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From: Joe Harrington <joeh@server.nlbbs.com>
Newsgroups: alt.religion.scientology
Subject: RTC v Lerma transcripts #2
Date: Wed, 11 Oct 1995 20:26:44 -0400 (EDT)
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25
1 that phony material. Of course, they published the
2 legitimate material, too, but they published the phony
3 material alongside it to try to cut the lines of Scientology
4 to their co-religionists in the Christian religion around
5 the world. It was a vicious thing to do.
6 It demonstrates to me the real motive of the
7 Washington Post not to report at all. It isn't a question
8 of reporting. They gave five columns to the IRS exemption
9 and 27 columns to Mr. Lerma.
10 When they stand up here and say, oh, just fair
11 use, and Your Honor has, in fact, complimented them on their
12 restraint, the restraint is nonexistent. The attack on the
13 religious beliefs and the practice of Scientology is
14 absolutely repugnant to the Constitution and ought not to be
15 allowed to stand. They have mowed down my client's rights
16 with the phony exercise of their own.
17 THE.COURT: Well, Mr. Cooley, what I read between
18 the lines here is a broader argument than simply the
19 doctrines at issue, the documents at issue. What you also
20 seem to be arguing is that the very discussion about
21 Scientology in other than a purely laudatory manner should
22 somehow not be permitted.
23 MR. COOLEY: There is nothing
24 THE COURT: (Interposing) You know that free
25 conunent allows -- even though it may be painful and hurtful,
26
1 free expression involves all kinds of comments.
2 MR. COOLEY: Can I address that issue, Your
3 Honor? That is so important, and Your Honor is just so
4 wrong in reaching that conclusion. I cannot -- I can't tell
5 you the amount of comment that goes by th.e boards.
6 You know, I am chairman of the Board of Trustees
7 of Boston University, and Mr. Lerma and his friends on the
8 Internet have attempted to get me removed. That's their
9 right. But they have accused me of breach of fiduciary
10 duty, of being a member of a vicious cult, of making every
11 attack on Scientology that they can make.
12 I have served that board honorably for 20 years.
13 We don't try to restrain that comment. They have called
14 Scientology every name they can put their tongue to on the
15 Internet. They have called my associate, Helena Kobrin, the
16 most vicious, filthy name you can call a woman, and she is a
17 mother and a wife and a loyal Scientologist. It isn't
18 right.'
19 We don't try to gag these people. They have been
20 criticizing Scientology for years. They will criticize it
21 forever. I am not trying to stop it, and it's unfair to
22 suggest that we are.
23 THE COURT: We are getting far afield. In terms
24 of the Washington Post and the Court's previous ruling, as I
25 said, I have read the briefs. I have allowed argument. I
27
1 am not satisfied that you have been able to -- you have not
2 been able to change my opinion that the original balancing
3 analysis which the Court was required to perform because the
4 legal context in which that motion was brought was a motion
5 for a temporary restraining order. I made the four-part
6 analysis.
7 I understand that your argument today and in your
8 briefs focuses more on the irreparable injury to the
9 plaintiff. That is the real different -- it's not a
10 different tack, but you put more emphasis on that. I have
11 listened to it. I am still not convinced that the limited
12 use of small portions of the allegedly copyright protected,
13 and now you also say religiously sacred documents is such
14 that it justifies the prior restraint which the grant of a
15 temporary restraining order would amount to.
16 Therefore, I am denying the request to overrule
17 myself or vacate that. I am leaving the Court's ruling on
18 that in place.
19 MR. COOLEY: I would like to submit declarations
20 in lieu of the testimony that I wasn't allowed to put on.
21 THE COURT: You may flesh out the record in that
22 respect, and that will be certainly -- and make sure that
23 copies of that are presented to counsel.
