Ninth Circuit Hearing In The Bernstein Case

by Stewart Baker
sbaker@steptoe.com

Last week a three judge panel of the Ninth Circuit U.S. Court of Appeals heard the government's appeal of the district court decision in the Bernstein case. This was an appeal of the August ruling by Judge Marilyn Hall Patel of the U.S. District Court in San Francisco, who found the Commerce Department export controls on encryption source code and software to be an unconstitutional prior restraint on free speech.

According to the reports of the oral arguments, the judges appeared skeptical of the government's arguments in support of encryption controls. Even so, it is unlikely that the Ninth Circuit will strike down all export controls. If it does find in favor of Bernstein, its holding will likely be narrowly tailored. In any case, any decision against the government almost certainly will be appealed to the Supreme Court.

BACKGROUND

This case began in 1993, when the State Department still had jurisdiction over commercial encryption exports, and such exports were governed by the International Traffic in Arms Regulations ("ITARs"). In July 1993, Professor Daniel Bernstein submitted to the State Department a commodity jurisdiction ("CJ") request with regard to an encryption algorithm he developed called "Snuffle." The State Department informed Bernstein that Snuffle was a defense article under the ITARs and could not be exported without a State Department license. Bernstein filed suit, arguing principally that the ITARs violated the First Amendment in that they were a content-based infringement on speech and acted as a prior restraint on speech. The government moved to dismiss, arguing that the Snuffle source code was not speech entitled to First Amendment projection, and that even if it was speech, the State Department's regulations satisfied the appropriate standard under the First Amendment.

The first significant decision in this case was on April 15, 1996, when U.S. District Court Judge Marilyn Patel rejected the Justice Department's motion to dismiss Bernstein's challenge. The court's decision focused on whether the Snuffle source code was speech protected by the First Amendment, as opposed to "conduct," as argued by the Justice Department. The court held that, for several reasons, the source code should be considered speech. The court saw computer language as akin to any other languages (e.g., German or French), allowing the communication of "understood meanings within specific communities." The court said that it was irrelevant that the source code also was functional (i.e., the Snuffle algorithm was not only about encryption, but -- when compiled into object code -- could encrypt and decrypt). Finally, the court noted that computer software is entitled to copyright protection, which is intended to protect original expression, supporting the conclusion that source code is a means of original expression and should be treated as speech.

Having found that the Snuffle source code was entitled to protection as speech, the court analyzed whether the ITAR control was consistent with the First Amendment. The court found that Bernstein had a colorable claim that the ITAR control of Snuffle violated the First Amendment, simply stating that the ITAR control appeared to "relate to the 'suppression of free expression' and may reach farther than is justifiable."

Following the court's rejection of the government's motion to dismiss, both parties filed motions for summary judgment. In December 1996, Judge Patel granted Bernstein's motion. In doing so, Judge Patel reiterated her earlier determination that source code is speech and held that the ITAR licensing scheme for cryptographic source code and software acts as an unconstitutional prior restrain on speech in violation of the First Amendment.

These decisions were made while jurisdiction over encryption exports was at the State Department and were governed by the ITARs. However, on December 30, 1996, jurisdiction was transferred to the Commerce Department and new regulations were published. In response, Bernstein filed a new complaint, and Judge Patel scheduled a new hearing to determine whether the constitutional defects that she found in the State Department regulations continue to exist in the Commerce Department regulations. The hearing was held in June of this year, and on August 25, she announced her ruling. In holding the Commerce Department regulations unconstitutional, she echoed the reasoning of her earlier rulings.

Although Judge Patel limited her August holding so that it applies only to Professor Bernstein and his "Snuffle" algorithm, the government appealed the ruling to the 9th Circuit Court of Appeals.

ANALYSIS

The press reports of last week's Circuit Court hearing indicated that the judges appeared skeptical of the government's positions. The judges reportedly "grilled" the government attorney on a number of points, often cutting him off mid-sentence. By contrast, the judges appeared more sympathetic towards Bernstein's attorney.

