or any churchrelated entity by
9 any means other than theft, and the record will show that in
10 the evidence that we introduce, extraordinary security
11 precautions were taken to protect the confidentiality of these
12 materials. The defendants will say that because they were in
13 that court file, they became fair game and could be copied,
14 distributed, and sent around the world. That simply is not
15 the law. The trade secret was not lost. We had somebody at
16 the courthouse checking that file out every single day that
17 the court was on. And that file did not get copied and that
18 file did not even get used by anyone else for all the time
19 that it was there. And as soon as Judge Hupp learned that it
20 had been copied by The Washington Post, he sealed it. The
21 Washington Post then published after it was sealed, and that
22 file is not in any way accessible. But whether it would be
23 accessible or whether it wouldn't, I emphasize, is not a
24 relevant consideration. That does not permit, for example, if
25 there had been litigation over Gone With the Wind, one would
17
1 hardly expect that one could go in and take a copy that was in
2 the court file, post it to the Internet and distribute it to
3 the eternal financial harm and ruin of the author or whoever
4 owns the copyright. That is a preposterous proposition, and
5 to suggest that a trade secret can be lost in that way when
6 you are dealing with a compilation of materials, a universe of
7 trade secrets by having it a little out here and a little out
8 there is also preposterous.
9 What it comes down to, if there is value to be
10 derived, and there is, for R.T.C. and for Scientology, if
11 there is value to be derived from the trade secret by virtue
12 of its secrecies in the universe of people who might gain from
13 it, the mere fact that a little is here and a little is there
14 or some people have it and some people don't, that universe of
15 one billion people is an irrelevant consideration. The value
16 is there. The owner has done all in its power to protect it.
17 It has taken reasonable steps which is what the Trade Secret
18 Act requires and the material has never passed into anybody's
19 hands by any legitimate means. It was stolen. There was an
20 actual theft in Denmark of these materials in 1983. One of
21 the thieves or participants in that ring was a director of
22 F.A.C.T.Net, recently resigned and replaced. One of the
23 others went to jail over there for the theft, prosecuted
24 the prosecution pressed by Scientology and so the church and
25 R.T.C. has done all in their power.
18
1 F.A.C.T.Net has no contract. There is no express
2 contractual right to do this. Express criminal act,
3 prohibition against reproduction for any purpose, Section 108
4 shall not be construed as justifying a violation of the
5 contract. F.A.C.T.Net doesn't even have a contract and did
6 not obtain these lawfully. All three F.A.C.T.Net directors
7 had confidentiality agreements when they were permitted access
8 to these documents, Mr. Penny, Mr. Wollersheim, Mr. Lerma, and
9 they have violated those contracts and the trade secret
10 statute by acquiring and disclosing them. And those
11 confidentiality agreements will go into evidence before the
12 court in this hearing. We'll show that they rely on this
13 Pentagon Papers case. They ignore the fact that the Pentagon
14 Papers case expressly stated through Justices White, Stewart
15 and Marshall, concurring but emphasizing, that that injunction
16 could not issue against The New York Times because of the
17 absence of express and appropriate limited statutory
18 authority, such as that provided by the copyright statute and
19 so to cite the Pentagon Papers case is to deal with a totally
20 inappropriate and inapplicable situation. If copyright
21 existed there, they probably covered that that, enjoined the
22 arguments made Justices White and Stewart, drew specific
23 comparisons with copyright and unfair competition. Where
24 Congress had authorized prior restraint against the private
25 parties in certain instances that's a quote Justice
19
1 White further emphasized no one denies that a newspaper can
2 properly be enjoined from publishing the copyrighted works of
3 another and that injunctions may be obtained against unfair
4 methods of compensation.
5 Now, far from standing for the proposition advanced
6 by the defendants, the Pentagon Papers case supports the
7 position advanced here. For Mr. Wollersheim to try to even
8 disguise himself as The Washington Post is ludicrous because
9 his activities don't bear any resemblance to those of a news
10 person. Even in its application to The Washington Post, the
11 Pentagon Papers case was erroneously applied and Judge
12 Bringama will be hearing that issue next Friday. There are a
13 large number of distorted references to Scientology cases that
14 the defendants are going to rely upon the Wollersheim case,
15 case against the Church of Scientology of California, and they
16 distort what the text in issue here, how they were impacted by
17 that case.