24 All tight, now, we move on --
25 MR. COOLEY: (Interposing) Your Honor, before we
28
1 move on, I want the Court to know, I just want to clean up
2 some housekeeping details. I intend to appeal that decision
3 to the United States Court of Appeals for the Fourth
4 Circuit. I ask the Court to stay the effect of its order
5 permitting a fair use of the documents in the Post's hands
6 pending that appeal.
7 THE COURT: Is that the conditional stay that you
8 already filed before we even had the hearing today?
MR COOLEY: Yes. I wanted to make sure that I
9
10 exhaust everything here so I can get to the Fourth Circuit
11 as soon as possible without delay.
12 THE COURT: I am leaving the ruling in place.
13 There was no motion made to stay after the first order was
14 issued. There is no reason to do that, and particularly in
15 light of the fact that we have addressed the issue of prior
16 restraint. So I am denying the request for a conditional
17 stay of my ruling as it applies to the Washington Post.
18 MR. COOLEY: Thank you very much, Your Honor.
19 THE COURT: All right, now, we then have the
20 plaintiff's motion for a preliminary injunction against the
21 Defendant Lerma.
22 MR. COOLEY: Yes.
23 THE COURT: All right.
24 MR. COOLEY: Again, I wish to call witnesses that
25 will testify to the matters that I informed the Court on,
29
1 Mr. Render, who is the commanding officer of the Office of
2 Special Affairs, Church of Scientology International; and I
3 want to address these attacks that have been made on us
4 rather than leave them unresponded to on the record and
5 address the religious issues and the decimation of the
6 Scientology religion represented by these infringements.
7 In addition, I want to call the witnesses, the
8 practicing public Scientologists to give testimony on what a
9 failure to grant a preliminary injunction will do to their
10 religious beliefs in the free practice and exercise of their
11 religion.
12 THE COURT: These are the same -- Ms. Baker and
13 Ms. Stanford, the affidavits you have just filed with the
14 Court?
15 MR. COOLEY: Yes. Is Mr. Render's affidavit there
16 as well?
17 MR. COOK: No, it isn't.
18 MR. COOLEY: I have no affidavit for Render. If I
19 could at least put him on?
20 THE COURT: I will allow Mr. Render to be put on
21 the stand briefly. But we have the rest of these affidavits
22 already here.
23 MR. LEVINE: Your Honor, may I speak to that
24 issue?
25 THE COURT: Yes, Mr. Levine.
30
1 MR. LEVINE: Thank you, Your Honor.
2 Your Honor, I would object on behalf of Mr. Lerma
3 to any of these additional witnesses being called. We
40 4 asked, the defendants asked in discovery for the identity of
5 any witnesses that they might call at this hearing. They
6 identified other people, Mr. McShane, and Mr. Settles. They
7 did not identify any of these additional witnesses.
8 We asked them as recently as yesterday morning if
9 they were planning on calling any additional witnesses.
10 They sent us a letter, which I have and would be happy to
11 hand up to the Court, telling us -- well, actually we sent
12 them a letter confirming their representation to us that
13 they would only call Mr. McShane and that Mr. Settles would
14 be available at the hearing if it became necessary to call
15 him.
16 They then sent us a letter saying that -- late
17 last night that they had not yet decided whether they were
18 going to call any other witnesses and didni.t identify them
19 to us. We did not hear that they were calling any other
20 witnesses until this morning.
21 THE COURT: Is Mr. Render's testimony essentially
22 along the lines of what the affidavits are?
23 MR. COOLEY: No. It goes considerably further
24 than that, Your Honor. It goes, to the attacks made by them
25 in the papers that we just got earlier this week and have
3 1
1 been unable to adequately respond to. I didn't decide on
2 Render until about 1:00 this morning.
3 THE COURT: Well, I am not going to use the court
4 resources or my time to be a referee about attacks. We are
5 a court of law, and we are here to resolve the legal issues,
6 not attacks.
7 MR. COOLEY: Except what am I to do when the
8 attack is made on me, and I am not allowed to respond?
