* Major victory for video game industry
* Free speech versus protecting minors from violence
* Court said video games protected like books, movies (Adds details from ruling, dissent, more reaction)
By James Vicini
WASHINGTON, June 27 (Reuters) - Governments cannot ban the sale or rental of violent video games to minors because it would violate free-speech rights, the U.S. Supreme Court said on Monday in its first ruling in a video game case.
By a 7-2 vote, the high court struck down a California law, which also imposed strict video game labeling requirements, as unconstitutional. It said video games, like books, plays and movies, deserve free-speech protection.
The ruling was a victory for video game publishers, distributors and sellers, including the Entertainment Software Association. Its members include Disney Interactive Studios (DIS.N), Electronic Arts ERTS.O, Microsoft Corp (MSFT.O) and Sony Computer Entertainment America (6758.T).
Michael Gallagher, the trade association's president, hailed the ruling as a "historic and complete win" for free-speech rights and "the creative freedom of artists and storytellers everywhere."
The Supreme Court's majority opinion written by Justice Antonin Scalia rejected California's argument that violent video games should be banned just like the sale of sexually explicit material to minors.
Scalia also rejected the argument by California lawmakers who cited studies that suggested violent video games can be linked to aggressive and anti-social behavior in children.
Leland Yee, a California state senator and the law's author, criticized the ruling. "The U.S. Supreme Court is supposed to to take care of the people of this country. They have failed miserably, particularly our children, with this particular defeat," the Democrat from San Francisco said.
California's 2005 law has never taken effect because of the legal challenge. At issue were popular video games such as Warner Bros. (TWX.N) Entertainment Inc's "Mortal Kombat" and Take-Two Interactive Software Inc's (TTWO.O) "Grand Theft Auto."
The law defines a violent video game as one that depicts "killing, maiming, dismembering or sexually assaulting an image of a human being." Retailers who sold or rented a violent video game to a minor could be fined as much as $1,000.
The U.S. video game industry makes about $10.5 billion in annual sales. More than two-thirds of U.S. households include at least one person who plays video games, according to industry statistics.
Six other states have adopted similar laws and all had previously been struck down in court.
SAME BEHAVIOR FROM WATCHING CARTOONS
Scalia said the state's expert testified he found the same effects when children watched television cartoons starring Bugs Bunny or the Road Runner or viewed a picture of a gun.
Scalia cited famous books for children throughout history that have depicted violence.
"Grimm's Fairy Tales, for example, are grim indeed," he said with examples of Snow White's poisoning, Cinderella's evil stepsisters having their eyes pecked out by birds and Hansel and Gretel killing their captor by baking her in an oven.
Scalia said parents, not the government, should decide what games their children can buy and play. He said the video game industry has a rating system designed to inform consumers and store owners which games were violent.
Justices Clarence Thomas and Stephen Breyer dissented.
"What sense does it make to forbid selling to a 13-year-old boy a magazine with an image of a nude woman while protecting a sale to that 13-year-old of an interactive video game in which he actively, but virtually, binds and gags the women, then tortures and kills her?" Breyer asked.
Parents Television Council President Tim Winter denounced the decision, saying, "Retailers can now openly, brazenly sell games with unspeakable violence and adult content even to the youngest of children."
But John Riccitiello, CEO of Electronic Arts, a major video game publisher, said, "Everybody wins on this decision. The court has affirmed the constitutional rights of game developers; adults keep the right to decide what's appropriate in their houses; and store owners can sell games without fear of criminal prosecution."
The Supreme Court case is Brown v. Entertainment Merchants Association, No. 08-1448. (Additional reporting by Liana Baker in New York, Jill Serjeant in Los Angeles and Peter Henderson in San Francisco; Editing by Bill Trott)