18 In fact, they say that the text in issue were ordered
19 released to the public as part of the court file on November
20 4, 1995 1985 rather. On 4 November 1985 the files have
21 been sequestered and the court vacated the sequestration and
22 were not ordered released. The only text in issue was O.T.
23 III not O.T. I, II, IV, V, VI, VII. The church had
24 approximately 1,500 Scientologists lined up at the court to
25 get the files and no others got access to them. Almost
20
1 immediately, the state stayed its order to unseal the files to
2 obtain these documents and there was they were never in an
3 unsealed court file after that. There was no evidence that
4 the Los Angeles Times actually obtained copies from the brief
5 files. It could have happened because the Scientologists had
6 custody of them and more than likely obtained them from
7 Mr. Wollersheim's attorney.
8 The Religious Technology Center v. Wollersheim case,
9 the statement in that case, but not applicable here, the use
10 was found to be fair was copying of the documents by a lawyer
11 for use by two expert witnesses. And the sole use that was
12 permitted was that use. The court says that it's
13 uncontroverted that Lawyer Schlatter earmarked the documents
14 confidential and never offered them in evidence. Discussed
15 copy issues only and not trade secret issues and dismissed
16 state claims as pendant claims because the federal claims were
17 dismissed. The R.T.C. v. Wollersheim and Scott case they
18 talk is a case on remand alleged to economic advantages for
19 the first time and no misappropriation was found they say.
20 That's not true. We didn't amend the trade secrets claim.
21 Always alleged it in the same terms. We amended to add a
22 copyright claim because the Ninth Circuit had noted that we
23 hadn't made one, and we took that as an invitation to get on
24 board with one and we did. R.T.C. v. Scott did not say there
25 was no misappropriation. It referred to the new church, that
21
1 is the competing church's misappropriation but found that we
2 had not argued economic harm, so we didn't meet the standard
3 of economic advantage. When we went back, we did argue
4 economic harm which had already been placed in the record. We
5 are in this case arguing a vigorous combination of both
6 factors economic harm, and notwithstanding the defendants'
7 characterization of what we are doing, economic harm resulting
8 from the activities of Mr. Wollersheim, Mr. Young, and his
9 colleagues and the destruction of our First Amendment rights
10 in the whole process. That the court has to engage in by
11 the by the misapplication of alleged First Amendment rights
12 of Mr. Wollersheim being attempted to be invoked in a
13 circumstance in which they have no application.
14 The continuous in the case of BPI v. Beene, that's
15 cited to the court by the defense, we won that case. The
16 court found economic advantage. And I guess whether they cite
17 it or not, we cite it, the court found economic advantage and
18 ruled as a matter of law that the very materials here in issue
19 were trade secrets. So that case stands in the U.S. District
20 Court in California as persuasive authority for what we are
21 asking the court to do here.
22 They have made the statement and one of the things
23 that we have to keep in focus here is that the defense makes
24 bald statements about copies being made. And they have no
25 evidence of that, and we have evidence of the contrary. There
22
1 were no copies made from that file except by The Washington
2 Post. To say that the motions on file with the court six
3 months with a Motion to Reconsider Change of Venue that they
4 had filed what happened was this case, the Fishman case was
5 first in Florida then came back to California. There was a
6 pending motion. These things were not exposed in files. They
7 were under protective order. After the protective order
8 expired with the dismissal of the case, then this Graham Berry
9 who is the very lawyer with whom Mr. Wollersheim is getting
10 consulting services furnishing consulting services, using
11 the F.A.C.T.Net database, dumped them into the record, so we
12 have a sort of circular motion here. Wollersheim and his
13 friend get them dumped into the record gratuitously. They
14 know that they are in a chain of theft from beginning to end
15 and then try to rely on that the material being in that
16 file as an excuse to post them to the Internet. And in fact
17 the copy that was posted to the Internet did not come from the
18 court, went from Wollersheim to Lerma, who received it knowing
19 that he was to post it to the Internet. He sent it back to
20 Wollersheim and posted it and that is a fragrant violation of
21 both copyright and trade secret misappropriation.