9 THE COURT: I wouldn't consider an attack on you
10 as having any materiality. I am resolving this case as a
11 judge on legal issues and on facts, so I will go ahead. We
12 don't need to hear the additional witness. I have accepted
13 these declarations on the issue of the irreparable injury to
14 the plaintiff in terms of impact on what -- I have said for
15 purposes of this hearing, I accept as genuinely held
16 religious beliefs by these people. All right.
17 Now, is there anything in addition that you want
18 to put' on the record, Mr. Cooley?.
19 MR. COOLEY: Yes. I guess I have to make some
20 kind of an offer of proof, since I don't have a declaration
21 from Mr. Render. I only planned on him live. I didn't
22 think that he would be excluded, but in any event,
23 Mr. Render would testify that in his capacity as commanding
24 officer of the Office of Special Affairs International, what
25 attacks on Scientology mean, what the exposure of these

32
1 materials means as a matter of sacrilege and as a matter of
2 the free exercise of religion, the religion of Scientology,
3 what it means as to its impact spiritually and
4 ecclesiastically on not only him and every other
5 Scientologist but on every other prospective Scientologist
6 and the religion of Scientology on all of mankind.
7 He would testify that the kind of attacks that
8 have been mounted here are untrue, that the comparison, the
9 lie of saying that the office of Special Affairs
10 International is the same as the old guardians office is a
11 lie; that he participated with present management in making
12 the Church of Scientology the kind of organization that the
13 IRS, after years, decided was being operated in the public
14 interest, was not the pernicious evil empire that these
15 lawyers --
16 THE COURT: (Interposing) Mr. Cooley, I'm sorry.
17 I know you feel strongly about this issue, but we are not
18 talking about attacks on Scientology-
19 MR. COOLEY: Their papers are full of it and they
20 go unresponded to. It's intolerable, Your Honor.
21 THE COURT: But the issues before this Court are
22 whether or not there have been violations of the copyright
23 laws of the United States, whether there have been
24 iviolations of the trade-secrets laws of Virginia and whether
25 or not the Court should use its extraordinary power in terms
33
1 of injunctive relief to enter a preliminary injunction.
2 You have already got a temporary restraining order
3 in effect on Digital and on Lerma. You are coming before
4 the Court now and asking for a preliminary -- I think you
5 do, yes -- but you are asking for a preliminary injunction.
6 Now, the issue in this case is not criticism of or
7 even attacks upon the Church of Scientology. That's clearly
8 protected by the First Amendment, as unpleasant as it may
9 be. The issue is simpler than that. It is whether or not
10 Mr. Lerma has publicly used copyrighted materials exceeding
11 fair-use doctrines of the copyright law.
12 You have brought this case initially under the
13 copyright laws of the United States and under trade
14 secrets. Those were the legal theories under which this
15 case was pled or has been pled, and under copyright law,
16 there are exemptions for fair use, all right. Criticism is
17 a fair use in the public -- in the arena of public
18 expression. All righ t?
19 But we are not using this Court or these
20 proceedings to do some sort of vindication of or attack
21 upon --
22 MR. COOLEY: (Interposing) Then I move to strike
23 all of the attacks in their papers in opposition to this
24 application for a preliminary injunction that deal with
25 anything other than the issues that Your Honor has just

34
1 limited this to.
2 THE COURT: We don't have to worry. There was
3 vitriol on both sides. Let's just focus on the issues.
4 Is there any legal, additional legal authority you
5 want to bring to the Court's attention or legal argument or
6 any factual issues that you want to raise on the preliminary
7 injunction matter?
8 MR. COOLEY: Yes, I am going to put Mr. McShane
9 on, with the Court's permission, to show the infringements
10 and to do a comparison with the materials by having -- the
11 Court have it side by side and being able to look at it.
12 Mr. McShane will point out what it is. We don't plan to put
13 it in the public record.
