REPORTER'S TRANSCRIPT OF PROCEEDINGS APPEARANCES For the Plaintiffs SMALL, LARKIN & KIDDE Religious Technology Thomas M. Small, Attorney at Law Center and Bridge Janet A. Kobrin, Attorney at Law Publications, Inc. 10940 Wilshire Boulevard Eighteenth Floor Los Angeles, California 90024 Reported By Lee-Anne Shortridge Certified Shorthand Reporter #9595 Appearances Continued on Next Page For the Plaintiffs Wilson, Ryan & Campilongo Religious Technology Andrew H. Wilson, Attorney at Law Center and Bridge 115 Sansom Street, Fourth Floor Publications, Inc. San Francisco, California 94104 Cooley, Manion, Moore & Jones Earle C. Cooley, Attorney at Law 21 Custom House Street Boston, Massachusetts 02110 Law Offices of Elliot J. Abelson Elliot J. Abelson, Attorney at Law 2121 Avenue of the Stars Twenty-Second Floor Los Angeles, California 90067 Law Offices of Helena K. Kobrin Helena K. Kobrin, Attorney at Law 7629 Fulton Avenue North Hollywood, California 91605 For the Defendant Pillsbury, Madison & Sutro Netcom On-Line Randolf J. Rice, Attorney at Law Communication Services Melissa A. Burke, Attorney at Law Ten Almaden Boulevard San Jose, California 95113 For the Defendant Hagenbaugh & Murphy Tom Klemesrud Daniel A. Leipold, Attorney at Law Paul G. Szumiak, Attorney at Law 101 North Brand Boulevard Sixth Floor Glendale, California 91203 For the Defendant Morrison & Foerster Dennis Erlich Harold J. McElhinny Attorney at Law Carla B. Oakley, Attorney at Law 345 California Street San Francisco, California 94104 Friday, June 23, 1995 THE CLERK: Calling case C-95-20091, Religious Technology versus Netcom On-Line Communications, on for Plaintiff's Motion Re: Contempt of Defendant Erlich; Defendant's Motion to Dismiss; Defendant Erlich's Motion to Dissolve or Amend T.R.O., Motion to Vacate, Writ of Seizure, Return Seized Articles, and Increase Amount of Bond; and Defendant Klemesrud's Motion for Summary Judgment. Counsel, please make your appearances. MR. RICE: Good afternoon, Your Honor. Randy Rice and Melissa Burke for the Defendant Netcom On-Line Communications. MR. WILSON: Good afternoon, Your Honor. Andrew Wilson on behalf of Plaintiff, and here with me today is Earle Cooley, whose pro hoc vitae application you've approved. MR. COOLEY: Good afternoon, Your Honor. Thank you for the privilege of appearing here. MS. KOBRIN: Helena Kobrin for Plaintiff. MR. SMALL: Thomas Small for Plaintiff R.T.C. MS. KOBRIN: Janet Kobrin for Plaintiff. MR. LEIPOLD: Good afternoon, Your Honor. Daniel Leipold and Paul Szumiak for Defendant Klemesrud. MR. McELHINNY: Harold McElhinny, Your Honor, for the Defendant Dennis Erlich. With me is Carla Oakley. With the Court's permission, there are insufficient chairs. Can we use the last three in the jury box? THE COURT: You mean for Counsel? MR. McELHINNY: Yes, sir. THE COURT: Oh, sure. All right. Before we start, I posted outside, and I hope everyone's seen it, time allocations and also the order of argument. What I'm going to do is have one of my externs who's sitting in today to keep track of time because, given the number of motions and the limited time we have, I want to make sure that everyone fairly gets to use their time. So what I'm going to do is each time one of the parties completes their argument on a particular motion, I'm going to have the extern tell you how much time you have left. And sometimes, you know, there is some flexibility on time, but there really isn't today because using the schedule we take the full afternoon. So we're just going to have to stick with it. I'll try not to interfere with your presentations very much. So with that, let's start with Netcom's argument in support of their motion, or its motion, to dismiss or for summary judgment. MR. RICE: Randy Rice for Defendant Netcom On-Line communications. THE COURT: Each time you come up if you would reannounce your appearance it would be helpful. Thank you. MR. RICE: Netcom did have the benefit of committing a reply brief, and I don't want to re-argue points that are in the papers, so I'm happy to address any points that the Court wants to address. I'd rather reserve my time to respond to any points that the Plaintiffs want to raise after reading our reply brief, if that's acceptable to the Court. THE COURT: Sure. You can use your time any way you want. With that, Plaintiffs? MR. COOLEY: Yes, Your Honor. Addressing -- Earle Cooley for Plaintiffs, Your Honor. Addressing here the question of the motion to dismiss or for summary judgment of Netcom, I think the thread that runs through the entire case which is of relevance, high relevance here as well as in the preliminary injunction motions, is that the loading of copyrighted material into a computer memory is, by case law, both in the Ninth Circuit and elsewhere around the country, a direct, not a contributory, but a direct infringement of the copyright. At that point, Netcom had it in its hardware and software for, my recollection is, 11 days. Mr. Klemesrud maintains it was for 3. And it is therefore distribution to all comers who care to pick it up during that time period and to redistribute it. Now, the discovery in this case since February has revealed the rules that Netcom operates its own shop by, and these rules apply in its relationship with the people that subscribe to its service. And as you can see, Rule 2.2, or a term or term and condition of 2.2, says that "It's provided by United States federal law and by international treaties, copyrighted materials, for example, images, text and programs, may not be uploaded using Netcom services without the permission of the copyright holder." This manifests quite a sensitivity, it seems to me, on the part of Netcom to the status of legal rights associated with copyright in this company. otherwise materials may be downloaded for personal use. I respectfully submit that that's an inaccurate statement of law, and that materials downloaded for the purposes that they are downloaded in this case by Mr. Erlich and stored in his computer for posting and reposting through the gateways of Netcom and of Klemesrud and Netcom is, under any interpretation of the law that I've ever seen, in violation of copyright. Then it is says, "Except as expressly permitted, materials under copyright may not be distributed to others." That's done here. "Copyrighted material may not be changed nor can the author attribution notices nor the copyright notices be modified." Sometimes he left the copyrighted notice on and times he didn't. So there's a fluctuating situation there. Paragraph 7.3 says that "Violations of any of the NETCOM conditions of use," of which the one we've just been talking about, "are unethical and may be criminal offenses. You are expected to report to NETCOM any information you may have concerning instances in which the conditions of use have been or are being Violated. When NETCOM becomes aware of possible violations, we will initiate an investigation. At the same time, in order to prevent further possible unauthorized activity, NETCOM may suspend access to services to the individual account in question." And so what they're saying, under their own rules, that they will do is really what we're saying in this case they should do, because the restrains that we're looking for here an the course of action that we're looking for here contemplates notice to Netcom of an infringement pursuant to which notice they have to act, and unless and until they get such notice, they don't. In any event, in this case -- THE COURT: Sir, let me just stop you. MR. COOLEY: Yes, Your Honor. THE COURT: You're not complaining that Netcom's got any obligation to do anything until and unless they're notified? MR. COOLEY: Exactly. We're not in any way trying to impose a prescreening obligation on Netcom. We will take unto ourselves the burden of screening if that means we have to have somebody on this system 24 hours a day. So it's a burden that a copyright holder has not previously had to sustain, but changing times call for changing measures. When we say there's a copyright infringement, we'll tell Netcom about it in writing, send it to them either on their own system or by fax or some electronic means to get it to them right away. We are not asking for prescreening. Now, in fact, in this case while it's true that Netcom didn't get, didn't know or have a knowledge of the postings unless they were prescreening until the 29th of December, it's pretty clear that on that date, we gave both Klemesrud and Netcom notice of an infringing posting of Copyright Class A material, and they absolutely refused to act upon it, notwithstanding their own rules. The last time we were in here, they were arguing that they couldn't do this and they couldn't do that, it was too much and too great a burden. The notice eliminates that and the discovery reveals they've done it 1180 times on their own in matters pertaining to others than the Scientology materials. They simply don't want to do it for us. But they have, without any inquiry whatsoever, knocked off software that infringed in the like. Here's some of the testimony I've talked about just now. A question, "You said... you have deleted postings from newsgroups of NETCOM moderates or controls. "I said that posts have been deleted that I'm aware of, yes." "Posts," meaning postings. So they've taken the position they couldn't do it on an individual basis, and this testimony establishes quite the contrary. "Could the same procedure be used for a newsgroup that NETCOM didn't moderate? "Yes. NETCOM could delete a post, if that is the question." Well, that was the question, and yes was the answer. So the parade of imaginary horribles that has been summoned up here with respect to what Netcom can or cannot do, this all goes to the question of whether there are genuine issues of material fact so that this motion has to be denied. And we get right on to the next, one is also seen in this deposition. This was a fellow that was writing software and complains. He just gave an oral complaint. He said that his copyright was being violated. "How did you know that that was copyrighted in order to suspend the person? "I didn't. "But you said the person was possibly violating that provision of the terms and conditions that deals with copyrights; is that right? "Correct. "So you didn't have to have an absolute certainty that it was copyrighted in order to take some action? "That is correct. "You didn't require that he produce any copyright registration? "No. "And you didn't request an opinion from a lawyer to make sure it was registered, is that right or isn't that right, or that it was copyrighted?,, Let me read it again. "And you didn't request an opinion from a lawyer to make sure it was registered, is that right, or that it was copyrighted?" Answer, "No." Question, "Now, did you know that it possibly was copyrighted?" Answer, "I didn't. All I had was a complaint, and all I wanted to do was discuss it with the customer." So he acted first, provided the remedy that maintained the status quo, and then looked into it. And under the same circumstances we should have that protection, particularly I think if Your Honor has been reading about the problems of pseudonymity and anonymity that prevail on the Internet. It may very well be that one's only remedy, if that is not ameliorated in some way, is to deal directly with the access procedure. That is what we're seeking here. There's been sufficient disclosure in the discovery and in the affidavits to amply provide a factual basis for a conclusion that summary judgment is wholly inappropriate. These are not passive infringers. This is not the telephone company. These are people that copy it, store it, and thereby immediately infringe. The more technical aspects of copyright infringement will be addressed by my colleague, Janet Kobrin. MS. KOBRIN: Afternoon, Your Honor. It's, I guess, going to be my job to put what Mr. Cooley has described to you in a legal framework under the Copyright Act and the applicable case law that establishes the fact that both Netcom and Klemesrud are more than just passive providers, but in fact what they do constitutes direct infringement, as well as contributory infringement, and perhaps even vicarious infringement. THE COURT: Do you see any distinction between the two other than one's got a summary judgment motion here today, and the other one doesn't? MS. KOBRIN: In terms of their act? THE COURT: Right. MS. KOBRIN: No, sir. I believe I can address both of the issues as to both Defendants. However, before I begin, there were some questions raised, some technical issues raised, with respect to both the validity of the Plaintiffs, copyrights and as to their standing. They were raised mainly by Defendant Erlich, and some were adopted by reference by the other Defendants' papers. I'm not going to address the specifics of those objections here. However, there are a couple of things which I think bear repeating before I go on. one is that many of the works here that were infringed were individual works that were collected and were registered as a compilation. Now, the Copyright Act defines compilation as "A work or a collection and assembling of preexisting materials of or data that are collected, coordinated or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. the term 'compilation' includes collective works." These works that are referred to sometimes as "books" by the Defendants were collective works. The registrations in those collective works apply to and protect the underlying works as individual works. Now, there's a great deal of case law which supports this position, and we've cited the cases including the Ninth Circuit Abend case and the Second Circuit's Computer Association versus Altai. There was a recently published decision that came out of the District Court in Atlanta called Foxworthy versus Custom Ease in which the Northern District of Georgia has a fairly extensive opinion that provides support for this as well. That was in context of the preliminary injunction motion. The second issue has to do with the general presumption of validity of copyrights that's accorded on the basis of a registration certificate where the registration of a published work occurs within five years of publication, the registration certificate provides prima facie evidence of validity. Where the registration occurs after more than five years, the weight of the presumption is not lost. It's simply within the discretion of the Court. As we've stated in the our papers, compensators appear to believe that because the burden placed on a copyright holder to prove facts establishing validity, for example, the originality of a work, can be such a burden that the Court should accord evidentiary weight, significant weight, to the registration certificate, thereby shifting the burden back to the Defendant to prove that the copyright claimant in fact does not hold a valid copyright. With respect to the challenge to the assignment documents, first of all, it should be noted that these documents are the ones that were before the District Court in the Vien case and establish the right of the Plaintiffs in that case to bring suit. Secondly, you know, even assuming that there may be defects, for the sake of argument, on the face of these documents, there's nothing that would in fact invalidate the contracts that are embodied in the documents. In short, Your Honor, Plaintiffs have demonstrated a valid protectable interest in the works at issue and standing to bring the claims in this litigation. Having said all that, and having established the first of the two elements required for a claim for direct infringement, and that was the valid copyright, under the Copyright Act and under the case law in this circuit, both Klemesrud and Netcom have engaged in acts which constitute direct infringement. They are not, as they would like the Court to believe, simply passive conduits for the messages. Mr. Cooley has described, as have our ]papers, the process by which Erlich's postings move up through Mr. Klemesrud's bulletin board service and gain access up to Netcom and through Netcom to the Internet. When Erlich's messages arrive on Mr. Klemesrud's computer, they're there for a period until they are sent on to Netcom. Now, under the Ninth Circuit's ruling in the M.A.I. case, the fact that the message resides on a hard drive constitutes a copy under the Copyright Act because as if exists in the computer, it is sufficiently permanent or stable to permit it to be perceived, reproduced, or copied, the definition under the Copyright Act. In Sega, which is the other case that is controlling under these circumstances, .