22 Bearing upon the issue of Mr. Wollersheim's denial in
23 this regard, we have extracted the entire Fishman affidavit
24 from Mr. Wollersheim's computer with a covering he mailed to
25 Mr. Wollersheim on the 29th of July, sending the material back
23
1 to Mr. Wollersheim, the first twofifths and the remainder the
2 next day and the posting occurred the day after that. So
3 we'll ask the court to compare that to Mr. Wollersheim's sworn
4 testimony.
5 I think that I don't want to have an opening that
6 goes so long that we lose track of the evidence, but I do want
7 to address trade secrets for a moment because I want to
8 emphasize to the court that trade secrets are as important as
9 copyright in this case. Mr. Wollersheim argues and will, I am
10 sure, advance the theory to the court that the secrets are in
11 the public domain. Once disclosed he will say a trade secret
12 loses its protection. He assumes that a mere disclosure
13 destroys protection, and this is simply not so. Absolute
14 secrecy is not required. Relative, partial, or qualified
15 secrecy is sufficient under the Restatement Third, Section 39,
16 Comment F. And that's confirmed in Jostens v. National
17 Computer Systems, 214 U.S.P.Q. 918, even distribution to
18 thousands of people does not destroy secrecy. Data General
19 Corporation v. Digial Computer Controls, Inc., 357 Atlantic
20 2d. 105, only reasonable efforts to maintain secrecies are
21 required. National Legal Research Group v. Latham, 1993 WL
22 169789 out of the Western District of Virginia. Du pont v.
23 Christopher, 431 F.2d 1012, out of the Fifth Circuit in 1970,
24 trade secret status protection is not lost because documents
25 are filed in court, and the key case on that is Gates Rubber
24
1 Company, 9 F.3rd 823 out of this circuit in 1993. The key
2 point is the mere fact that the materials may temporarily have
3 been available for copy such as in a court file or even on the
4 Internet does not mean that secrecy status is destroyed. And
5 our evidence will show that it's not critical that the secrecy
6 potentially could have been compromised. The burden is on the
7 defendant and they cannot show a compromise under any
8 circumstances that is sufficient to wipe out the trade secret.
9 The proper standard is whether there is sufficient
10 evidence to conclude that the secrecy status has in fact been
11 destroyed so as to render trade secret protection ephemeral,
12 and whether the holder of the secret took reasonable steps to
13 protect it. There is no way that the trade secret here is
14 ephemeral. It cuts across the very fundamental beliefs of the
15 Church of Scientology and has application to a universe of
16 people that in fact embraces the planet. There is no evidence
17 that secrecy has been breached and overwhelming evidence that
18 will come from Mr. McShane that the plaintiff undertook all
19 precautions. The argument against economic value Mr. McShane
20 will give the court evidence that shows that the R.T.C.
21 derived substantial economic value and that these materials
22 have been the subject of a number of attempts at piracy and
23 exploitation by others and is only because we have succeeded
24 in protecting secrets that there is presently no viable
25 competing entities using these materials. Our success cannot
25
1 be converted perversely into evidence of no economic value.
2 Again, the Vien case upholds that. There is no way that
3 Mr. Wollersheim can show that he got the materials through
4 lawful means. Mr. McShane will testify that nobody ever got
5 those materials outside of the church through anything but
6 unlawful means. Mr. Wollersheim knew of the secrecy status
7 for years, signed contracts to that effect. Calls them
8 invalid, and he won't honor them whereas his colleague
9 Mr. Penny recognizes that they are valid and that he has
10 honored them himself, and so we can compare the differing
11 views of the directors of the same corporation on that matter.