14 Before we do that, I want to address, though, this
15 question of fair use. Where does Mr. Lerma get any right of
16 fair use? He published these things wholesale on the
17 Internet without any comment whatsoever.. He just took them,
18' downloaded them and banged them into ARS. He has no right
19 of fair use.
20 And you have to understand that his deposition
21 shows without any question that he was acting as the agent
22 of Fact Net when he did it. Fact Net is the company we have
23 sued in Colorado. It's a Colorado-based company.
24 They have acknowledged out there that he was
25 acting as agent. He has acknowledged here that he was
35
1 acting as agent. He has testified, and here is the most
2 striking thing, Mr. Lerma has testified in his deposition
3 that he got these papers from Larry Wallersheim and that he
4 knew when he got them that his job was to scan them into his
5 equipment and post them to the Internet.
6 Larry Wallersheim under oath denies that. We have
7 those papers that we have submitted to you. When those two
8 pieces of testimony are placed side by side, there is no
9 doubt that somebody is not telling the truth, but the fact
10 of the matter is that that's all he did.
11 How does that possibly give rise to any fair use
12 on his part? That wasn't fair use. That was infringement.
13 Do we now confront a situation where a flagrant
14 copyright violation, through the copying which itself is a
is direct infringement, is somehow fair use without comment,
16 and then after the fact, after the fact of that violation
17 having been committed, that somehow we are considering the
18 issue of fair use as it applies to Mr. Wallersheim and to
19 Mr. Lerma?
20 This is the very issue presented to the 10th
21 Circuit, so you see, it is a circuitous bootstrapping
22 operation. Mr. Lerma is not a giant -- a miniature
23 Washington Post, by any stretch of the imagination.
24 Mr. Lerma cannot commit a wrong on a wholesale basis and now
25 say, okay, now I'll have some fair use.
36
1 THE COURT: Mr. Levine, let me hear you respond to
2 that, because I think Mr. Cooley raises an important point
3 here.
4 I will accept for purposes of this hearing your
5 argument that an individual person can also get some of the
6 protection of the right to free press, and certainly
7 publishing something on the Internet is a publication.
8 However, the verbatim quotation from these documents, if
9 they are genuinely copyrighted documents, would appear to be
10 beyond the scope of fair use, would it not?
11 MR. LEVINE: I disagree, Your Honor-
12 THE COURT: All right, you think that the
13 wholesale printing of a copyrighted document on the Internet
14 is something that can be done?
15 MR. LEVINE: I have got two responses to that,
16 Your Honor. First, I think that the characterization of
17 Mr. Cooley that this is wholesale copying of copyrighted
18 documeftts is not accurate and is belied by the record in
19 this case. I think it's very important that I have just a
20 couple of minutes to walk Your Honor through that.
21 THE COURT: -I think in your brief you talk about
22 the total number of pages. You did a ratio comparison.
23 MR. LEVINE: Not just the total number of pages,
24 Your Honor, but also the fact that when you compare the
25 materials that they provided to us in response to our
37
1 discovery request, "Tell us what we have infringed," they
2 gave us a confidential exhibit which is a confidential
3 exhibit to the Koch declaration, that sets forth what they
4 claim are the infringed works, their works that we have
5 infringed.
6 You lay those side by side with what Mr. Lerma
7 posted to the Internet, those excerpts from materials that
8 are contained as exhibits to the Fishman declaration, and
9 you are hard pressed to find anything that matches up,
10 certainly very little.
11 So I think that we are much closer as a matter of
12 fact to someone who is quoting excerpts than someone who is
13 doing wholesale copying.
14 But to get to what I think is the gist of the
15 Court's concern, there is no question that wholesale,
16 complete copying or the use of a copyrighted work can be
17 fair. The Supreme Court said that in the SQny Case, made 'it
18 clear that the amount taken is just one factor in the
19 fair-use analysis, and taking the whole thing can be
20 consistent with fair use.
21 We have cited to the Court several other cases in
22 which that is the case. The one that I think is closest to
23 this is the Belmore Case (phonetic), which I have the cited
24 in our brief.'