Two of the judges, Betty Fletcher and Myron Bright, openly questioned the government's position that encryption software is not protected by the First Amendment because it is "functional" rather than expressive. Judge Fletcher has a reputation as a liberal who is normally sympathetic to First Amendment claims, and Judge Bright is considered somewhat more moderate but also a supporter of free speech principles. The third judge, Thomas Nelson, is considered moderate to conservative, and did not appear quite as skeptical of the government's basic positions. He did, however, express some doubts regarding certain aspects of the government's argument.

The Circuit Court could take one of several different positions. Despite the judges' active and critical questioning of the government attorney, it is possible that they could find for the government and overturn Judge Patel's opinion. The Circuit Court could find that Judge Patel's reading of the First Amendment was overly broad, or, alternatively, it could hold that the lower court's inquiry resulted in an improper consideration of a political question (as another district court did in the Karn case).

On the other hand, the Circuit Court could find that the export regulations are invalid on the alternate grounds that they are not a content neutral regulation of speech (Judge Patel stated that the procedural safeguards are required whether or not the regulations are content neutral, so she did not decide this issue). Or the Circuit Court could simply adopt the reasoning of Judge Patel's opinion.

For several reasons, however, the effect of such ruling is likely to be quite limited. One such reason is that this case arises in an academic and scientific context. Speech in an academic context will generally receive greater protection under the First Amendment than commercial speech. For example, according to an opinion of the U.S. Department of Justice, Office of Legal Counsel, while restrictions on what a person may say or write may, in some circumstances, result in an unconstitutional prior restraint on speech:

"[t]he licensing requirement of the ITAR may constitutionally be applied to transactions involving arrangements entered into by exporters to assist foreign enterprises in the acquisition or use of technology; it may also be applied to transactions involving the dissemination of technical data for the purpose of promoting the sale of technical data or items on the Munitions List, since the prior restraint doctrine has only limited applicability to 'commercial speech.'"

5 Op. Off. Legal Counsel 202 (1981).

In footnote 8 of her initial opinion in this case, Judge Patel notes that "[t]he court recognizes that [commercial] vendors . . . have different speech interests in cryptography than academic scientists." And in her latest opinion, addressing the Commerce Department regulations, she states "while the export of a commercial cryptographic software program may not be undertaken for expressive reasons, that same activity . . . is often undertaken by scientists for purely expressive reasons." It thus appears likely that even a decision upholding Judge Patel's ruling will have little applicability to manufacturers and exporters of commercial encryption products.

Another reason a Ninth Circuit opinion is likely to have a limited effect is that the major problems identified by Judge Patel are largely procedural. Her opinions do not state that there cannot be export controls on encryption software and source code, they merely states that if there is going to be a licensing scheme, certain procedural safeguards must be in place. In her prior restraint analysis, Judge Patel found that in order for licensing schemes such as that at issue here to be valid, three criteria must be met: 1) there must be a reasonable and specific time limit on the licensing decision; 2) prompt judicial review of licensing decisions must be available; and 3) the licensing authority must have a duty to go to court and defend a license denial.

Because the Commerce Department's licensing scheme does not have meaningful time limits for a final determination on a license application, does not provide for judicial review of negative determinations, and has virtually no standards for deciding an application, Judge Patel found that the regulations operate as a prior restraint of speech in violation of the First Amendment. But this prior restrain analysis leaves open the possibility that procedures and standards could be developed such that a licensing scheme for encryption software and technology would be constitutionally permitted.

Finally, any Ninth Circuit opinion that invalidates a part of the export regulations will undoubtedly be appealed by the government to the Supreme Court. As you may know, very few opinions from the Ninth Circuit have been upheld by the Supreme Court in recent years.

An opinion from the Ninth Circuit is expected sometime early next year.

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