12 The concept of fair use does not apply at all to
13 trade secrets. Has no application in the trade secret area,
14 and the fair use that Mr. Wollersheim is claiming is wiped out
15 by the fact that he is really in a commercial business of
16 Scientology bashing with lawyers, as this case will show. He
17 is not in the business of educating anyone because an
18 educational exemption from the IRS requires a balance to life
19 and his approach is simply antiScientology from beginning to
20 end and only to educate people through his views of what
21 Scientology is, how it should be treated. That isn't what an
22 educational institution does, and this business of
23 archiving he is not under the statute entitled to do that
24 or claim a fair use for that or for anything else under the
25 statute. He simply has no fair use defense on copyright and
26
1 there is no fair use defense on trade secret.
2 I'm sorry I took so long, but that's the context in
3 which the evidence will go in and perhaps as
4 THE COURT: Can you tell me who you are going to call
5 as witnesses, please?
6 MR. COOLEY: Yes, Your Honor. Mr. Warren McShane,
7 the president of Religious Technology Center. He will be the
8 first witness. The second witness will be the computer
9 expert, Ron Tencati I shouldn't have trouble with an
10 Italian name then we'll be putting on deposition testimony
11 that will be furnished to the court, notebooks, exhibits, and
12 affidavits, and that will be the totality of the case.
13 THE COURT: Thank you. Mr. Kelley.
14 OPENING STATEMENT
15 MR. KELLEY: That you, Your Honor. I am going to
16 hold off having the people barge in with my exhibits now.
17 They are here. If Your Honor please, I will wait until I am
18 finished with the opening statement.
19 Your Honor, first of all, I appreciate Mr. Cooley's
20 efforts to put things in focus, and I am going to try to do
21 the same thing, and I am going to begin by telling you what we
22 are not going to prove here today.
23 Your Honor, as you know, this is an expedited
24 proceeding, and we have proceeded as quickly as we can to get
25 ready. It has been impossible to get ready on all issues, and
27
1 I want to make it clear to the court that there are some
2 issues that we simply do not intend to present evidence on
3 today and reserve for later, develop through discovery,
4 presentation at the ultimate trial of this case. I am
5 thinking if I take this position, it's going to save some time
6 today and simply get out in the open what we are not requiring
7 the plaintiff to prove today. And if Your Honor will accept
8 that, we can deem these as facts that are admitted strictly
9 for purposes of this hearing but not for purposes of the
10 ultimate determination.
11 THE COURT: All right.
12 MR. KELLEY: We are not going to contest the
13 originality of the work by Mr. Hubbard. We are not going to
14 contest the ownership of the copyright to that work, nor the
15 chain of title of the plaintiff. Nor are we going to contest
16 the registrations or validity of the registrations, although,
17 given the lack of contest to the copyright, I think that's
18 probably moot. We have a number of defenses on which we are
19 not going to present evidence, including the misuse of
20 copyright, unclean hands and other defenses, which we also
21 would like to reserve. With that, I hope I have saved a
22 couple of hours.
23 THE COURT: Thank you.
24 MR. KELLEY: Further attempting to focus this case,
25 Your Honor, what the case is about is seven copyrighted works
28
1 which the plaintiff also claims at the same time are trade
2 secrets. They are known as O.T. I through O.T. VII. These
3 are the only works as to which any intellectual property
4 rights are in issue in this case. To basically simplify what
5 this case is all about is simply this. Which of those
6 materials do the defendants, my clients, have in their
7 possession. How did they get them and what have they done
8 with them. In issue also is the status of the secrecy of
9 these materials. And when Your Honor hears all of the
10 evidence in the case, Your Honor is going to find we believe
11 that is simply contention that cannot be taken seriously.
12 F.A.C.T.Net is a library and an archive. It collects
13 and gathers information concerning dangerous cults or related
14 to be dangerous cults. Granted, the primary purpose for the
15 use of that information is the victims of what it considers to
16 be dangerous cults and certainly the religion of Scientology
17 is high on their list, and that certainly is what most of
18 their material is about. They are a 501(c)(3) corporation. A
19 fact which incidentally wasn't disclosed in the moving papers,
20 seeking the right of seizure in this case. What's more
21 important is that they are a library and archive and also are
22 in the age of electronic communications a newspaper. They
23 publish over the Internet on a regular basis. They publish a
24 quarterly newspaper. At least, they did until their printing
25 press, so to speak, was seized. The court is going to hear a
29
1 lot about the new technology in this case. The Internet is an
2 extraordinary medium of communication that permits instant
3 communication of vast amounts of information electronically.