-- THE COURT: I'm curious. When do I, when I'm browsing the Internet, become an infringer, a direct infringer? MS. KOBRIN: When do you become a direct infringer? You become a direct infringer when you have downloaded and copied something into your own computer, assuming that what you are downloading and copying is an infringing copy to begin with, an unauthorized copy to begin with. You become a direct infringer when you have downloaded it and have fixed it in your own hard drive or on a disk,, THE COURT: So if I'm browsing through and I come to whatever Mr. Erlich has posted, I'm okay at that point, or am I? MS. KOBRIN: If you've not fixed it in your own computer, you're okay at that point. If you have not made your own copy but are simply accessing it on the net -- THE COURT: But if I print it out? MS. KOBRIN: Now, Your Honor, what needs to be kept in mind here is we're talking about a technical infringement under a strict liability statute. That of course is divorced from what remedies there are, what damages there are, and so on and so forth. We're really talking about a technical infringement. THE COURT: Okay, Go ahead. MS. KOBRIN: Anyway, returning to Sega, the unknown users, as the Court described them, were uploading video games to B.B.S., and the games we-.re subsequently downloaded by other users off of the B.B.S. to make copies. And in Sega the Court found that the uploading constituted direct infringement. That's the uploading that Mr. Erlich is doing in this case. Now, unlike Sega, what is happening here is that Mr. Klemesrud, these infringing copies don't stop on Mr. Klemesrud's bulletin board. They are uploaded once again onto Netcom's computers where Netcom makees a copy. It's the copying that Klemesrud does uploading to Netcom which constitutes the direct infringement by Klemesrud under the Copyright Act. Netcom, after receiving the message from Klemesrud, it doesn't stop there. It affirmatively copies that message onto a portion of its hard drive which contains messages for the news group, the alt.religion.scientology, and again under M.A.I. is asking you "Say, is that sufficient to infer direct infringement?" Netcom also makes a copy, copies of the message, and sends it to the Internet. And you know, again, since according to M.A.I., even a copy which remains in a random access memory for a few moments is fixed. In other words, there's no time frame. There's no major time frame required for fixing a copy. If it's there for a few minutes, according to M.A.I., it's fixed. Then this copy also confers liability for direct infringement. THE COURT: How about fair use? MS. KOBRIN: Well, Your Honor, my colleague, Mr. Small, is going to be addressing fair use as a separate issue, so can we defer that? THE COURT: Sure. I should warn you though that our time frames are -- MS. KOBRIN: I understand that. Let me say, Your Honor, if it appears as though I'm using an inordinate amount of time at this point, it's because much of what I have to say applies to all of these motions. THE COURT: As long as you're aware of it. MS. KOBRIN: With respect to secondary liability or contributory infringement, two elements are required, knowledge and a substantial or material contribution to the infringement, and I will not repeat what Mr. Cooley said with respect do knowledge. There is no question that both Defendants Klemesrud and Netcom were notified on December 29th. There was -- there were additional -- there was a posting on December 30th which remained on Netcom's computers for an additional 10 or 11 days. In addition, there was a January 6th posting of un-, of unpublished confidential materials. And finally there was a posting on February, I believe it was 24th, or 26th I'm sorry, which was a posting that occurred after the T.R.O. issued, as Mr. Cooley stated, despite 'the information and despite the knowledge, neither Netcom nor Klemesrud was willing to do anything to remedy the situation. With respect to the substantial contribution prong, Mr. Rick Francis, testifyin on behalf of Netcom, admitted that but for Mr. Erlich, but for their software, Mr. Erlich would not be able to post his messages on the net. In addition, both Netcom and Klemesrud make available to their own subscribers all posted messages for periods of 11 and 3 days respectively. In fact, Netcom holds itself out to the public as providing this very service as something that distinguishes; them from other access providers. They're not just a gateway. They are making these messages available on their own computers to their own subscribers. While we've not been able to take discovery from Klemesrud at this point, it's obvious Mr. Erlich would not be able to post without Mr. Klemesrud's B.B.S. Going back to Seqa, the Court found solicitations of unauthorized copying, or downloading and copying, in Segals case it was the unauthorized video games, met the contribution prong for the contributory infringement. Now, Defendants have tried to distinguish Sega on grounds that there the B.B.S. operator was, quote, "encouraging" the downloading by publicizing the fact that these games were available. However, there is nothing in case law which states that the act of encouragement is something that is required for a finding of facilitation. THE COURT: Certainly the conduct there was more egregious than what we have here. MS. KOBRIN: Well, I'm not sure I would even concede that. It was more content-based perhaps, but content is not a requirement either. And here it's got to be remembered that Netcom holds itself out as providing this particular service. It is encouraging the downloading by its subscribers from its computers. I would,, before we leave the subject of contributory infringement, I would like to comment on the Fonovisa case which came out of the Eastern District which I believe both Defendants have tried to rely on. First of all, Fonovisa is on appeal at this point. It has been briefed. I'm not sure it's set for oral argument yet, but it should be fairly shortly. So how long anybody will be able to rely on Fonovisa is a matter of speculation. Secondly, neither Netcom nor Klemesrud is running a swap meet booth. Their acts do not fall within the landlord cases which are the basis for the Fonovisa decision. They are facilitating, like in Sega, they're facilitating the transmission of Erlich's unauthorized copy of Plaintiff's published and unpublished materials, and they have done so with knowledge. They are making copies of the materials themselves and they're providing these materials for a price to their subscriber. THE COURT: Your Co-Counsel suggested that you weren't seeking to establish liability on the Defendant's part prior to knowledge. What I hear your argument saying though, at least with respect to direct infringement, is that there is an infringement before there's any knowledge. MS. KOBRIN: That's correct, Your Honor. Again, the Copyright Act is a strict liability statute, and knowledge is not a requirement. It's not an element. THE COURT: As a practical matter though, such a rule wouldn't be real given the whole Internet set up, would it? How would somebody possibly operate? What would Internet do to try and protect itself? I mean not Internet, but what would Netcom do to try and protect itself from infringement if it could be held liable for direct infringement without any knowledge that it was publishing something that was copyright? MS. KOBRIN: Well, Your Honor, I think if I knew that, I'd probably be testifying in front of Congress. I don't -- I honestly don't know the answer to this question, Your Honor. We are simply trying to fashion a realistic remedy for ourselves here. THE COURT: Okay. MS. KOBRIN: And I think, you know, that the injunctive relief that we have asked for, and the relief that we have asked for, reflects the fact that we are trying to arrive at some kind of a reasonable remedy, what we perceive as really realistic remedy being available to us. Lastly Your Honor, I'm going to very quickly deal with the issue of vicarious infringement which requires the ability to supervise in direct financial interest, and I would say very simply that both Klemesrud and Netcom have demonstrated that they have rules to supervise conduct. And Netcom, through discovery, has revealed that: they, in fact, do supervise and that by virtue of the fact that Netcom is in the business of providing information, there is a direct financial benefit. THE COURT: Okay,. MS. KOBRIN: I'm now going to turn this over to my colleague, Tom Small, who's going to discuss fair use. MS. GORMAN: There's 33 and a half minutes left. MR. SMALL: Thank you. That's remaining? MS. GORMAN: Yes. MR. SMALL: Tom Small, Your Honor, on the subject of fair use. Both parties have claimed in their papers that they are entitled to a fair use defense partly based on the fair use defense asserted by Defendant Erlich, and partly on their own bases saying that in their position that they should be entitled to a fair use defense, even though the provisions of fair use section of the statute, Section 107, really don't contemplate the kind of activity that Defendants Netcom and Klemesrud are engaging in. THE COURT: Yeah. Maybe you're going to do this, but I'm much more interested in hearing from you as to fair use as Klemesrud and Netcom as opposed to Erlich, unless you want to address it. MR. SMALL: But it does intertwine, because they are posting materials that they claim in their materials they're entitled to Mr. Erlich's fair use defense. But yes, addressing what they're doing, probably the best way to start is to address the section itself, Section 107, which says that despite actions in violation of Section 106, the exclusive rights of the copyright holder, the fair use of a copyrighted work will not be infringement of the copyright. It's as simple as that. The fair use of the copyrighted work will not be infringement. Then it states that the Court, in considering fair use, must address at least the four factors that are listed in Section 107 to be considered with respect to fair use. But it should be kept in mind at the outset that the whole idea is to determine what's fair and what's not. And in that respect, I think that the Defendants here, and I'm focussing on Netcom and Mr. Klemesrud, would have us ignore the fact that the materials, a major portion of the materials that are passing through their computers and being stored in their computers and being made available through their computers for downloading by their subscribers, they are unpublished works containing trade secrets. There has never been a case to my knowledge, and I believe I have checked this thoroughly, in which the use of an unpublished work was found to be fair. It's true that Section 107 was amended after one of the cases cited in the papers to include a statement that the fact that a work is unpublished shall not make fair use impossible. The wording is "The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all of the above factors." Despite that, no court has, as yet, found fair use with respect to the use of unpublished materials. So I think that's a very, very key point here that everyone would have us ignore from the Defendants' standpoint. And another thing that they have attempted to pass over is they say the fact that the copies that they are transmitting, storing and contributing to the downloading of are bootlegged copies. They say this has no impact and they can't be held in any way responsible for that, despite the law that says fair use must be of an authorized copy. There is no fair use of an unauthorized copy, and the authorities are in our papers on that. I won't belabor that point orally. The next main point in this respect is that wholesale copying of copyrighted materials by a defendant has never been found to be fair use. Here we have wholesale copying in the nature of 200 works or so being transmitted by Mr. Erlich into Mr. Klemesrud's bulletin board service and then into Netcom's computer for storage and ultimate downloading. No denial that there's wholesale copying, only an assertion that perhaps Mr. Hubbard's works are just one work and therefore it's only copying of minor parts of one work, which is in itself a ridiculous assertion. The allegation that Mr. Hubbard's works constitute one work is totally without foundation, even as to those works which Mrs. Kobrin has mentioned as collective works where fairly large numbers of individual issues as works are collected into one work for registration purposes or for publication purposes. The definition of collective work in Section 101 of the Act makes it quite clear that these still are separate and independent works protectable as such for copyright purposes. These factors all then must be considered when it is considered that these two Defendants, the Internet Defendants, Klemesrud and Netcom, are maintaining data bases into which people like Mr. Erlich input copyrighted materials and other materials, and from which other people can download those copyrighted materials. This is precisely the kind of activity, perhaps without the same egregious circumstances as in the Sega case, but certainly the same technical violation. The Court questioned, I think, the moment of infringement by an individual who's examining something in one of these data bases and downloading it. I agree with Ms. Kobrin that the loading by the individual of the digital copyright, the copyrighted copy, into the individual's computer probably is a technical copyright infringement, yet we haven't sued an individual here and we don't plan to sue individuals for doing that. As a practical matter it would be impossible. I might note, however, in the Sony case relied on by the Defendants, the taped television show where the Plaintiffs sued Sony, the manufacturer of the Betamax machine. Sony also sued an individual user of -that machine and asserted that that user was violating the copyrights of the copyright holder. The Court, I think perhaps based on that more than anything else, found a fair use privilege for that individual for downloading, I'm sorry, for recording off television that material which the copyright holder had broadcast on the basis that it was merely for time shifting, that is, for the consumer's convenience, and therefore had a sound basis for fair use. Nothing like that exists here, although if an individual should be sued for that, that individual would certainly be entitled to fair use. Now, also the damages provisions of the Copyright Act, as the Court knows, provide that the copyright holder can recover actual damages if provable, or if the profit of the infringer is provable. Failing that, they can go to the statutory damages of the Copyright Act which range from zero in the case of innocent infringement without knowledge or intent, to I think it's $100,000 at the upper end for willful infringement. So the damages provision provides for innocent infringement by providing the Court with the ability to award no damages. That all is something that's not before us at the moment, but obviously it is a matter for the Court's concern in the overall picture. THE COURT: Okay. MR. SMALL: Does that answer the question about fair use? THE COURT: Yeah. MR. SMALL: I would close then by saying that in these two motions, the burden of proof is on the moving parties, namely Klemesrud and Netcom, and they have provided no evidence, only argument, in support of their positions, and their positions with respect to fair use are meager at best. There are genuine issues of material fact as to Netcom. The complaint states a clear cause of action as to Mr. Klemesrud, and actually the papers, I believe, show that the Plaintiff is entitled, ultimately, for a judgment on the merits, which is what we believe should prevail. The motion, we think, should be denied. THE COURT: Oka, MS. GORMAN: 24 minutes. THE COURT: Okay. Mr. Rice? MR. RICE: Randy Rice for Netcom. Your Honor, I noticed that at the very end of his remarks, Mr. Small said that there are material issues of fact as to Netcom, and yet in over 45 minutes of argument, the Plaintiffs never stood up in front of you and pointed to specific issues of fact that we included in our statement of undisputed facts that they take issue with. The reason they don't do that is that there aren't disputed issues of fact. This is a matter that can be decided today by the Court as a question of law. The real issue before the Court, or the real issues before the Court, are how the Court is going to apply a statute that was written without thought of the existence of the Internet and without thought of the information superhighway to the present facts and circumstances that now exist. Your Honor posed a very pointed question, and that was whether, when you were looking at something on your computer, that constitutes a violation of the copyright law, to which Ms. Kobrin responded that she thought maybe this was a technical infringement under a strict liability statute, but then began to back peddle away from enforcing that standard. I'd like to go through the standard and show Your Honor what the consequences are of ruling in the manner that the Plaintiffs want this Court to rule. THE COURT: I think I understand the consequences of that, but how do you interpret the statute not to apply to a situation where the material remains on your computer for 11 days and Klemesrud's for 3, whatever, in a form where somebody can take it off? MR. RICE: It is very interesting