UPDATE 2-Court finds Calif. video game law unconstitutional

* Law's author urges state to appeal to U.S. Supreme Court (Recasts first paragraph; adds detail from opinion, comment from video game companies, analysts, byline)

By Gina Keating

LOS ANGELES, Feb 20 A U.S. appeals court ruled on Friday that a California law restricting the sales and rental of violent video games to minors and imposing labeling requirements is too restrictive and violates free speech guarantees.

The Ninth U.S. Circuit Court of Appeals found that the labeling requirement unfairly forces video games to carry "the state's controversial opinion" about which games are violent.

The unanimous opinion by a three-judge panel could have a far-reaching impact on efforts by other states to establish mandatory video game labeling requirements.

The court upheld a lower court finding that California lawmakers failed to produce evidence that violent video games cause psychological or neurological harm to children.

"Even if it did, the Act is not narrowly tailored to prevent that harm and there remain less restrictive means of forwarding the state's purported interests," the court wrote.

Those alternative measures include the voluntary ratings system established by the Entertainment Software Rating Board, educational campaigns and parental controls, the court said.

State Sen. Leland Yee, the author of the legislation, said he will urge California Attorney General Jerry Brown to appeal the court's ruling to the U.S. Supreme Court.

"I've always contended that the ... law the governor signed was a good one for protecting children from the harm from playing these ultra-violent video games," Yee told Reuters. "I've always felt it would end up in the Supreme Court."

Bo Andersen, president and chief executive of the Entertainment Merchants Association, said the ruling vindicates his group's position that "ratings education, retailer ratings enforcement, and control of game play by parents are the appropriate responses to concerns about video game content."

Andersen and Michael Gallagher, president and CEO of the Entertainment Software Association, urged the state to abandon any further appeals of the case.

"This is a clear signal that in California and across the country, the reckless pursuit of anti-video game legislation like this is an exercise in wasting taxpayer money, government time and state resources," Gallagher said in a statement.

The 2005 law, which requires games described as violent to carry an "18" label, has been contested by video game publishers, distributors and sellers.

A lower court had barred the law from taking effect in 2006, and later invalidated it. The state appealed that case, titled Video Software Dealers Association v. Arnold Schwarzenegger (CV-05-04188), last October.

Entertainment Software Association members include Disney Interactive Studios (DIS.N), Electronic Arts ERTS.O, Microsoft Corp (MSFT.O), THQ Inc THQI.O, Sony Computer Entertainment America (6758.T), and Take-Two Interactive Software (TTWO.O). (Reporting by Gina Keating; additional reporting by Jim Christie in San Francisco; editing by Gerald E. McCormick, Richard Chang)