25 THE COURT: Well, if it's in your brief, we have
38
1 it
2 MR. LEVINE: It's 880 Fed Sup, 673 -- I'm sorry,
3 Your Honor --in which there was a letter that was written, a
4 long letter that the plaintiff claimed copyright in that the
5 defendant claimed needed to be put out there in whole so
6 that there would be no misunderstanding about what this
7 plaintiff had said with respect to a matter of public
8 concern. The Court said that that was fair use.
9 We have also cited the Court to the Rockbar Case
10 (phonetic), where somebody tape-recorded an entire lecture
11 that somebody gave and republished it to show in the face of
12 charges by the plaintiff in that case that he hadn't said
13 what he was supposed to have said, that he did too say it.
14 He did, in fact, say it.
15 In this case, you have heard Mr. Cooley talk quite
16 movingly about their claims that OT-8 is a forgery and that
17 it's.a scurrilous attack on the.religion.
18 That issue, the authenticity of these OT
19 materials, whether or not they accurately reflect what the
20 church is about and what the church does, is debated every
21 day on Religion Scientology on the Internet. It's debated
22 all over the place. Mr. Lerma was posting
23 publicly-available-at-the-time court documents for the
24 purpose ot contributing to'that debate.
25 There is a case in the Supreme Court, Your Honor,
39
1 called Mason vs. The New Yorker Magazine. It's all about
2 the fact that a writer is alleged to have misquoted a
3 source, and the source brought a libel case based on it.
4 The Supreme Court in that case -- the lower courts
5 in that case had made it very clear that there is importance
6 to accurate quotation, because accurate quotation is able to
7 show people that by paraphrasing you aren't misdescribing,
8 you aren't pulling the wool over somebody's eyes about
9 what's actually being said.
10 These materials are the subject of an important
11 public controversy. Putting them out there, the limited
12 portions that are attached as exhibits to the Fishman
13 declaration, are important contributions to that public
14 debate.
15 The last point I want to make, Your Honor, is that
16 the fair-use factor that deals with the amount and
17 substantiality of the amount taken is one of four factors,
18. and the Supreme Court has said that the four factors are not
19 exclusive, that the Court must look at other things.
20 I would suggest to the Court that even if we are
21 not as strong as the Post on that one factor, which I
22 concede we are not because we used more than they did, we
23 are equally as strong on the other three. We are equally as
24 strong on the oth6r factors that we think the Court can and
25 should take into account, especially in the context of this
40
1 request for an injunction.
2 In the Campbell vs. Acock Rose Case, the Supreme
3 Court went out of its way to quote from Judge Levalls
4 article and say that injunctive relief in this context when
5 you are talking about matters of public concern and works to
6 which there is at least a reasonable claim of fair use is a
7 different story than awarding damages after the fact.
8 And that is where the prior-restraint law comes
9 into play. We would suggest to the Court that it is very
10 important that when you consider this motion, which is a
11 preliminary injunction, you realize the extraordinarily
12 heavy burden that they have in the face of Mr. Lerma's claim
13 that these materials, which came from a court document --
14 what is in this record as what Mr. Lerma posted is on its
15 face a declaration, stamped by a court with exhibits
16 attached.
17 THE COURT: All.right. Were.you at all involved
18 -- you would not have been -- but are you aware of how long
19 the preliminary injunction hearing in Colorado went, the one
20 Judge Chambers ruled on?
21 MR. LEVINE: Yes, I am, Your Honor. Mr. Cooley
22 can correct me if I am wrong.
23 MR. COOLEY: Three days, Your Honor.
24 MR. LEVINE: I think that is approximd-Lely
25 correct.
4 1
1 THE COURT: That was a three-day hearing, okay.
2 In that case, because the opinion or the
3 transcript is relatively short, at least what was submitted
4 to me, I guess, by you all, were there the same types of
5 allegations in terms of the pages having been copied from
6 the OT documents?