if you look at the position that the Plaintiffs took before this case was filed, the position they took when this case was filed, and the position they take today concerning how that question should be answered. Before this case was filed, the Plaintiffs wrote to Netcom and asked Netcom to suspend the rights immediately of some 500 subscribers of Mr. Klemesrud, that is, to yank these people from the system, merely because of their bald assertion that their copyrights were violated. Today the Plaintiffs stand here and say that they don't want that, that they only claim that there's a copyright violation in light of these new developments when Netcom had been put on knowledge. THE COURT: They're not saying there's only a copyright violation in that situation. They're saying only do something about it in that situation. MR. RICE: That's true, Your Honor. I think it's a tough question to ask whether there is a technical violation of the copyright immediately when the posting occurs. The answer to that question is, if the answer is yes, then not only is Netcom liable, not only has Netcom completed a copyright violation, but so has every other usenet site because a copy exists in other usenet sites, and so has every user who has loaded the material into the random access memory of their computer to browse it. That's really what the M.A.I. case stands for. If you look at the M.A.I. case, it doesn't have to do with, as Ms. Kobrin characterized, loading it onto a hard disk. The issue was whether, by loading the software into a RAM, into a random access memory, the copy became fixed. In M.A.I., they held that the copy had become fixed. So if that's what the law means, and we don't think it does, but if that's what the law means, not only is there a copy on the Netcom site, but there's a copy on every single site in the usenet and on every single browser who has looked at that piece of data. I'd like to go on to the knowledge point, because to me the knowledge point is critical. The Plaintiffs now say that a more rational interpretation of the law, rather than this strict liabilities interpretation, is to say that Netcom only has a duty to do something when it has been informed and knows that there has been a violation of Scientology's copyright. Your Honor, we do not, to this day, know that there has been a violation of Scientology's copyright. After four months of pleading, after nine volume of briefings, after several hearings before Your Honor, it is still not clear to us that Scientology's copyright has been violated. You may already have decided that issue. It's not an easy issue for us to decide. When Scientology first put us on notice that there were alleged violations of their copyright on Netcom's network, we looked at that material. We also looked at some correspondence that went back and forth between Ms. Kobrin and Mr. Klemesrud. Mr. Klemesrud made the request to look at the material that Ms. Kobrin was claiming was being violated, that is, to look at the original works. Scientology declined to release the original works stating that it wasn't necessary for Mr. Klemesrud to compare the original works with the alleged violations, and also stating that by the time this process had taken place, the copies already would have vanished from the computer. Think about the factual situation that Netcom faces here. By the time it receives notice that an alleged violation of the Copyright Act has occurred, some period of time has already passed. That message is only going to stay on the computer for a certain period of time, 11 days, and then it's going to, because of it's transient nature, simply going to drop off. It's going to disappear anyway. What Scientology wants is a rule that requires us immediately to cancel that posting without allowing us time to make a determination, or without addressing the issue of what is involved in making the determination as to whether or not a copyright has been violated. THE COURT: If you clearly know that a copyright has been violated, do you agree you have some obligation? MR. RICE: I'll tell that you Netcom's practice has been, in cases where it has clearly known that a copyright has been violated, to enforce its terms and conditions. THE COURT: Okay. But do you have a legal obligation to do that? MR. RICE: I don't know the answer to that Your Honor. I'll retreat into the position that Ms. Kobrin retreated to, that I'm not sure whether Netcom is liable simply because the matter has appeared in copied form on its system. But I would like to address what we've done. This is not a contract case. It's not -- they can't claim that they're a third-party beneficiary of our terms and conditions. What they claim is that it's a copyright violation. our terms and conditions cannot create copyright liability for Netcom. THE COURT: I understood their argument not to be that it created liabilities, it was merely illustration of what you could do. That's how I heard their argument. MR. RICE: We don't deny that we can do that and have done that. In cases where, as the testimony shows, there is commercially recognizable software that has appeared on Netcom's system, it's very easy to make the determination. You can download it and see if it runs in the computer, try to execute it and make it work. If it works, Netcom has said "We recognize this. This is software. It's copyrighted and it shouldn't be on our system." And then we've deleted the material. It's a much different circumstance to make the factual determination in the textual material that Scientology now raises, and it's for that reason that we have raised the issue of the First Amendment and of the Fair Use Doctrine. We address, in Footnote 16 of our brief in opposition to the motion for preliminary injunction, the issue that the Fair Use Doctrine arose out of the concern of trying to balance First Amendment issues with copyright issues, and the point that we make on fair use is not the point that Mr. Small suggests, and that is that somehow we're trying to apply it to ourselves. But rather it's that when you look at what knowledge Netcom has after it's been informed of the alleged violation by the Plaintiff, there are all sorts of impediments to Netcom deciding on the spot that a copyright violation has occurred. First, I covered the issue about we haven't seen the whole work. It's difficult to determine, in looking at the material, whether or not an actual copyright violation has occurred. Second, in looking at the exchange of data that goes back and forth between Mr. Erlich and Mr. Klemesrud and Scientology, it's very clear, as Scientology says in their papers, that Mr. Erlich is a, quote, "renegade," that he's someone who they have a dispute with and that there is a controversy going back and forth between the two. Thus it doesn't take a genius to realize that in California, there are free speech issues that apply here. It i in none of their arguments in their papers, nor do they address the Pruneyard case where we state very clearly that if they act to deny people legitimate free speech rights, they could have a direct cross-action against Netcom. So we're caught in a situation where we're attempting to balance the First Amendment rights of the speaker with the copyright rights that are being asserted by the copyright holder. THE COURT: Do you feel you'd face the same sort of dilemma if we were dealing with allegedly pornographic material? MR. RICE: I think you'd face the same sort of dilemma, yes. I think in pornographic material it's easier to determine. It's the Palter security test, and it's more readily recognizable as a violation than it is in a copyright claim where it's not clear that there isn't a legitimate commentary going on. Here that's the problem that we had. It's not clear that there are not fair use claims that apply to Mr. Klemesrud's activities. THE COURT: How about if you got a letter from a Silicon Valley firm saying, "They're disclosing some of our trade secrets that are worth gobs of money." What would be your obligation then, if any? MR. RICE: Well, that's an interesting question, because we're not sued here for trade secret violation. We're sued here for a copyright violation, and I think I'd take the position, Your Honor, that 'we have no duty to act until we received instructions from the Court to act. I mean, Your Honor well knows that the claims of alleged trade secret violation are frequently used as a sword to injure a competitor as often as they're used as a shield. If every time we were told that we were to yank somebody from the air simply because it served the whim of somebody who was making an allegation that their trade secrets were being stolen, we could very much be the unwitting dupe of someone who was attempting to injure competition just as easily we can become the servant of somebody what was trying to protect legitimate -- THE COURT: But isn't the bottom line, "Certainly we don't have an obligation to do anything until we have been provided with materials that show reasonable certainty that there is something illegal to what the person is doing. Either they're publishing pornographic material, they're publishing copyrighted material, or they're disclosing a trade secrets," until you have something that firmly shows that you clearly don't have a legal obligation. Is that your argument? MR. RICE: That is my argument. My argument is that if you look at the cases that have discussed contributory infringement, I could separate contributory from vicarious, but the most recent Supreme Court case, the Stone case, merges the two and says that what you need is you need knowledge, substantial participation and ability to control, and I think you have to look at the nature of the facts in each element and decide what that was. In terms of the knowledge element, I've attempted to show Your Honor, and I don't think there's any issue of fact that Netcom had no advanced knowledge, that it did not know until after the alleged copyright violation had occurred that there was a copyright violation. In terms of ability to control, again, our ability to control is limited until after the copyright violation has occurred, if it's occurred. That is, we don't know about it until it's brought to our attention. We don't prescreen. Even in all of the instances that the Plaintiffs cite, all of those are instances where we acted after the alleged violation had already occurred. In terms of substantial participation, that's an issue that I think the Court can decide based upon the facts. And we, unlike the Plaintiffs, rely heavily on Fonovisa where we think the factual circumstances are very analogous to the factual circumstances now before the Court. THE COURT: But when something is held for downloading by a customer, 'why doesn't that constitute a direct infringement, other than it just seems like maybe it can't to make common sense. MR. RICE: You mean the fact that it exists on the computer for 11 days? THE COURT: Right. MR. RICE: If that is a copy, then Netcom's factual circumstance is no different than other usenet sites -- THE COURT: Right. MR. RICE: -- where the messages are held and the factual circumstance is the individuals who read that. So the issue is, does the mere existence, in electronic form, of that copy constitute a copyright violation? My response to Your Honor would be that they have focussed on the uploading of that, that is, the act of making the copy on the machine. Their own declarations, Mr. Casselman in paragraphs 23 and 24, lay out quite clearly that all of this happens automatically, that the person who uploads it, the person who starts the sequence of events that ends up with the electronic form message ending being on Netcom's service is Mr. Erlich, and there is no human interaction or active participation by Netcom in the making of that copy. So to me it's a substantial participation issue. The Plaintiff has alleged that we are -- the argument was made by Ms. Kobrin that we are providing these materials for a price to our subscribers. That simply isn't true, and there's no evidence of that before the Court. There is no evidence that we get any particularized gain from the subscribers' use of the system or from the existence of Mr. Erlich's messages on the system. I'd like to talk a little bit about Fonovisa for a second, because I think that the facts there are quite like our facts. In Fonovisa, there's no doubt that the people who ran the cherry auction knew of the existence of the copyright violations. They had reason to believe that a copyright violation was occurring. They had been talked to by the police beforehand. The flea market had been raided a couple of times. The claim was made in the Fonovisa case that that knowledge was sufficient enough to put them on notice so that they needed to act, and that their failure to act was then substantial participation in the copyright violation. If you look at the reasoning of Fonovisa, the Court holds no, that the necessary knowledge, the necessary knowledge for contributory infringement liability, is knowledge before the copyright violation occurs. There simply is no dispute in the present case that there is no knowledge on the part of Netcom before the alleged copyright violation occurred, and the fact that Plaintiff calls us and tells us that they have a dispute with someone and that they claim that there's an alleged violation occurring is not, A) nearly the degree of knowledge that's present in Fonovisa; and B) not sufficient to raise a claim of contributory liability. Now, I fear that the Plaintiffs may speak again, so I want to save a little bit of time to respond to that, so I'm going to stop unless the Court has specific questions to address. MS. GORMAN: You have seven minutes remaining. MR. RICE: I'll save them, because I also have another motion. THE COURT: All right. Well, we're at Klemesrud's argument to add what he wants to add. MR. LEIPOLD: Good afternoon, Your Honor. Daniel Leipold for Mr. Klemesrud. our motion is for judgment on the pleadings, and the pleadings accuse my client of copyright violation. What they base that copyright violation on is the accusation that my client does nothing more than run a computer bulletin board system that is identical in nature to 70,000 other computer bulletin board systems that exist on the Internet. My client is not accused of any volitional acts in the complaint. The charging allegations in the complaint are that Defendant Erlich addressed each of the copies of the works he copied to Klemesrud's B.B.S. computer; that Mr. Klemesrud's computer, not Mr. Klemesrud, Mr. Klemesrud has no knowledge according to the complaint, Mr. Klemesrud's computer, after receiving and storing for some period of time the copies of the work, then passed it on to Netcom's computer. What we have here is a computer system that is maintained by Mr. Klemesrud. Mr. Erlich can sit down at his keyboard at his home, he leases space in this computer system that Mr. Klemesrud maintains, and he opens up to Mr. Klemesrud's computer and, without any knowledge or any potential for knowledge on the part of Mr. Klemesrud, he places things within Mr. Klemesrud's computer which are automatically then opened up to Netcom and hence to the Internet. There is no act on the part of my client that is alleged in the complaint of any participation in the copying other than making the facility available, that is the transmitter, to the Internet. The fact that there is storage capability within my client's computer is a red herring because my client does no act, other than make the computer available to access by Mr. Erlich, to do any copying. He has not done anything volitional. If one looks at the Sony case and at the Fonovisa case, one sees that those elements of volitionality have some significance in this matter. We did no more than what the swap meet operator did in Fonovisa. We have done nothing more than lease space, lease access, and that is it. We have had no participation whatsoever in any act for which we can be held liable. In this particular case, we've got my client accused of copyright violations only in the first and second causes of action of the complaint, not trade secret violations, and yet it has been pointed out, even to this day, these gentlemen are claiming that all of these works, or part of these works, are both trade secret and copyright violation. Now, these works are purportedly the secret scripture of Scientology and are trade secrets and copyrighted. I frankly have a serious question, under the established clause of the U.S. Constitution and under the California Constitution, as to whether the secret scriptures of any church can be trade secrets, not copyrighted, but trade secrets. So with the claim of trade secrets -- THE COURT: The Ninth Circuit has left that open. MR. LEIPOLD: Yes, they have, and it may be decided here. I would point specifically to the preference clause. This is the California Constitution, and I would point specifically for the preference clause of the California Constitution. Give some thought to