4 Permits that to happen worldwide. No medium that I have ever
5 worked with before comes anywhere near close to what can
6 happen over this medium. Perhaps more importantly, this
7 medium comes closer than anything I have ever seen to a true
8 speaker's corner or public forum. It's a medium where
9 communication is from many to many as opposed to one to many
10 and in which concentration of ownership of newspapers and
11 broadcast media has led us to where one medium basically
12 broadcasts or distributes to the world. Here anyone can
13 communicate their message to the world instantaneously. One
14 other aspect of this medium is that these communications can
15 be made unanimously and without accountability. And that's
16 one of the problems the legal system is facing in dealing with
17 this medium, but my client is not anonymous. My client is
18 accountable. My client is here. And for that reason, we are
19 going to ask the court to treat my client the way it would
20 anybody who serves the function of a library and a newspaper
21 at the same time.
22 And counsel has suggested that this is a very biased
23 newspaper and very biased library in its orientation. Putting
24 aside 501(c)(3), which has nothing to do with this case, under
25 the First Amendment, Your Honor, I have never heard any
30
1 distinction between a biased newspaper and unbiased newspaper
2 except in the forum of public opinion.
3 Never have I suggested that a court insist and impose
4 any distinction between those two. We think that is a
5 nonissue in this case, and we want the court just to consider
6 what the court is dealing with is the impoundment of both a
7 printing press and a newspaper in one fell swoop. With this
8 new medium, the court has more power than the court had in the
9 Near v. Minnesota case in terms of what it might do in
10 silencing someone in the new world world of public forum.
11 The Church of Scientology is an organization that has
12 made a number of claims concerning the emotional and healing
13 properties of its religion. It's an organization that is
14 reaching deeper and deeper into society. And essentially it
15 has religious tenets that were the word of the founder L. Ron
16 Hubbard who claimed and in his belief he learned from research
17 and his memory how mankind came to be the way he is as a
18 result of events that occurred in intergalactical
19 confederation some 75 million years ago. What I am talking
20 about now is no secret. It has been in hundreds of newspaper
21 articles. Many of which will be offered here. The level of
22 intergalactical confederation dealing with an over population
23 problem took
24 MR. COOLEY: I object and ask this is this is a
25 direct accounting of one of the O.T. levels. To be done in
31
1 this fashion is to defeat our very effort to try to protect
2 it. I understood that we had an understanding that there
3 would be efforts to maintain confidentiality. The court can
4 certainly see what it is that that level says for the purpose
5 of comparing it with what was done, but to have counsel
6 speaking it out loud in the courtroom, I object to it. I ask
7 if counsel wants to show the court the written material, that
8 counsel do so and make whatever arguments he wishes to make
9 from that. I object with everyone else present to try to
10 violate our rights by having them destroyed in this fashion.
11 MR. KELLEY: Your Honor, I am describing something
12 that has been published all over the world, in The Washington
13 Post, Los Angeles Times, over the Internet time after time
14 after time.
15 MR. COOLEY: That's one of the very issues we are
16 here to contest.
17 THE COURT: The objection is overruled. If there is
18 anything specifically secret, that's fine, but he's free to
19 talk about what's already a matter of public knowledge.
20 MR. COOLEY: We haven't gotten to the point in the
21 hearing where the court's in a position to make a ruling as to
22 what or is not in the public domain.
23 THE COURT: I have to rely upon counsel who says it's
24 in the public domain.
25 MR. COOLEY: I say it isn't, and I object.
32
1 THE COURT: I understand. Mr. Kelley, do you have
2 something that says it's in the public domain.