7 MR. LEVINE: Your Honor, that is a very important
8 point. It is identical. We have attached -- in that filing
9 we made the other day, we have attached their complaint in
10 that case.
11 It is important for the Court to understand that
12 what Fact Net, of which Mr. Lerma is a director,
13 Mr. Wallersheim and Mr. Penny, the three individual
14 defendants in that case were alleged to have done was to
15 sponsor Mr. Lerma's postings of these materials. It's the
16 exact same posting, the exact same allegations, the exact
17 same facts.
18 The only reason they were in Colorado is because
19 they couldn't get a seizure order out of this Court, because
20 you didn't have jurisdiction to enter one; so they went to
21 Colorado.
22 It is exactly the same facts. There is no
23 difference. The Court basically went along with the
24 reasoning that Your Honor had used in her ruling with
25 respect to the Post and went down the line and adopted it.
42
1 That ruling was made available to the Court and was part of
2 the record in that case.
3 So not only would we argue that this Court's
4 ruling with respect to the Post ought to be binding with
5 respect to Mr. Lerma, at least to the extent of the request
6 for a prior restraint and injunctive relief, but the ruling
7 in Colorado is four square with respect to the exact same
8 conduct that is at issue here.
9 Let me make one other point. The order that we
10 would ask the Court to enter in this case is exactly the
11 same one that you entered with respect to the Post and the
12 one that was entered in Colorado.
13 Mr. Lerma doesn't seek to wholesale post this
14 stuff any further and is willing to have an order entered
15 that basically says that he is restricted to making fair use
16 of the works just like the Post is and just like the
17 defendants in Colorado are.
18 What he wants is nd preliminary injunction, a
19 return of all of his seized materials, which my colleague
20 Mr. Sullivan, will speak to those issues, and the ability to
21 basically get back on.with his life as a participant in this
22 democracy.
23 THE COURT: Mr. Cooley?
24 MR. COOLEY: Mr. Lerma is not entitled to those
25 things. How in the world can Mr. Lerma say I want to be
43
1 able to engage in fair use? He didn't engage in fair use
2 to begin with.
3 Now, one thing is clear. The Colorado case is
4D 4 the, just the other-participant aspect of this case, and the
5 reason we didn't bring it here is we were worried about
6 jurisdiction to enter a seizure order for Colorado. So we
7 went to where the material was; and we got it. And a
8 temporary restraining order was issued by a judge other than
9 Judge Kane, I might add.
10 Judge Kane conducted a three-day hearing, you are
11 quite correct. But there is a striking difference there.
12 We are confronted with the conflicting testimony I told you
13 about.
14 Judge -- I mean, Larry Wallersheim says, I didn't
15 send Lerma the materials. I didn't tell Lerma to post them,
16 to download them, I mean to scan them into his hard drive,
17 and I didn't tell him to post them to the Internet.
18 Where in the world, I said to him, did Mr. Lerma
19 get the idea that you did? Because Mr. Lerma said he got
20 the materials from Wallersheim, that Wallersheim told him
21 that the materials came out of Wallersheim's optical archive
22 and that he knew when he got them that his job was to scan
23 them into his drive and send them out on the Internet.
24 Well, now, Judge Kane paid no attention to that
25 conflict in testimony. I respectfully submit to Your Honor
44
1 that's a pretty important matter, that there is hard
2 swearing on both sides of that issue by co-directors of the
3 same corporation. So who was kidding whom here?
4 The name of the game, I think the inference is
5 clear, was for Wallersheim to get those things up on the
6 Internet under cover of somebody else. What upset
7 Wallersheim is that his cover got blown, because Lerma did
8 it too quickly.
9 And now Wallersheim had to cover Lerma with his
10 insurance policy in order to protect him so he could defend
11 himself with counsel that could be paid. So he came in and
12 he had to adopt it. We got evidence of phone calls back and
13 forth.