that, because this would clearly seem to create a preference to the Scientologists as opposed to anyone else. But regardless of that, going on from that, they have, by making this trade secret and copyright claim, deprived us of any reasonable tools by which my client could make any rational determination as to whether there has been a copyright violation. On the one hand, they say, "You can't see these materials. These are trusted trade secrets that we have gone to unbelievable means to keep out of the public eye. And they're copyrighted at the same time, so we're suing you for copyright violation, but we're not going to show you these materials so you can make a determination as to whether Mr. Erlich has the right to use these materials. We're not going to allow you to make a determination as to whether there is any fair use possible of these materials." THE COURT: If you were handed a Court order that said "In Case A versus Case B, A versus B, it is hereby held that publication of these documents constitutes a copyright infringement," you're handed that, don't you have an obligation to do something? MR. LEIPOLD: If at that point we're handed that and we are shown that these are the specific materials in question, yes, I think we would have an obligation. However, that's not the situation here. What they are saying to this Court today is, "Well, we're going to give notice. We're going to monitor these systems, and after we monitor the system, we're going to give Netcom and Klemesrud notice when a violation appears on that system." Now they're being judge and jury and they're eliminating any possibility at that point that there is any fair use of these materials. They're saying simply on the notice that they gave that, "Accept there is no Fair Use Doctrine with reference to these materials" and we are in violation at that instant. That, to me, means we're acting as an executioner and we're acting without prior restraints. THE COURT: My question to you though, and what I'm getting at, is if there is information that you're provided that clearly shows that something constitutes copyright infringement, at that point do you have an obligation, under to law, to do something? MR. LEIPOLD: I'm not sure, because we have done no specific act. I think that we would fall into the same place as the, what is it, the Cherry Hill swap meet in the Fonovisa case. THE COURT: How about after it's apparently on your system for 3 days? Is that right? MR. LEIPOLD: It is on the system for 3 days, but I would state that we don't place it on the system for 3 days. We have not done anything to place it on the system. THE COURT: Right. But on Day 1 you get a notice that "What's just been put on your system is a copyright violation" and you're absolutely certain that that notice is correct, do you have an obligation to do something? MR. LEIPOLD: At that point if we are absolutely certain, I'm not sure that we have an obligation, but I'm sure that we would do something. That's not the situation that's facing us here. We are in a situation of intrinsic uncertainty. THE COURT: I'm not suggesting that you are in that situation. I'll just trying to find out where, if ever, you acknowledge you have a legal obligation. MR. LEIPOLD: I would suggest at the point we do any act with reference of the copying of this. In other words, if Mr. Klemesrud gets on his computer and downloads it for his own purpose, which has not been alleged here, I think at that point we have a copyright violation and we have to do something about it. I think even without notice we might have a copyright violation, but I'm not sure of that. At that point he has done nothing but act as a conduit, and the storage capacity is a red herring in that matter. The storage capacity is intrinsic to these systems. That is what they are. These people, the subscribers, are using the system for its memory and storage capacity. And it is -- THE COURT: Does that mean that once you learn that something that you've set up, a system that allows the storage, is in violation of copyright laws that you can just let it continue to sit there where you have the power to take it off and it's your system? MR. LEIPOLD: Your Honor, I would question that there's any difference between that and the Sony case or the manufacturer of a tape. The manufacturer of a videotape manufactures the videotape, and if that manufacturer is given notice that his videotape that he sold to the public, that can be used both legally or illegally, is being used illegally, clearly does he have an obligation to stop the illegal use? My answer to that is no, because there is no volitional act on the part of this person to participate in the act of copyright violation. That's what we're missing here. We are missing any act on the part of the Internet Defendants to do anything with reference to these copyrights. We have not copied anything. We have not infringed on anybody's copyright here. We have merely acted as a conduit and a storage system. THE COURT: But given my hypothetical, and I want to divorce from the facts here, but once you're on notice that for sure what is on your system is in violation of the copyright law, you certainly have the power to do something. You can take it off, right? MR. LEIPOLD: Yes, we could. THE COURT: Why shouldn't you? Don't you have a legal obligation to do that if the limits I'm giving you, which I acknowledged are -- MR. LEIPOLD: In that hypothetical situation I would think we do. THE COURT: Okay. MR. LEIPOLD: But again, that is not the facts that have been complained of in this complaint. What has been complained of in this complaint is Mr. Erlich did certain acts using equipment that was leased to him. He could sit at his keyboard and he could access computers that would, by their connections, like a telephone connects at various places, could connect and put that information all over the world. There is nothing else alleged other than this twist that this particular system, unlike a telephone, has a storage capacity. But again, we didn't trigger that storage capacity. The Internet Defendants did nothing to store information. If any copies were made on Mr. Klemesrud's computer, they were made by Mr. Erlich. These are purely functions that are automatic and are available both for appropriate purposes, which is the huge majority of purposes that they're used for, and for inappropriate purposes. The fact that he may, and this is an allegation on the part of these gentlemen which they have not proved to us, the fact that Mr. Erlich may have inappropriately used their copyrights or trade secrets is something that unless there is this hypothetical situation that you have given us where we have clear evidence, such as was argued by Netcom, where there is software placed on there where you can look at that software and you can say, "Yes, this is a copyrighted copy of Windows," that's something that's identifiable. But in this particular place we have literature that is, by its very nature, highly controversial that is being commented on on a bulletin board about Religious Scientology, which just doesn't run on my client's bulletin board service, but runs all over the country in which there is constant controversy between pro and con people regarding scientology. A person who they have described as being hostile to Scientology gets on there, he puts what appears to be part of the works on there with some commentary, and on the mere allegation that this is their trade secret, and they won't show it to us because it's also copyrighted, they want to obligate us to take it off. Those are the facts that are alleged in this complaint, and under those facts, there is simply nothing by which my client can be held responsible in this matter. THE COURT: Okay. MR. LEIPOLD: Under the facts that they have alleged in their complaint, and I would specifically ask the Court to read paragraph 34 of their complaint, under the facts alleged, there is nothing that my client did to breach their copyright. Under those facts this claim should be dismissed as a matter of law. My client has not breached the copyright of these people. THE COURT: Thank you. MS. GORMAN: You have six and a half minutes left. MR. LEIPOLD: Thank you. MR. RICE: Your Honor, I'd like to take one more minute of my time to answer your hypothetical and explain why I agree with Mr. Leipold. You asked, "If you were given an order by the Court that determined exact textual material to be a copyright violation, would you then have a duty to take it off?" The answer to that is yes. I think if you went through the SonY analysis, it's easy to see why, because Sony talks about knowledge, participation and control. If the message is still on the system and we have the ability to take it off, we can stop the further violation. once we've received your Court order, the knowledge level is very high. THE COURT: It's not my order, but -- MR. RICE: One order, right. The knowledge level is very high, and if they do nothing, they're participating in it going on. So there the three elements of the test would be met. But for exactly Mr. Leipold's reasons, those are not the facts in this case, and that's why there is no violation in this case. THE COURT: Plaintiffs? MR. COOLEY: Yes, Your Honor. Could I have an indication of how much time I have for everything? MS. GORMAN: You have 24 minutes left. MR. COOLEY: All told for the rest of the day? THE COURT: You can't use it all. Mr. Erlich has got to be heard. MR. COOLEY: Yeah, I know we have to deal with that, but I've got to also deal with this fantasy reconstruction that's going on here. There's a lot of talk. I hear a lot of talk about vicarious infringement and contributory infringement, but when Your Honor comes right down to it, where do you say you're going to be guilty of infringement and where is the direct infringement? What do you say about that? Well, "I don't know" is the answer. The case law is clear. It doesn't leave room for "I don't know." And in addition to the cases that were in the Ninth Circuit that were cited by Ms. Kobrin, we have cases from around the country that have been picked up. I wanted to bring to the Court's attention this I.S.C. Bunderemo versus Altech case at 765 Fed Supplement 1310. That's out of the Northern District of Illinois in 1990. it clearly states that the loading of copyrighted material into a computer memory is a direct infringement of copyright. This is what has been done here by both Mr. Klemesrud and by Netcom. I don't know how it gets said that Mr. Klemesrud doesn't do this. He not only passes on what Erlich has done, he stores it in his own computer on his own bulletin board, and there it stays for 3 days. We're confronted with a sort of devil-made-me-do-it concept where the-computer-made-me-do-it. There's no human agency involved here? I don't understand any argument that permits the owner of hardware and software to store, in equipment that he owns, a bootleg copy, an infringing copy, of a copyrighted work. That would be, I suppose, like if I ran over to your house and said "Look, I've got a book here. It's copyrighted, but I want you to take this copy, make another 8 copies of it, and I'll have some friends by to pick it up within the next hour, or within the next 3 days, or, for that matter, in the next 11 days." And then you do it, you make the copies. Your machine makes the copies, you store them in your drawer or you store them in your memory and, sure enough, the friends come by as promised and they pick it up, and then they disseminate it. What is being done here is an effort on the part of the access providers to the Internet to say, "We are entitled to wash our hands of the fact that our machinery and our memories, in property owned by us, as used and as instrumentality of storing on our premises your copyrighted material for pick up by somebody else at a later date." I respectfully submit that's no different than being a fence for stolen goods. The same principal is there involved. To be able to wash your hands of that is really to capitalize on the deficiencies that are in the Internet; namely, the ability and the communications out there with people. You'll recall that a Grady Ward is referred to in our pleadings, a communicant with Mr. Erlich, where the game plan is articulated. "They can sue one of us, they can sue 10 of us, but they can't sue 10,000 of us, so copy, copy, copy, copy, copy-11 Now the access providers are going to be able to assume an ostrich-like posture with respect to this matter, and we may be confronted with a situation in which rights created by statute by the Congress of the United States and protected lo these many years are wiped out by the very impossibility that the access provider is trying to create. We are trying to accommodate competing interests. There is no question that the Internet has the potential to be one of the greatest benefits for mankind ever. But it has also has the potential, in abusive hands that are permitted to evade responsibility indefinitely, and through this system of anonymity and pseudonymity and then accompanied by a handwashing on the part of access provider, to be a great threat to not only property rights, intellectual property rights, but on many other fronts because of evasion of responsibility created by the overwhelming numbers and the ducking of the responsibility by the access provider creates an anarchy that the people who foster it are hoping the courts are unable to cope with or handle. But the Courts have, many, many times and in many, many circumstances, accommodated competing interests doing the best they can to protect each interest. And here what is being advocated is a wipe out of one set of interests in the furtherance of protecting another. This argument that is made on behalf of Mr. Klemesrud that it's on there for 3 days, I was interested to hear, he said, "Gee, let me see the stuff so I can make a decision." What he didn't tell you is he insisted that it only be sent to him by United States mail which, of course, takes three days, and then that'll be the wipe out time on his bulletin board. "Don't communicate with me by fax. Don't send me E-mail. Make sure you use the regular mail." I question the sincerity of a man that takes that approach. The thing that's been loosely overlooked here is the fact that both Klemesrud and Netcom continued to post an infringing document after notice that the document, the Class A material, infringed a copyright of the Plaintiffs that the Plaintiffs have rights under. They said, "No, we're not going to do anything about it." They firmly refused. Klemesrud refused, they reused. THE COURT: Are they supposed to accept your word for it? MR. COOLEY: Your Honor, I think that in balancing the equities in a situation like this where the ultimate result where there is a registered copyright pointed to by the Plaintiffs say "This is covered by this copyright," at that point, at least the law ought to make it come down and make us be wrong or right at our peril, and I think the law does that. Because if we're -- if we are right, and we most assuredly won't give the notice unless we're convinced that we are, the copyright applies to that material, and if the material is being reposted, then it's a small problem, and they've done it 1,100 times, so take it down. They say in their rules they can't take it down while they investigate. Well, if they want to take it down while they investigate, or if they want to take it down while we have an opportunity to take it to a Court and let the Court decide, at least status quo will be maintained until the Court get an opportunity to pass on the competing legal interests that are so important to both parties, both sides in this, in a matter such as this. A faxing system of notice that permits the maintenance of the status quo upon which what would really be a prima facie showing since a certificate of registration is a prima facie showing of a valid copyright, it seems to me that we have, in those circumstances, done all that we can to protect our important rights while, at the same time, accommodating the interests of the access providers on the Internet, as well as the people who use it. This is not a one-way street where traffic only flows in one direction. There are important interests for everybody. Klemesrud, he decides how long he's going to, how long he's going to keep it on there. He makes that judgment. That's an affirmative decision. He's not some vegetable somewhere that's being victimized by his own computer. He decides how long it's going to stay in there and what news groups he's going to store in there. He controls all of these matters. It hasn't really been said in plain English that we are not seeking damages on the basis of the mere technical violations, but it is true that I am pointing out that there are direct infringements. Whether they would support, in the handling of a non-knowledgeable party, a cause for damages is a completely different matter. But they most certainly serve as the background for injunctive relief when