The case was closely watched as a test of how much protection companies can expect in California for trade secrets that become widely distributed online.
The plaintiff, the DVD Copy Control Association, had argued that Andrew Bunner violated its intellectual property rights by posting on the Internet code known as DeCSS that can be used to bypass Hollywood's encryption scheme for DVDs. Bunner's attorneys had countered that the code was no longer a secret by the time he posted it on his Web site.
On Friday, California's Sixth Circuit Court of Appeals agreed, reversing a trial judge's order first issued in 1999.
"The preliminary injunction...burdens more speech than necessary to protect DVD CCA's property interest and was an unlawful prior restraint upon Bunner's right to free speech," the three-judge panel wrote in its decision.
The decision ends the last strand of Hollywood's legal attack on DeCSS in the United States, an effort that began when Norwegian programmer Jon Johansen posted DeCSS on the Internet. A criminal case against Johansen in his home country was.
The ruling does not make it legal in California to post DeCSS online--an action that has been found illegal by a federal appeals court. But the case does mark a rare victory for free speech advocates in the United States facing off with Hollywood over encryption technology that hampers DVD copying and prevents discs from playing on unauthorized machines.
The motion picture industry won a key decision last week, with a federal judge in San Jose, Calif., ordering the company to pull its products from stores. That decision came two years after a federal appeals court in New York found that and upheld a lower court order prohibiting publisher 2600 from linking to the code from its Web site.
Those cases applied a federal law known as the Digital Millennium Copyright Act (DMCA), which makes it illegal to circumvent copy-protection schemes or traffic in circumvention tools.
By contrast, the Bunner case dealt with California state trade secrets law, addressing technical arguments over what practices constitute trade-secret violations and what steps companies must take to preserve their claims to secrecy after proprietary information is made public.
Bunner attorney Allon Levy of Hopkins & Carley in San Jose, Calif., said the decision establishes important protections for software programmers who use legal methods to learn about proprietary products. According to Levy, programmers had gleaned information used to create DeCSS using widely accepted software engineering techniques known as reverse engineering. Had the DVD CCA prevailed in the case, he said, programmers would have faced new uncertainties over trade-secret claims asserted against legitimately created products.
"The court found that reverse engineering is presumptively legal, something the plaintiff had fought tooth and nail against," he said.
The DVD CCA has long argued that posting DeCSS online is illegal under federal and California state law. But, in a surprise move earlier this year,.
"The DVD CCA is disappointed by and disagrees with today's decision by the California Court of Appeals," the group said in a statement. "We are reviewing the ruling in its entirety to determine our next steps in this case."
CNET News.com's Richard Shim contributed to this report.