14 We have got the attachment that was, that Mr.
15 Lerma made to the material that he sent to Mr. Wallersheim
16 saying here is the first two-fifths of the material; did
17 that.on July 31st, July 30th. Then on July 31st, he says
18- here is the rest of it, of the material, the other
19 three-fifths.
20 So now, it appears in seven, eight, ten different
21 spots on Wallersheim's computer, okay, and now it's on the
22 Internet. Wallersheim says he never even knew he posted
23 it. I didn't know he posted it.
24 When did he know? September, maybe the 5th, maybe
25 yesterday.
45
1 Well, the fact of the matter is he got it
2 communicated to him with an E-Mail cover letter right
3 attached to it the day before it was posted. It was posted
4 on the 1st and the 2nd of August.
5 So this has been done pursuant to design. It
6 hasn't been done for fair use. Where is the fair use?
7 Where is the comment? Here it is, gang. Download it if you
8 want.
9  There is no evidence of who has done that, but
10 that was what the game plan was, and it was consistent with
11 the ARS game plan. It has been articulated from the
12 beginning, copy, copy, copy, copy, copy because they can't
13 sue us all. So with a push of the electronic button,
14 copyright and trade-secret law is wiped out on the Internet.
15 Well, if that's the direction we are going in
16 under the banner of fair use, I say it repeals
17 Constitutional protection afforded to intellectual property
18 that predates the Bill of Rights, because it was recognized
19 in the Constitution before the first ten amendments were
20 ever enacted.
21 THE COURT: All right.
22 MR. COOLEY: And that's all that's being done
23 here. This fair-use doctrine does not apply, has no
24 application whatsoever in a trade-secret area. No"ei -Lt@is
25 an amorphous kind of a concept to be sure in the copyright
46
1 area, but one thing is pretty clear. I don't know of a
2 single case that has ever applied it in circumstances
3 similar to these.
4 I would like to put Warren McShane on the witness
5 stand to testify to the infringements and the comparisons
6 that counsel has just said don't exist.
7 THE COURT: We have extensive McShane affidavit
8 material or deposition, I forget which it is, but --
9 MR. COOLEY: (Interposing) We don't have the
10 comparison of the materials, Your Honor. See, we now for
11 the preliminary injunction wish to have Mr. McShane present
12 to Your Honor what the list of infringements is, where they
13 came from, and compare them with the copyrighted works. We
14 have got that burden on this. I would like to be able to
15 discharge it.
16 THE COURT: Was that done in the Colorado case?
17 MR. COOLEY: Oh, yes. He was. on twice in the
18 Colorado case, and he did that ver exercise.
.19 THE COURT: All right, Mr. Levine?
20 MR. COOLEY: Yes. It was a different infringment
21 hearing, there is no question about that, but he was allowed
22 to do it in Colorado. We can't possibly rest on that. We
23 don't even have the transcript on that hearing yet. This
24 Court has to make independent findings.
25 THE COURT: Mr. Levine?
4 7
1 MR. LEVINE: Let me just make a few points, Your
2 Honor, not that it matters very much anyway but I feel like
3 I need to correct Mr. Cooley on this issue of where the
4 materials came from.
5 Mr. Lerma testified in his deposition and it's
6 quite clear that he got the materials in an envelope from a
7 source he does not know that had a return address that he
8 couldn't remember; that he spoke to Mr. Wallersheim sometime
9 afterwards, told him that he had gotten these materials, and
10 Mr. Wallersheim told him that those materials came from the
11 Fact Net optical archives.
12 There is no question that Fact Net has assumed
13 responsibility for Mr. Lerma's posting, has posted on the
14 Internet far and wide well before they were sued in this
15 case, that Mr. Lerma was doing this pursuant to his role as
16 a director of Fact Net.
17 Fact Net was the initial named party in the suit
18 in Colorado, and there is' no question that that proceeding
19 involved Fact Net through Mr. Lerma's liability fo r doing
20 what he is accused in this case of doing.