particularly the infringements were continued in circumstances after notice was given on a specific item, and even after this Court entered its temporary restraining order. It's going beyond the technical violation, as they have done, that brings us here seeking the kind of relief against them, not against Erlich. Erlich is a different matter. We got a different scope against him because he does kick it off. They run with it down the side line. They ought to, at least, be required to answer for it to the extent that they get notice. To suggest that we have to give the kind of notice that would be the equivalent of an adjudication is to suggest that the rights can be wiped out, because by the time that that occurs in the system in which we are all laboring, there wouldn't be anybody's rights left except those to have done on a calculated basis, a massive basis of intellectual property rights. THE COURT: All right. I suspect you're going to want to save a little time. MR. COOLEY: I do. I am a little puzzled by a double rebuttal, but I guess they want to have some more time or else I would launch into the preliminary injunction aspects. THE COURT: Let's see if Mr. Klemesrud has anything else he wants to say. MS. GORMAN: You have 12 and a half minutes left. MR. LEIPOLD: Just one minute, Your Honor. THE COURT: Okay. MR. LEIPOLD: All I would have to say is the example that he gave was an example where there were volitional acts. When you have a fence, the fence knows what he's doing. They have a computer system that can be used and is constantly used for purposes that are not copyright violations. Their interpretation of this notice would require my client to be both judge and jury as to the content, as to whether it is a copyright violation or it isn't. This has nothing to do with maintaining the status quo because, Your Honor, the status quo can be maintained if in fact this Court chooses to issue an injunction against Mr. Erlich. That has nothing to do with us. This would be like enjoining Mr. Erlich from making obscene telephone calls and then enjoining the telephone company from connecting a telephone for him and allowing him access, because he can always have access to another. There are over 70,000 bulletin boards out there. Your Honor, my client has done nothing other than act as a conduit, and nothing that he has said has refuted that. Thank you. THE COURT: Okay. Next matter is the Plaintiff's Motion for a Preliminary Injunction against Netcom and Klemesrud, and the only comment I make is I think I understand your argument as to that, and maybe you want to save most of your time for addressing Mr. Erlich. MR. COOLEY: Well, I had planned to lump the whole thing, because you can't track the one without tracking Erlich, and when I'm through I would have handled both of them if that's all right. THE COURT: That's all right with me, just as long as you know that you have your time limits. MR. COOLEY: I only have 12 minutes for the whole package as I understand it. THE COURT: Go for it. MR. COOLEY: Thank you, Your Honor. I have two more at the end, but we'll have to deal with the most important. This Court has applied the standard on the hardship end of the continuing aspect to the February 23rd temporary restraining order against Erlich and found that the Plaintiffs have raised serious legal questions in the balance of hardships sharply in the Plaintiff's favor. Now, the Court, because of the injunction against Erlich, apparently felt that that took care of the continuing aspect against Netcom and Klemesrud. I respectfully submit that it really doesn't, because you've got no assurance that Mr. Erlich will obey the injunction. In fact, we've got a contempt finding. He has violated it at least once on which we complained of for contempt, and twice again outside of the context on which we didn't file a application. He's violated it three times. In addition, with respect to the pervasive anonymity that is so easy to obtain on the Internet, it's very difficult to monitor with assurance, without going through Netcom and Klemesrud, whether Mr. Erlich is complying or whether he isn't, the most being afterward. And now there's the request for a relief that only goes so far with respect to the access providers of requiring notice in advance before it triggers an obligation on their part to take it down. It seems to me that sharply tips things in Plaintiff's favor. There's nothing, no factual situation, that has diminished the sharp tipping with respect to Erlich that the Court found on February 27th, and if anything, it has become stronger. The declaration of Warren McShane filed on February 27th, a report that the Court requested at the February 21st hearing, revealed 20 confidential unpublished works of Advanced Scientology Technology which are also trade secrets, an issue which incidentally I am addressing. We don't believe that the copyright issues require further addressing because they've been amply covered. Mr. Erlich has copied every single one of these 20 confidential unpublished works. 19 of them were posted or re-posted by Mr. Erlich on a public bulletin board, and all 20 of them were downloaded on Mr. Erlich's hard drive and kept there until he was ready to use them again. This was all done on the face of a nondisclosure bond that Mr. Erlich signed back in the days when he was allowed to have access to Advanced Technology as a member of Scientology Religion. He flatly, you may recall, denied that. Let me see the testimony. There's the question Your Honor put to him on February 21st. "The Court: When you got these materials, did you make any agreement with respect to what you would do? "Mr. Erlich: None whatsoever, Your Honor. none whatsoever, and I wouldn't." Well, there is what he signed. He maybe thought we couldn't find it, and we had to go back pretty far to get it, but he says now "Therefore the above written obligation is conditioned to be void in case the Obligor shall hereafter well and truly agree that he will never disclose the NED for OTs materials or communicate these materials to any unauthorized person, nor use them without being properly trained by checksheet and qualified by the Church of Scientology." That put him in this confidential relationship and that very agreement, with respect to NED or OTs he violated by the publication of six issues from NOTS on the Internet in this case. Fair use, of course, is the doctrine indigenous only to copyright, and that's been talked about, but it'd be interesting from the point of view of the magnitude of the trade secret misappropriation to note that 14 of the contended unpublished works were copied 100 percent by Mr. Erlich, and at least 2 were copied 99 percent, 1 was 94 percent, 1 was 93 percent, 1 was 68 percent, and 1 was 60 percent. THE COURT: Where's the economic value? MR. COOLEY: These have been clearly established, by the declaration of Mr. McShane, that they are confidential material delivered under licenses to people who also agree to maintain them confidentially, and to deliver them in a confidential setting to persons who pay a fixed donation for their use and for their application. Mr. McShane has testified that R.T.C. derived six percent, derived a substantial portion of its income from six percent of the licenses fees that are paid by the licensees for this project, for this service. Now, they've complained that because they wouldn't agree to a protective order, we didn't give them the weekly income, and I expect they may complain about that again here. It is substantial. Mr. McShane has sworn it is substantial, and if Your Honor wants to know it, Mr. McShane is here and I'll have him give it to you under oath. I would then request the in-camera protective kind of agreement that we tried to get and were refused by the Counsel for the Defendants. In any event, then all 20, as you've noticed, were downloaded into Mr. Erlich's hard drive. Such pervasive and wholesale use would never be considered fair, and certainly establishes trade secret misappropriations for which any invasion will suffice. Now, all this lawlessness has been engaged in pursuant to this plan I talked about, "Copy, copy, copy, because they can't sue 10,000 of us" and the attorneys are here now attempting to get Erlich off the hook while no responsibility is assumed or ever taken by the access provider, and we are left at the mercy of new technology that is, that has, in its capacity, the ability to wipe out intellectual property interests. Some of the statements made in the briefs of the other side are quite striking. There's nothing in the February 10th temporary restraining order, as they say, which prohibited Mr. Erlich, or Mr. Erlich's criticism and commentary, on Scientology and the exercise of his personnel ministry. This Court did no such thing. Back here we have 900 communications that Mr. Erlich has placed on the Internet since the temporary restraining order. In all of those, or most of those, he has been extremely critical of Scientology, sometimes in the most suralis, scatological and vituperative manner, but that goes with the territory with someone that's prepared to do that. We don't complain, didn't complain. If that's the way he wants to conduct himself, that is his right. We only challenge one of those communications because it was a trade secret and a copyrighted, unpublished work of Advanced Technology in violation of the temporary restraining order. Erlich's complaint can't possibly be that he has been prospectively prohibited from speaking out against Scientology, even in the most intemperate manner, because he hasn't. He's done so on the Internet and elsewhere for more than ten years, and contrary to his assertion that we're trying to silence a critic, Erlich has never been sued until he violated trade secrets and copyright. His only complaint is that he's not allowed to carry on his criticism in the context of his misappropriation of trade secrets and infringement of copyrights, which he has vowed to do on the Internet whether legally allowed to or not. Almost an incomprehensible statement appears in the Erlich memorandum in support of this solution where it said that "There's something wrong here because most of these items have been found by the Ninth Circuit to have been widely publicized or were publicly deposited in the United States Copyright Office." I'll deal with that second one first because it's so mind boggling. As to the filing in the copyright office, Counsel knew before she wrote that, before he or she wrote it, that the copyright filing of the Advanced Technology did not compromise the trade secrets in any way because they have been masked. I have here, we have, we attached one as Exhibit A to McShane's declaration in opposition, but here I have all of the masked copies that were filed with the copyright office. I don't know if you can see it from there, but if I can hand one up to the Court you'd get an idea. But there you see how it is. It's masked over. You can read a word here and a word there, but you cannot read the substantial portion of expression or verbatim what's in there, and you can't make out heads or tails of what the ideas are that are expressed. They knew that, so I don't know why they would raise the question about the filing in the copyright office. As a matter of fact, there's case law that holds that the mere filing in the copyright office is one of the precautions and security measures that one can take to protect a trade secret. I've only got two minutes, so I'm going to try to race through here, Judge. THE COURT: Do you want to wait until you hear something from Mr. Erlich? MR. COOLEY: I think I better save my two minutes and see if Mr. Erlich has anything to say beyond what I've read in his papers. THE COURT: All right. Anything further from Klemesrud or Netcom? MR. RICE: If we're now at the point of talking about the preliminary injunction, the renewed motion for preliminary injunction against Netcom, I would like to talk very briefly. THE COURT: All right. How much time does he have left? MR. RICE: I think I have six minutes. MS. GORMAN: Yes, you do. MR. RICE: That's what I thought, and I'm only going to use four. Your Honor, the obvious test is the probability of success on the merits and the scale tipping overwhelmingly so that the balance of hardships favors the Plaintiffs over the Defendants. Take a look at the order. I notice that the foot and a half of violations have been removed from here, but what the order asked us to do is to remove Mr. Erlich's access to the Internet. THE COURT: They didn't say it was a foot and a half violation. They were pointing out how many things were filed. MR. RICE: Excuse me, but that's my point. If you were to grant the order that they were requesting, that foot and a half of free speech would be enjoined, because that would deny him his access to the Internet. The only way that we can do that is to deny access not only to Mr. Erlich, but to the 500 customers of the Klemesrud B.B.S. That would deny free speech not only to Mr. Erlich, but to those 500 individuals. We think it's very clear that the balance of hardship does not tip clearly in favor of the Plaintiffs, but that when you balance the issue of the free speech of the side subscribers, the balance of hardship clearly is in favor of Netcom. Now, the Plaintiffs may respond that their experts or consultants, I'm not sure what they are, but these people who they've retained to testify in their behalf, have said that there may be technological fixes that can be put in which will allow us only to screen out Mr. Erlich. We don't know that that will work. We don't currently have the ability to do that. We would simply have to deny access to the B.B.S. through which he gained access to the Net. And finally, as I go back, all of the free speech that occurred would also be enjoined by their injunction. In terms of probability of success on the merits, none of the cases that the Plaintiffs have cited, not M.A.I., not the Vien case, not the Sega case, none of those cases holds that someone who has intentionally caused something to be copied onto their computer can be held liable for a computer, for a copyright violation. There has been no volitional act by Netcom, and Netcom is one step removed in this factual circumstance from any other case that any Court has ever decided. Mr. Erlich is not our subscriber. He is a customer of one of our subscribers, and clearly the likelihood of success has not been sustained by the Plaintiffs and the balance of hardship is clearly on the Netcom side and not on the Plaintiff's side. THE COURT: Let's hear if Mr. Klemesrud has anything further. MR. SZUMIAK: Just very briefly Your Honor. THE COURT: They have how much time? MS. GORMAN: You have five minutes. MR. SZUMIAK: Okay. I just want to make a few comments, Your Honor, about the manageability, or immanageability I should say, of the proposed order the Plaintiffs are requesting for their injunctive relief. They want this Court to enjoin Mr. Klemesrud, and of course Netcom, from permitting copying once we've received notification. The problem with that, Your Honor, is that by the Plaintiff's definition of "copying," which is the storing of the information in the computer base, the copying will already have occurred. How can we take manageable stand with respect to how we're going to prevent this from occurring? We can't. Secondly, the scope of the order is so broad it's breathtaking. They want the Court to enjoin Klemesrud from copying not only by Erlich, but by any other subscriber, individual or business. These people aren't before the Court. We have no way of finding out if they have an authorized copy or if they're making fair use of it. The scope of this order applies to the whole world. They want the Court to enjoin Klemesrud from copying, whatever that "copying" means again, upon receiving notice not from the Plaintiffs, but in any of their papers. This is not a manageable order for injunctive relief. The Plaintiffs, in their revised request for injunctive relief, not the original but the revised, seem to carve out an exception for fair use defense, and then go again to describe the fair use defense which is meaningless in the context of the case law and the statute. But given the situation and the entity between the -- THE COURT: What do you mean by that comment that the definition is useless? MR. SZUMIAK: Well, the definition that they include of the fair use in their order takes the heart out of what's fair use. That's the point I'm making. If the Court will read the proposed order, it'll see it's not allowing for fair use at all. And even if it does allow for fair use, given the apparent personal empathy between Mr. Erlich and the Church of Scientology, are they ever going to agree whether something is fair use or not? We will be back here every day debating on whether a particular use is fair use, and they can't get around that because the Court can enjoin a legal use of a copyrighted material or a fair use of that material. The injunctive relief