3 MR. KELLEY: Yes, sir, Your Honor. I am just talking
4 about the basic story which appeared in the Washington Post
5 August 19, has appeared in the Los Angeles Times in 1986 and
6 that series of stories has appeared in countless stories that
7 will be offered into evidence and has appeared time after time
8 in the last year over the Internet.
9 THE COURT: The objection is overruled. Go ahead.
10 MR. KELLEY: The current state of mankind occurred as
11 a result of the leader of the galactic confederation, someone
12 by the name of Xemu, chaining a number of or somehow
13 binding a number of persons from that galactic confederation
14 to volcanoes on the planet earth, bombs those volcanoes with
15 Hbombs and the souls of those persons', those souls known as
16 Thetans which inhabit human beings now and account for all of
17 their psychological and some physical ills, and the religion
18 is the process of expurgating those things. The plaintiff
19 attempts to keep this secret because they say that it's
20 inappropriate to expose people to this until they have had
21 adequate spiritual conditioning to receive it and to accept it
22 and to practice it. My clients and a number of other people
23 out there, a number of credible people and a number of people
24 that Your Honor is going to read about take the position that
25 this is a system of psychological coercion, i.e.,
33
1 brainwashing.
2 We are not here to ask this court to decide who is
3 right in the course of this, but we are going to show the
4 court that this is a matter of intense public debate right
5 now, and I think given what adherents to this religion are
6 asked to believe, the argument that there is some brainwashing
7 going on is not implausible. Given that situation and the
8 fact that my client is aware and has documented hundreds of
9 cases of casualties from this brainwashing process, emotional
10 injuries, suicides, what have you. It has set up an
11 information system for the aid of victims, victims' families
12 and for which it has a public archive and library and private
13 archive and library. And Mr. Wollersheim will testify to how
14 this is set up and the efforts that are made to maintain that
15 distinction.
16 The evidence is going to be that materials such as
17 the ones here where they feel they can anticipate a claim of
18 copyright are kept in the private section of the library which
19 means they are not accessible by people that have electronic
20 access to the library. They are not downloadable. And since
21 Mr. Wollersheim came into possession of what's known as the
22 O.T. materials, they have been kept in the private portion of
23 the library, and Mr. Wollersheim has had those materials since
24 the mid 1980s.
25 Now, a little bit needs to be said about how
34
1 Mr. Wollersheim got those materials. What we are talking
2 about here primarily is the affidavit of Stephen Fishman,
3 filed in the spinoff suit, which the Church of Scientology
4 filed against him for being a source in a 1981 article
5 concerning Scientology in Time magazine. In that affidavit he
6 asked the court for certain relief and took the position that
7 he had been brainwashed and in support of that attached as
8 exhibits portions of the O.T. documents we are talking about
9 here. My client, since that time, has had a copy of that
10 document. He has a copy of it with a court filing stamp on
11 it. In addition, my client had his own case against the
12 Church of Scientology in which he recovered millions of
13 dollars for intentional infliction of emotional distress.
14 That judgment is final. Appeals have been exhausted. The
15 judgment is unpaid.
16 In the course of that litigation, he obtained copies
17 of some of the same materials and some additional ones. And
18 that case was tried in 1986. The evidence is going to be that
19 over this tenyear period he has had those materials and has
20 not disseminated them in any public way.
21 One other thing the court needs to know is that these
22 materials, the attachments to the Fishman affidavit and the
23 other materials I am talking about are a very small portion of
24 the entire O.T. works. Mr. McShane has testified that the
25 entire O.T. I through VII works in issue in this case amount
35
1 to something in the neighborhood of I believe it's 800 to
2 1,000 pages. I don't have the exact number here. They will
3 be in evidence. Nonetheless, the only thing that is claimed
4 in our possession that's infringing of the O.T. I through VII
5 is somewhere between 60 and 70 pages. And that's going to be
6 something very important in this case, and I want to be on the
7 record right now that we have asked for production of the
8 entire works, so that we might submit to the court the entire
9 works and the court might see what kind of use has been made
10 of those works. They have not been provided to us. And from
11 my cursory look at the exhibit book this morning, it doesn't
12 look like they are being offered to the court. I want to
13 object to that very strenuously if I am right about that. The
14 evidence is going to be that from the beginning there were
15 security problems with these materials. They were outside the
16 church system through many sources long before the theft in
17 Copenhagen in 1983. They were the subject of newspaper
18 articles, they were in the possession of newspaper
19 organizations. After the theft of 1983, documents were filed
20 in court proceedings. It's through that process that my
21 client obtained copies of those documents and obtained copies
22 of them lawfully.