21 Second, with respect to the issue of fair use not
22 being applicable in trade secrets, I think that that is
23 probably right, because there is no such thing as a fair-use
24 lpart of the'Virginia trade-secret law. There are
25 definitions, however, of what constitutes a trade secret in

1 the Virginia statute. There are definitions about what
2 constitutes use of a trade secret and there are definitions
3 about what constitutes misappropriation of a trade secret,
4 none of which they are able to meet here.
5 More importantly, there is a case that we have
6 cited to the Court called CBS vs. Davis in which Justice
7 Blackmun sitting as a circuit justice in one of his very
8 last acts as an active Justice of the Supreme Court turned
9 back the very thing that the plaintiffs are trying to do
10 here, an attempt by a plaintiff to secure a preliminary
11 injunction based on a claim of trade secrets. The First
12 Amendment, Justice Blackmun held, trumps trade-secret law.
13 The Supreme Court held in New York Times vs-
14 Sullivan that we don't care what label a cause of action
15 has. Whether it's libel, obscenity, fighting words,
16 incitement, what have you, it must be measured by standards
17 that satisfy the First Amendment.
18 Trade secrets, Justice Blackmum quite rightly said
19 in the CBS vs. Davis Case, is no different.
20 One other point: I want to make clear for the
21 record that the first-argument in our brief in opposition to
22 their motion for a preliminary injunction is the fact that
23 they have forfeited any right they have to injunctive relief
24 by their unclean hands in connection with the seizure and
25 the search.
4 9
1 As Your Honor pointed out, those issues are
2 inextricably related, but I want to make clear that it's a
3 separate and independent argument as to why the motion for a
4 preliminary injunction should be denied. We are relying on
5 the arguments that my partner, Mr. Sullivan, is prepared to
6 address with respect to the search and the seizure.
7 Finally, with respect to Mr. McShane, I must
8 object to any further testimony by Mr. McShane for the
9 following reasons:
10 He has already submitted, I think, now five
11 declarations in this case. He has been deposed for a
12 day-and-a-half. They have had more than ample opportunity
13 to have Mr. McShane tell this Court anything that he wants
14 to in connection with this case.
15 In the Colorado case, there were no declarations
16 and briefing of the sort that this Court has ordered. They
17 were on a much faster track. It was understood all along,
la that all testimony would be submitted through live
19 witnesses. That is not the case here.
20 But most importantly, this morning at 10:00, as we
21 were getting ready to come over here, we were delivered by
22 Mr. Cooley and his co-counsel an exhibit that we have never
23 seen before, their purported demonstration of the comparison
24 of the infringed works and the infringing works.
25 THE COURT: I don't think we even have that. Do
50
1  we have that?
2 MR. COOLEY: Mr. McShane has that. I was going to
3 put him on and give Your Honor a copy and deal with it
4 orally. But I wanted to serve it on counsel.
5 MR. LEVINE: Yes, an hour befo.Ve the hearing.
6 Their papers also suggest that Mr. McShane has
7 come prepared with charts and things that he is going to
8 refer to in his testimony. We have never seen any of this.
9 It apparently includes things that they claim to have found
10 on Mr. Lerma's hard drive and in his disks which we have
11 never been told about before. We asked them in discovery to
12 tell us what are the infringed works. They produced
13 something to us which we have produced to the Court. We
14 have relied on that.
15 We have asked them to tag for us on the disks that
16 they seized what they claim to be infringing works. We have
17 noticed on this list just based.on a preliminary review of
18 it that there are things on this list that they claim were
19 noninfringing in the stuff that they produced to us in
20 discovery. There are other things that are new.
21 We have not had a fair opportunity. They have had
22 all of Mr. Lermals material since August 12th. I think it
23 would be very unfair to allow Mt. McShane to now come on at
24 the llth-and-a-half hour to come on and put on new
25 allegations, especially when up through almost the entire 30
5 1

To be continued in part  three