that the Plaintiffs are requesting as to Mr. Klemesrud and from Netcom is not befashioned in a way which, number one, provides relief to the Plaintiff without overwhelming hardship and burden to the Defendants, Your Honor. THE COURT: Okay. Mr. Cooley, you really want to take your time now? MR. COOLEY: I just want to take 30 seconds, because I can't let some of these comments, particularly of Mr. Rice, go unchallenged. We're not asking anybody to take him off, we're not asking that 500 people, Mr. Klemesrud's subscribers, be taken off, and to suggest that that's necessary is nonsense. This deposition testimony that I showed you before shows that it's not realistic and it's nonsense and it is a red herring drawn across the path to divert the Court. But the important thing also is that notice renders all of that moot. You're giving notice with respect to a specific posting by a specific person at a specific time and a specific place and saying "Take that down." None of these problems that are being alluded to here have any application to such a situation. MR. RICE: Your Honor -- THE COURT: I didn't intend for us to keep going back and forth. MR. RICE: I just would refer -- THE COURT: These arguments are getting repetitive. MR. RICE: I'd refer the Court to paragraph 1 of the proposed order which says that the injunction would permit us to enjoin Defendant Erlich from access to the Internet via Netcom's computer system pendent lite, or in the alternative form, so it would deny, exactly as I said, the free speech for all the protected messages that were just put on that table. THE COURT: All right. We're going to take about ten minutes at this point, and then we're at Mr. Erlich's motion to dissolve the T.R.O. and any response to the preliminary injunction request as to him, and then we'll go from there. (A brief recess was had.) THE COURT: All right. Let me just make one comment before we go forward. I set time limits in this because I knew that if I didn't, we would have trouble bringing it to closure because everybody has something more they want to say. Let me assure you that argument is helpful and I enjoy it, but basically these decisions are made on the papers that have been submitted, so if I hold you to your limits, which I'm going to do, don't think that I'm not considering everything that you have put in your papers. With that, it's Mr. Erlich's turn. MS. OAKLEY: Carla Oakley for Defendant Mr. Dennis Erlich. Your Honor, this case really is centrally about the freedom of speech, Mr. Dennis Erlich's freedom of speech and his criticism of Scientology and, very particularly, his criticism of the policies and practices of Scientology, very much like the Belmore versus City Pages case that we cited. Sometimes the best and the sharpest criticism is to show the words of the work being criticized and to allow those words to speak for themselves. Here neither the law nor the facts support the Plaintiff's attempt to measure Mr. Erlich's speech prospectively, and while he may have posted over 900 postings since the last order was issued, there still is an infringement on his speech because he is being limited from the particular things that he can say, the particular policies and practices which he can criticize and comment upon. Now, while the Plaintiffs have provided the Court with affidavits that perhaps on their face appear to support issuance of the T.R.O., the record, as it sits today, does not support the issuance of a preliminary injunction further restraining the advance Mr. Erlich's speech. In order for this preliminary injunction to issue and to remain in place, Plaintiffs are required to present this Court with evidence to establish, number one, the likelihood of success on the merits, and two, irreparable harm. When we're looking at the balance of hardships, we must remember that it's the First Amendment rights of Mr. Erlich that are at issue here. That balance cannot ignore those rights. Notwithstanding the volume of paper that we have before the Court, Plaintiffs have failed to submit evidence to meet their burden on either of these requirements for injunctive relief. We do not have evidence that each individual document on Exhibit B to the complaint is, in fact, entitled to trade secret protection. We also do not have evidence that each individual document listed on either Exhibit A or Exhibit B is entitled to copyright protection or that these Plaintiffs/ in fact, have standing to assert these claims. Likewise, we do not have evidence to support the notion that Plaintiffs will succeed on the fair use defense. And lastly, we do not have evidence, hard evidence, in the record to support the claims of irreparable harm, particularly where, as here, the Plaintiffs are seeking a prior restraint of criticism of their religious teachings by a former member of their organization. The law demands very clear proof I want to speak first to the trade secret claims, because we've heard a lot today, a lot of throwing around of th terms, "These are confidential, these are trade secrets held near and dear to Scientology." But we must look at the evidence as to each one of the documents claimed to be a trade secret. THE COURT: Okay. As a preliminary matter, do you feel that something that's spiritual or religious can have economic value? Is that theoretically possible? MS. OAKLEY: I don't think the law supports that, and I certainly don't think the evidence in this case supports the notion that Scientology documents, the specific documents a issue, in fact have economic value, because for the trade secret test, it is not merely that R.T.C. collected some amount of licensing fees. We don't know what that amount is. We have n idea what that amount is. We know it's six percent of what the individual churches collect on those licensing fees, but we don't know the number. But trade secret value requires that there be a value to a competitor not having this information. Mr. McShane testified in his deposition that R.T.C. currently does not have competitors. We have no evidence as to how this material would be of value to any competitor, even if there were a competitor, and that competitive aspect of the trade secret is very critical here. THE COURT: There have been spin-off groups in the past though; right? MS. OAKLEY: There have been groups that have attempted, I believe, to use the works to set up a spin-off religion, but I would submit to Your Honor that perhaps the appropriate challenge there is not a trade secret challenge, but an unfair competition challenge, one of passing off the works to be the works of the splinter group rather than the works of the Church of Scientology. Another very critical element in order for trade secret status to attach to these documents is that the documents have been obtain by improper means, and we cited, in our papers, Chicago Lock versus Franburg to this effect, a Ninth Circuit case from 1982. Trade secret loses its protection if it is discovered through proper means. We have no evidence that Mr. Erlich in fact obtained the specific items identified as alleged trade secrets through improper means. On the contrary. He obtained these items, according to the record here, either off of the Internet before he did any postings of these works, or these materials were sent to him anonymously, therefore, no improper action on Mr. Erlich's part. THE COURT: Does it matter whether the person who had sent it to him or posted it got it by illegal means? MS. OAKLEY: The law does not require that Mr. Erlich look back and investigate and ascertain the means by which the materials were obtained, and I would say particularly as to the wide dissemination over the Internet that occurred long before the materials came into Mr. Erlich's hands or were allegedly used by Mr. Erlich. Those materials were so widely disbursed as to defy any trade secret claim. On this point of confidentiality, I think there's a lot said in the record, particularly from Mr. McShane, about confidentiality measures taken at the Church of Scientology. But I would point out and ask Your Honor to look at the declaration of Mr. McShane filed February 8th. In that declaration, as you may recall, Mr. McShane went to great lengths providing the Court with paragraphs and lengthy descriptions of security procedures supposedly in place, quote, "at all locations," quote, "during all relevant times." In fact, in Mr. McShane's deposition, he testified that those procedures are in place today in only three of ten locations where the materials are held, and the specific procedures were only put in place within the last few years, and even some of the most basic of means, such as security alarms or security cameras, did not go into place until the mid-1980's. We're talking about documents that have been in existence since 1966 for some of the OT materials. The Class VIII Assist Tape Lecture was first presented in 1968. So these materials have been around for 13 to 27 years. By Mr. McShane's own testimony, thousands of people currently have access to those, and over the years, potentially tens of thousands. Mr. McShane did not say for certain whether, you know, whether there were that many who had had access to those materials at this time. But aside from all that, we also presented to the Court additional evidence that these materials simply, you know, despite their protestations today of their great effort to maintain them as confidential, they have not in fact remained confidential. For example, OT 1 and OT 2, these are Items 3 and 4 on the Exhibit B, these were obtained by Mr. Erlich via the Internet according to his testimony. Also, these materials have been publicly disseminated. The Ninth Circuit commented upon the public dissemination of OT 1 through 3 in the Fishman case relying on the Berger declaration. We provided the Court with the Berger declaration so that you could have available to you the same materials that the Ninth Circuit had available to it. obviously we're not asking the Court to look at those materials and accept them for the truth of the matter of the articles and what the articles are stating, but simply the fact of publication as revealed in those articles. Lastly, the OT 1 and 2 documents have been publicly available in court files in a State Court involving Mr. Steven Fishman. The Plaintiffs here try to brush off that public availability by saying they have been trying to put those documents under seal. We have no Court order in front of us telling us that those documents have in fact been placed under seal, thus they remain available in open court files. THE COURT: But there's no order saying that they're not entitled to be sealed either, right? MS. OAKLEY: Not at this point. THE COURT: Is it pending? MS. OAKLEY: It has been addressed by the District Court, sent up the Ninth Circuit, then went back down. They remain open. With regard to the NOTS materials, exhibits in Exhibit B, NOTS 1, 2, 34, 35, 36 and 42, Mr. Erlich received all but item 2, again via the Internet, according to his testimony, and Item 24 was sent to him anonymously. We also provided to the Court, in the Berger declaration, a list of individuals who have the NOTS materials who would not necessarily fall within Plaintiff's definition of an authorized holder of those materials. And lastly, on the NOTS materials and the copyright filing of these materials, I must say that with Plaintiffs walking in here with their stack of the registered works and representing to the Court that that's the masked version of work as registered, we've been asking for that since, I believe, early April, when the Court first permitted, or suggested, the parties discuss discovery that would take place. So we have not seen these documents. They've not been provided to us and they are not a part of this Court record. What this Court has is one page the Plaintiffs describe in their brief as being a sample of the filing of the NOTS materials. That one page is not authenticated in any way. It's not attached to any declaration and therefore is not properly reviewed by this Court. And finally with respect to the Classified Assist Tape, the transcript of that particular tape, it is Mr. Erlich's testimony that that was sent to him anonymously in the mail. There are differences in that particular transcript as compared to the original of the work, or at least what has been provided to us as the original, suggesting that, you know, that perhaps a lot of copies were made at the time that the speech was given and that the Plaintiffs, in fact, were not controlling the circumstances of these lectures as they suggest they may have been. Mr. McShane did have to admit in his deposition that he could not testify as to the security measures when the lecture was given since he was not even yet a member of Scientology at that time. Finally with respect to the large collection of additional declarations provided by the Plaintiffs in support of their claims of confidentiality, even looking at all of these declarations, they do not establish secure procedures at all locations and at all times. And in the end, we still have the fact, the evidence put before this Court, of the widespread public dissemination of many of these materials, dissemination not necessarily by Mr. Erlich's hand. Finally on trade secret protection, we also have missing here an identification of the trade secret with any particularity. Absent some clear identification of what the trade secrets are, the Court cannot issue a properly specific injunction, although the Plaintiffs here have merely identified documents wholesale without any specificities as to the contents of those items and what would or would not be trade secret in their view within those items. I'd like to move on to the copyright claims. Even if the Plaintiffs are able to establish that they have some rights in the copyright interest that they're putting forward here, and I'll talk a little bit more about that later, the actual standing that they may or may not have, what is clear from the evidence is they have not established a likelihood of success on the fair use defense. It is, after all, their burden hear at the preliminary injunction stage to establish that likelihood of success on the fair use defense. As a preliminary matter, I'd like to just note for the record, we have no evidence yet in the record of actual use of items 3 or 9 on Exhibit A. There are serious questions regarding the authenticity of other evidence of alleged postings. For example, Mr. Erlich's testimony at his deposition was that some of the postings put in front of him did not have the kind of headers on them that he would normally use, or they were missing the kind of footer or the sign-off that he normally uses, or they were missing large portions of the criticism and commentary that he would include with these various items. In any event, in looking at the Fair Use Doctrine, this case goes right to the heart of the purpose of the Fair Use Doctrine, criticism, and criticism of a religious organization and its practices and teachings. The Factor 1, the purpose of the use, here it's clearly for criticism and not for profit. Plaintiffs really have provided no evidence to suggest to the contrary. Mr. Erlich is not using any of these materials for competition and there's no allegation to that effect. Likewise, Mr. Erlich, to the extent that he has used any of these materials, it's clearly not to scoop the Plaintiffs as was the case in Harper and Row where the nation was attempting to scoop the publication of that, of President Ford's memoirs. Secondly, the second factor that the Court must consider is the nature of the protected work. Now, we've gone back and forth as to whether this information, or whether the materials, are informational rather than creative. I would suggest to the Court that the Court consider the New Era Publications case where that Court looked at a number of works that had been used in a novel and said, on balance, the works were really more informational than creative and it sorted out, for example, things such as poetry or music as being obviously more towards the creative end. The Court has before it the best evidence to determine whether these works are informational or creative to look at the originals of the works provided. On the question of whether the nature of these works is that they are unpublished and therefore the fair use analysis should tip in favor of the Plaintiffs, first of all, the statute is quite clear. The fact that a work is unpublished, or is claimed to be unpublished, does not in and of itself refuse or deny that fair use application. THE COURT: Statute clearly says that. Can you cite me a case where there have been unpublished materials where the Court has said the Fair Use Doctrine applies? It theoretically could, but it seems to me if you have unpublished materials, you'd have to have a pretty persuasive showing of fair use, and I'm not sure what that would be, or a pretty persuasive showing of a use to make it a fair use. I'm having trouble contemplating, in