23 After that time, these documents have been not only
24 the continuing subject of newspaper publicity. We now know
25 that The Washington Post has them and has published articles
36
1 concerning them. We also know that they have been posted on a
2 regular basis on the Internet throughout 1995, and we will
3 have evidence of that. Significantly, Your Honor, the
4 document was on file in the Central District of California for
5 nearly two years. It was not sealed. It was there to be
6 copied, and The Washington Post did copy it.
7 Our position on the matter of trade secrets is that
8 this is not in any sense a secret and given the importance of
9 this information and in the course of the public debate in
10 which the Church of Scientology declares that all of their
11 teachings are taken out of context, it's not something that's
12 appropriate for injunction, as a matter of trade secrets. As
13 a matter of copyright, Your Honor, our position is very simply
14 that what document is on file in a Federal Court and not under
15 seal, a media organization of any kind under the First
16 Amendment and under the common law right of access to the
17 judicial branch of government which is recognized throughout
18 the country, a media organization has the right under the
19 doctrine of fair use to make a copy of that document for
20 whatever use it might want to make and in reporting or storing
21 information. I would say that's particularly so under the
22 doctrine of fair use when there is no other available source
23 for the copy. You can't go out and buy it at a bookstore.
24 When a media organization takes that copy, it has the right to
25 make the same use of it under the doctrine of fair use that
37
1 one might make with a book bought at a bookstore.
2 It's our contention that the use made of these
3 materials by my client as a library and archive copying it
4 within the organization is fair use.
5 The evidence is going to be that the only public
6 posting of the Fishman document was the one by Mr. Lerma that
7 occurred August 1 or 2 1995. Our evidence is going to be
8 that it was contrary to Mr. Wollersheim's policies. It
9 happened as a miscommunication. But in any event, our
10 position will be that it was fair use.
11 It's going to be difficult for the court to analyze
12 the issue of fair use as to whether the few pages copied and
13 transmitted on August 1 or 2, without having the entire works
14 in front of the court, and we are going to object unless that
15 happens, or if my understanding of the state of the record is
16 incorrect, it's straightened out. But in any event, we
17 contend it's fair use. If the court should disagree with
18 that, my clients are prepared to abide by whatever decree the
19 court enters, defining what fair use means with respect to a
20 document such as that. Surely, my clients no less than the
21 Washington Post are permitted to comment concerning what's in
22 that document and make fair use of copying it with
23 appropriately limited excerpts, and that's the relief we'll be
24 asking for Your Honor, that Your Honor discharge the writ,
25 order my clients' printing press and library returned to them,
38
1 and at the very least permit them to make whatever Your Honor
2 feels fair use permits of the materials in their possession.
3 Thank you.
4 THE COURT: Who are you going to call as witnesses,
5 please?
6 MR. KELLEY: We are calling Professor Richard Cleek,
7 Professor of Geography and Computer Science at the University
8 of Wisconsin in Westbend. He will be called to discuss the
9 nature of the Internet and postings of O.T. materials he has
10 seen on the Internet.
11 We'll be calling Mr. Robert Vaughn Young to testify
12 simply concerning some of the past media publicity concerning
13 disclosure of the O.T. materials.
14 And we'll be calling Mr. Wollersheim to testify to
15 essentially what I have what I have outlined in this
16 opening statement. Mr. Penny is also here. Mr. Penny is in
17 ill health, suffering from multiple sclerosis. I am going to
18 try to avoid calling him as a witness, but it's possible he
19 may have to be called as well.
20 THE COURT: Thank you very much. Call your first
21 witness, please.