my own mind, what would be a use of an unpublished document that would nevertheless fall under the category of a fair use. MS. OAKLEY: On the first question I'm not aware of a specific case that has allowed fair use of an unpublished work. There are a couple of issues here. Number one, the Harper and Row and the Salinger cases, both cases ultimately led the Congress to amend Section 107 and make it very clear that just because a case is unpublished doesn't mean you can't have fair use. Those cases were a very different situation. In Harper and Row, you had the nation which was really trying to preempt the first publication of the author, of the memoirs of President Ford, and so you had a very different circumstance going there, the nation scooping the publisher of the first opportunity to make the first publication which had a very strong monetary and market value to that first publication. In the Salinger case, similarly you had the letters of J.D. Salinger being published in advance of J.D. Salinger being able to publish his own, his own collection of unpublished works. Again, sort of a scooping of the first publication. In this case, I think in any case, we have some of the best facts on fair use vis-a-vis unpublished works because first of all, I would even question the premise that these works are unpublished. THE COURT: I understand that, but I'm asking you to do it for the purposes of discussion. Assume they're unpublished. MS. OAKLEY: Oh. If we assume that these works are unpublished, the law requires that we look at all of the factors, and we're looking in overall fairness here. This is criticism, not for profit, and perhaps the most important item would be fact or market impact. There is no credible suggestion, I would submit, that the random postings by Mr. Erlich, or anyone else for that matter, of bits and pieces of claimed unpublished works is not going to replace the market for these works from the Church of Scientology. As in the Hustler case, folks who are interested in these materials are not going to, you know, for purposes of studying them in their own development as it were, they are not going to acquire these materials simply off the Internet. Rather, as the Plaintiffs themselves have described, their course work is very methodical. You have to go through one after the next after the next, and so simply the random posting is not going to be at all a market substitute in any way. Finally, there is no demonstration here of actual irreparable harm to the Plaintiffs for these postings. So I think, in this case in particular, the facts weigh heavily in favor of a fair use finding, even if it's assumed that these works were unpublished. Factor 3 of the Fair Use Doctrine requires that we consider the substantiality and the nature of the copying itself. Plaintiffs have frequently used the term "wholesale copying." That really just is not the case here. I have a chart attached to my declaration and I'm not going to go into it, my reply declaration, sort of comparing the size of the original work to the original components from which the alleged copy was taken. But just so Your Honor can visualize, this book here, which is the Basic Staff, Volume 0, we've provided the table of contents to this with my original declaration. There's 372 pages to this, Item 7 on Exhibit A is only pages 168 to 1- excuse me, 166 to 167. So we're talking about three pages out of a 372-page-book and then an excerpt of that being allegedly posted. So to suggest that there's been wholesale copying here, I think, is really disingenuous to say the least. And also I'd direct the Court to again the Belmore case and the Rotbart case. Both of these cases are instructive with respect to the volume of copying, and I think Belmore is the particularly appropriate case here. In that case we had a reporter who was critiquing an article from a police newsletter and the reporter said, "The best criticism here is just to show you what in fact was written" and then repeated the entire short story and gave a very short and curt criticism. In that case, the District Court in Minnesota said there certainly was fair use of that short story. Finally Factor 4, on the market impact, as mentioned previously, we don't have any evidence of market impact here and there really could not be given the way the Plaintiffs have described these materials are intended to be used. These postings are not any substitute for the original. To the extent that the criticism for the learning about these materials would now deter someone from being a member, that's not the kind of harm that the Fair Use Doctrine is meant to address. With respect to the copyright validity itself -- actually before I continue, I wanted to ask how I am doing on time. MS. GORMAN: You have a little more than 20 minutes. MS. OAKLEY: Okay. I wouldn't go through this area in great detail. There's a lot of technical details, obviously, to the copyright validity. I think we've dealt with them quite extensively in our copyright appendix and in the reply brief, but I wanted to point out a couple items. Item 4 in Exhibit A is definitely in the public domain. We have no evidence to the contrary. The 1961 publication of that work, as evidenced by the publication notice on that work itself, is the controlling date and registration. Clearly as part of a larger work, it will not extend that copyright term. Also with respect to presumption of validity, it's our view that the Court is not required to take, to presume, that any of these copyrights are valid given the length of time between publication and registration. And again, I think that this rule would apply to the Exhibit B works, because I really don't think that they fit the meaning of unpublished works under the Copyright Act. The Ryland Lawkin declaration that the Plaintiffs have submitted does not provide admissible evidence to establish originality, validity or ownership. His declaration does not say when he took over responsibility for any of the Church of Scientology registrations, and at most, the declaration merely recites information stated on various registration certificates. With respect to the standing of the Plaintiffs here to assert the various claims, I think we've addressed that thoroughly in our briefs and, on certain of the points, Plaintiffs simply have not provided a valid explanation to explain away the discrepancies. For example, we have an amendment to an agreement that predates the agreement. There's no explanation for that discrepancy. Earlier Ms. Kobrin relied upon the Vien case, but the Vien case is not dispositive here as to the validity of these agreements. Finally, we merely question the fact that we were, the Plaintiffs submitted to the Court with their opposition papers a number of new agreements that they now purport to rely upon for the rights that they are asserting here. This is in direct, I think, contradiction to the papers submitted when they came to this Court initially for their ex parte application asserting that the documents, the agreements and registration certificates attached to complaint, fully and completely supported their standing and their claims. Lastly on the question of irreparable harm, we have no evidence of irreparable harm or potential lost sales. In the event that a new member does not sign up, they can be compensed with damages is far too speculative here. As was stated in the C.B.S. case which we cited to Your Honor, Justice Blackman said he was ruling on whether C.B.S. should be prohibited from broadcasting an investigation of the meat packing industry, and there was a claim by the plaintiff that this investigation was going to reveal trade secrets, and the Court said that the fact that the broadcast or trade secrets, quote unquote, "could result in significant economic harm" is not enough. Quote, "Subsequent civil or criminal proceedings, rather than prior restraint, ordinarily are the appropriate sanctions for calculated misdeeds in the First Amendment context." Justice Blackman, in that incident, stayed the injunction and allowed the broadcast to go forward, and ultimately C.B.S. was able to secure its attorneys fees for the fight that took place in that case. There's one last point that I meant to raise, and this is on the issue the trade secret status, and then I'll be sitting down. I'm not sure if Your Honor has yet had the opportunity to look very closely at the works that have been described and claimed to be trade secrets. I'd like to hand them up if you have not yet had an opportunity to look at them closely. But I think a fair review of these documents, which clearly must be done before any injunction enjoining their use is entered, a clear review of these documents will reveal that these documents are not of the kind that the Trade Secret Act was intended to protect. They do not reveal a formula pattern compilation that, in fact, our Trade Secret Statute was intended to protect. At this point, I'll turn the podium over. THE COURT: All right. How much time does Erlich have? MS. GORMAN: 15 minutes 30 seconds. MR. COOLEY: I've got how much? THE COURT: You've got about a minute or two, but she's got about 15. MR. COOLEY: Oh, okay. Would it make any difference if an old guy begged a little for some more time? A couple of minutes maybe? Look at this, Judge. Here's a book that was taken in the seizure. These pages Mr. Erlich cut out of the book, sliced out very neatly, and scanned into his computer, these are all copyrighted parts of a collection of published works of L. Ron Hubbard, and Counsel stands up here and says, "Sure, we can do that. We just cut out the pages, scan them in and pass them on to whoever wants them on the Internet." As far as Erlich knowing or not knowing or getting things anonymously in the mail, he knew all about NOTS and signed a confidentiality agreement with respect to NOTS, and the statement in Sections 39 and 40, "The statement of unfair competition holds you responsible whether you know or have reason to know," and the case law on that is clear. The locked cabinet -- THE COURT: Does that apply to copyright situation? MR. COOLEY: I'm talking about the trade secret now. I've switched to the trade secret situation. Now I'm talking about the restatement. I'm talking about the restatement of unfair competition as it applies to this question of trade secrets. THE COURT: Okay. MR. COOLEY: But if he knows it for one purpose, I suppose he knows it for all purposes, and he can't play ignorant, or pray ignorant, or try to portray himself as an innocent link in a chain when he has the knowledge of and is using it for his inappropriate trade secrets and then is being an instrumentality of publishing and republishing of the copyrighted works itself, which is its own set of sins. With respect to the security measures applied from time and memorial, as the declarations show on these upper level advanced materials, there were always locked cabinets. They were always kept locked. THE COURT: That's all set forth in the papers. MR. COOLEY: The Ninth Circuit in Fishman, I think Your Honor, manifested a grasp of it. It's avoiding decision. The Ninth Circuit never, under any circumstances, suggested that trade secret status could not be accorded to these documents merely because snippets appeared hither and beyond. The McShane deposition testimony was very clear on this masking situation, and they're on file down in the copyright office for all to see, which strikes me as making the complaints that "I didn't see them" somewhat -- they use the word "disingenuous" against us. I looked that up in the dictionary one time and it offended me so much that I try not to use it. THE COURT: Okay. MR. COOLEY: Issue 21 -- THE COURT: I'll give you one more minute and that's it. MR. COOLEY: Thank you, Your Honor. The Ninth Circuit left open in Scott whether scriptures could be trade secrets. Vien decided that issue that was left open by the Appeals Court four years later, at least down in the Southern District of California, and it applied trade secret law and said they had independent value, said that it was demonstrative and enjoined an injunction. The Berger declaration is filled with rank hearsay, and furthermore, sales with not the verbatim disclosure of things, but characterizations of what they are, and then says, "So-and-so has it," but so-and-so doesn't file a declaration. THE COURT: How about the fact you don't have a competitor? What's the value? MR. COOLEY: Well, we had one until an injunction protected our trade secrets, and then that competitor ceased to be a competitor. Now there are people out there and on the Internet, right in this alt.religion.scientology, who are part of that former movement. There's no question whatsoever that the potential, once realized, is there again if only they can get out from under the protection that is accorded to these upper level materials. THE COURT: Okay. I'm going to have to stop you. MR. COOLEY: All right, Your Honor. Thank you very much for hearing us. THE COURT: Do you have anything further you want to say with respect to any of your motions? MS. OAKLEY: Your Honor, I'm going to probably say about two minutes at the most on the motion to return the documents. But at this point, if we move on to the other motions for contempt and so forth, Mr. McElhinny will speak to those. THE COURT: Okay. Well, why don't you speak to whatever you have and Mr. McElhinny will have whatever time you leave him. MS. OAKLEY: Okay. On the motion to vacate the writ of seizure, I really do think that in large part our documents and our papers speak to those, and I wanted to present them to the Court and let you see really the nature of the documents. The nature of the items taken from Mr. Erlich's home were books, your ordinary books. We have boxes and boxes full of books, things that are not unauthorized copies of anything. The Copyright Act does not at all prohibit the possession of authorized copies. These items simply were not properly seized from his home and certainly should be returned. I think with that demonstration to the Court, we'll just let our papers speak for themselves. THE COURT: Okay. You are addressing what? MR. McELHINNY: My name is Harold McElhinny, Your Honor. THE COURT: I know that. MR. McELHINNY: I represent Mr. Erlich and I'm going to address, in combination, both the contempt motion and the motion to expand the injunction. THE COURT: Okay. MR. McELHINNY: And I have? MS. GORMAN: 14 minutes. MR. McELHINNY: 14 minutes. On the contempt motion, the standards, I think everybody agrees on standards that apply here. Your Honor has already applied it in the interim rule. The standards come out of the dual deck video recorder days, and they are that the Plaintiffs in this action must prove by clear and convincing evidence that Dennis Erlich disobeyed a specific order of this Court. It cannot be a reasonable misunderstanding or and reasonable interpretation of the Court order. Substantial compliance is a defense, and that is not vitiated by a few technical violations. If there was contempt, the award to the moving party would be limited to their actual loss. And in that specific case, attorneys' fees were denied because the Court of Appeals held that the attorneys' fees in that case had been occasioned by a, quote, "spare no expense punitive expense brought by the moving party." There are three actions which have been placed before this Court in a series of weekly communications asking for contempt holdings, and I would like to take them in reverse order. THE COURT: Well, there's only one of the three that specifically deals with an Exhibit A or B document. MR. McELHINNY: That's not exactly correct, Your Honor, and this'll only take me a minute. THE COURT: Okay. Go ahead. MR. McELHINNY: I disagree with that, but that's the argument that's made to Your Honor. I've never defended a contempt motion before and it's not something I look forward to doing. However, in this case it gives us an opportunity, because what's happened here, and when you read the transcript, as I've done several times, of your last hearing, I don't want to speak for you, I can't do that, but what appears to me is that Your Honor had been presented with a great deal of material that had been prepared that gave the impression of impending disclosure of trade secret defamation. Your Honor said, on the record, that you hadn't personally had chance to review that information and to maintain the status quo. You exercised your awesome power as a Federal Judge to step in and freeze things, as you say, until you had an opportunity to review the materials. You judged the Plaintiffs to come forward with an explanation of what was trade secret and what was copyrighted. It was a specific ruling. The advantage to us of this motion is it focuses on specifics. It focuses on specific documents, and specifically, with the May 15th publication, the accusation that being interviewed by the B.B.C. -- now I'm going to say something else, that history takes place in Federal Court, and this is your office and it's sort of mundane, I think maybe, and I appear in Federal Court from time to time. I think it gets mundane, and when you are involved in the making of history, sometimes you don't realize it. This is a historic case. The order that Your Honor entered allowing the Church of Scientology to conduct a raid on an individual home, I think, is a historic order. It has certainly brought a lot of worldwide attention to this matter, to this room, and to this case. It has been the attention of a lot of news publicity, a lot of publicity that was generated by Plaintiffs. In one of these things in a publication on a television show in England where they've covered this on the B.B.C., my client was interviewed. And during that interview he allegedly disclosed material that is so contentious that Mr. McShane submitted it to you in a sealed envelope. I'm removing it from the envelope. I don't want to read it, because it's submitted to you under seal, but if I could approach just so you would know exactly what it is that I've got? THE COURT: Sure. MR. McELHINNY: The information that you have before you is so confidential and such a trade secret that it's submitted to you in a sealed envelope. There is a motion for contempt pending based on the fact that it is contained in some of the Exhibit B documents, and having said this on television to an audience in England, my client violated your order. That's the allegation. In the record before you in the Berger declaration, there is a copy -- can you see that? THE COURT: Yes. MR. McELHINNY: There's a copy, it's Exhibit 19, of a newspaper article that was published in the Saint Petersburg Times in Florida. That's Florida, not in the Soviet Union. It's from December 23rd '90, and it's called "Xemu's Cruel Response to an overpopulated World." It says, "So Xemu solved the problem. He trapped selected beings and flew them to volcanos on Earth, then called Teegeeach. He then dropped powerful H-bombs on the volcanos." MR. COOLEY: I object to this, Your Honor, very much. This is an attempt to go into, in open court, one of the very things that we are attempting to prohibit. It's a deliberate tactic reasoned to accomplish that, as well as to deeply offend the religious sensibilities of Scientology. But aside from that, he's attempting to demonstrate, through argument and in open court, that which we're here trying very hard to protect. I object to it. THE COURT: But is it your position that this article that he put it up contains confidential information? MR. COOLEY: Yes, sir Your Honor. It is publicity. It is publicity that has a relationship to OT 3 which, in its exact formulation, is here at issue, and we ought not to be getting into it indirectly through this procedure. I suppose he could read a lot of newspaper articles. Your Honor has Berger's affidavit before you. I would respectfully request that the matter not be handled on an oral argument basis with that before you. I have no objection at all to it being pointed out to Your Honor by chapter and verse as it to where it appears, but now it's up here and it's designed to generate as many more newspaper articles as can possibly be derived. THE COURT: What I'm getting at, is it your contention that this document that he has blown up here contains something that's protected by copyright or by trade secret? MR. COOLEY: It characterizes and refers to something that is, and gets into the whole concept of trade secrets. Whether it contains the precise formulation of the upper level material or not, it does not, but it does contain a discussion about it which, in our view, infringes the trade secret aspect of it at the very minimum, and to the extent that there is substantial similarity, the express copyright as well. THE COURT: But I'm still not clear, because if you're contending that in some way this article is protected and should not be publicly disclosed, can't be publicly disclosed, that's one thing. If you're just saying it refers to something that is, as long as he doesn't refer to what is being revealed, that's not a problem; right? MR. COOLEY: It's the latter, and I think there is a problem. I'm not claiming that this piece of paper here in that Saint Petersburg Times article is copyrighted by us in any way. It does make reference to matters on which we are trying mightily here to preserve our trade secret status. THE COURT: But it's not making a reference in a way that reveals the trade secret. MR. COOLEY: No. That's the point, therefore in my judgment, it is irrelevant to the exercise here. If it doesn't go to a disclosure sufficient to violate it, then the characterizations that it contains become irrelevant and are done here for the mere purpose of perpetuating and generating more newspaper publicity. That's all this is about. I'm not going to argue it any further Your Honor. I think it's offensive, I think it's unnecessary, and I think it's improper. THE COURT: Okay. I'm sorry, and I say this with all respect, but I don't follow your argument. But as long as you agree that this article does not in and of itself contain protected information, which I'm not sure how it really could, Mr. McElhinny, you can go ahead. MR. McELHINNY: Thank you. MR. COOLEY: I don't make that claim Your Honor. MR. McELHINNY: I trust I'm not charged for that. Similarly, Your Honor, on May 6th of 1991, Time magazine ran a cover story on Scientology. It was called the "Driving Cult of Greed and Power." In that article, and again I quote, the author stated "Hubbard kept adding steps, each more costly, for his followers to climb. In the 1960s the guru decreed that humans are made of clusters of spirits, or thetans, who were banished to Earth some 75 million years ago by a cruel galactic ruler named Xemu. Naturally, those thetans had to be audited." As to the third charge of contempt, I submit that when you compare what you have before you in a sealed envelope and you have a chance to compare it with what has been published in Time Magazine and in newspapers around the world, the charge of contempt that was brought on a separate motion by these people against my client is frivolous. The second item of contempt that was raised was a contempt which Your Honor has already ruled on. It was the submission of a declaration, and I don't need to address it, because you've already ruled on it, but you did have that one comment. This is a First Amendment case. It's interesting, again, when you -- THE COURT: When you say "that one comment," what are you talking about? MR. McELHINNY: There was a comment in your order which we took very seriously that although this was not contempt, you had been relying on representations that we made and you were concerned that we had gotten close to the client. That's the one I'm addressing. THE COURT: Okay. MR. McELHINNY: First as a matter of law, I want to again say, which we say all the time, this is a First Amendment case. The normal rule for an injunction, which is you get close to it at your risk, is reversed in a First Amendment case because what you look at is not just the order, but the chilling power that goes with it. How far away from freedom of speech is this or that going to keep somebody? That's just a measure. But secondly, again, the facts, when you finally got admissible evident on this, the facts that came out were that this document was not produced by Mr. Erlich. It was presented to Mr. Erlich by a litigant and Mr. Erlich was asked to authenticate the document, and Mr. Erlich's activities were simply to sign a declaration which authenticated the document so that it could be used in a court. Frankly, the idea that Your Honor could have intended, or that we would have represented, Your Honor didn't intend, but that we would have represented that our witness, our client, would somehow be precluded from testifying in a court about the authenticity of a document didn't hit us and, when you got the facts, which was that we had presented the document, and I think that may have put a separate twist on it, but that's just not what happened under the records that you have before you. So I want to address the first one, the remaining issue, which is the original publication by the hearing that took place in this court. The Court announced its intent that it was going to modify the order. There was substantial discussion. Mr. Erlich was here without counsel. There is no question but that the following day he made a publication. The recorded facts before you are that he made the publication after he had learned that the order had been modified, but before he had received it. As soon as he received the order, as you know, he attempted to cancel the publication. He wrote directly to Your Honor and he wrote to the opposing counsel saying that he had made a mistake. Again, the question is whether or not Mr. Erlich could have reasonably misunderstood or reasonably interpreted the exchange that went forward at the hearing. If you have a chance to read that specific publication and its context, it's absolutely clear, we present, we've argued it in that exchange, the but for the order, it would have been a fair use exchange. It was context of a discussion in this litigation. It was context of a criticism of the document itself, of the content of it, of the points that are in the newspaper article. So I don't think there could be any question of whether or not Mr. Erlich understood that when he was doing that that he was doing it in an attempt to exercise his fair use rights. I submit, Your Honor, that if you've had a chance to review the transcript, and I know that you have, there are a number of things that jump out in terms of what happened at that hearing. One, Your Honor made very clear that the new fact, to you, was that Mr. Erlich has been engaged in criticism and satire, and that the reason you were going to modify that order was to permit him to continue in those activities. You know and I know, and arguably the Plaintiffs know and the other attorneys, that there is a distinction, or there may be a distinction, between copyright and trade secret as to whether or not fair use applies. But that was not laid out at the hearing, and I submit that that's not something that a person who's not trained in this area of law would know. What was clear was that Your Honor wanted to protect Mr. Erlich's fair use. What was also clear was that at the end of the proceeding, Mr. Erlich specifically told the Court that he was confused and asked for direction to make sure that he was not violating what he thought your order was going to be, and that your order, or that your counter-response, Your Honor's response to him, was to be careful, which was good advice, and it's advice that he has followed ever since. I note that they admit that there have been 900 exchanges that they've monitored off the Internet since that time without any accusation that anything has been posted since that time. So on a clear and convincing evidence test, followed by the behavior that has happened since that time, I submit, Your Honor, that there are only two appropriate resolutions. One is to accept Mr. Erlich's word that he misunderstood what was going to happen, and as soon as he saw he made a mistake, he took every act within his power to correct it. Or two, to find that there was a technical violation but that he has substantially complied with your order and that a contempt order is not due. In closing, I want to address the issue of expanding the T.R.O. and repeat two of our themes. Your Honor asked a very key question. Is it our contention that religious theology and religious scripture cannot be trade secrets, cannot have economic value or trade secrets? One of the points I want to repeat again is absolutely that's our position. I've been thinking about that a lot. I've been trying to think of how I can explain it. They're called trade secrets for starters, so that's one. But when you look at ridiculous doctrine, when you look at the volcano that the thetins and when you look at what Your Honor has in front of you in the sealed envelopes which are called trade secrets, frankly, it's gibberish. THE COURT: But isn't that -- MR. McELHINNY: Let me finish. THE COURT: That's a personal opinion. MR. McELHINNY: Let me finish. I was raised in a religion in which, for the first 14 years of my life, everything I was taught was in Latin. There are a lot of people who think that's gibberish too. What brings value to that is not the words themselves. There's no formula there, no magic, no secret. What brings value is the faith that the individual brings to that document, or brings to those teachings. The very firmly believing people here who go through these courses in order as they are taught, because they're taught they have no value unless they do it in the appropriate way, that's where the value comes. The value comes from the belief that the individual has. There's no intrinsic value in the plan of Teegeeach any more than there is in the words that I learned and was taught, and I know you were too, as a child to say. Last point. Because this is Federal Court and because you know we're trying to do this in an orderly fashion, some of the real grit is missing in this argument. Dennis Erlich very strongly believes, as does the author of the Time Magazine article, that what passes itself off as the Church of Scientology is a cult. He strongly believes that it is an attempt to -- that it is a consumer fraud. He strongly believes that people are lured into it, that their money is taken away, and they are defrauded. He believes that, and he believes that it is his mission to expose that fraud. I was sitting there again when you said "What's a good example of a case of unpublished articles and you could get fair use?" I submit to you that's one. If you know that a fraud is being committed on people and you know that if you could show their internal documents and if you could show their diaries, if you could show what is at the end of the road, what's the great secret, that people would say, "God. I am the not going to go near that place." You would be exposing a fraud and certainly doing a public service. Many hundreds of people have tried to do the same public service with this church, and Mr. Erlich feels very, very strongly, because of way he spent his life, that he has a duty to do that. He is engaged in a mission. And under the First Amendment to the Constitution, he has a right to do that. We need him to do that. Our society is built on individuals expressing their First Amendment rights, and history teaches us, from the publishers in Boston, that the entrenched, the rich, the people who do not want criticism, consistently come forward and use, attempt to use, the courts of this country to stop that. They call it liable, they call it copyright. They take their collections and they copyright each individual page so that somebody can say it's each individual page, not the collection, and you're doing it. They come up with legal strategies so that they will not be criticized. That's inappropriate and it's inappropriate in this case. If the church is what it is, it will survive Dennis Erlich's criticism. But if Your Honor silences Dennis Erlich, if Your Honor enters injunctions against Netcom, if Your Honor cuts off the people who want to open the debate and leave the floor to the church, then free speech doesn't survive. THE COURT: Okay. Thank you. Thank you everybody. I will get orders out on the motions as soon as I can. I appreciate your time. MR. McELHINNY: Your Honor, there was one motion that wasn't on your list which was the motion for sanctions against us. There was a motion for sanctions against us for referring to this document in our pleading, and we would like a ruling on that please. THE COURT: That was not on the list that was sent to me, I think, by Ms. Kobrin of all the motions that I sort of checked off against. Is that something that's still being pursued? MR. KOBRIN: I believe it's part of one of the op -- it's not a motion for sanctions. It was in opposition to one of the other papers that is, I believe, listed. MR. McELHINNY: There was -- THE COURT: Is that something you're pursuing? MS. KOBRIN: Yes, we are pursuing that. THE COURT: Okay. (Proceedings concluded.) STATE OF CALIFORNIA ) ss. COUNTY OF SANTA CLARA ) I, the undersigned, a Certified Shorthand Reporter of the State of California, hereby certify that the above proceedings were held at the time and place herein stated; that the statements by Counsel, The Court and other parties were reported by me, a Certified Shorthand Reporter and disinterested person, and were thereafter transcribed under my direction into typewriting, and that the foregoing is a full, complete and true record of said proceedings. I further certify that I am not of counsel or attorney for either or any of the parties in the foregoing proceedings and caption named, nor am I in any way interested in the outcome of the cause named in said caption. IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of July 1995. LEE-ANNE SHORTRIDGE, CSR #9595