WASHINGTON, Oct 17 (Reuters) - The U.S. Supreme Court said Monday that it would decide whether a federal law making it a crime to lie about being awarded a military medal or decoration violated free-speech rights.

The justices agreed to review a ruling by the 9th Circuit Court of Appeals that struck down the "Stolen Valor Act," which was passed by the U.S. Congress in 2006, because the law went too far in infringing on freedom-of-speech protections under the First Amendment.

The law targets individuals who falsely claim, verbally or in writing, they won a military decoration or medal. Violators can face up to six months in prison, or up to one year if elite awards, including the Medal of Honor, are involved.

In the 9th Circuit decision, the majority ruled against the government and said that the false speech criminalized by the Stolen Valor Act was not protected by the First Amendment. The judges said that if lying about a medal can be classified a crime, so can lying about one's age or finances on Facebook or falsely telling one's mother one does not smoke, drink, have sex or speed.

The Supreme Court said it would hear an appeal by the Obama administration defending the law as constitutional and arguing it served an important role of protecting the integrity of the nation's military honors system.

The case involves Xavier Alvarez, who was elected to a California water board in Pomona. He introduced himself at a board meeting in 2007 and said he was a retired Marine who won the Medal of Honor, the nation's highest military decoration.

Alvarez, described in court documents as a congenital liar, never received the award and never served in the military.

The FBI got a recording of the meeting and in 2007 Alvarez became the first person charged under the law. He pleaded guilty and was sentenced to pay a $5,000 fine and perform more than 400 hours of community service at a veterans hospital.

He then challenged the law for violating his free-speech rights.

By a 2-1 vote, the 9th Circuit, based in San Francisco, threw out his conviction and ruled the government cannot bar speech simply because it was factually false. It noted the misrepresentations caused no harm or danger.

The appeals court used a strict scrutiny standard, which applies to content-based speech restrictions, to decide the case in favor of Alvarez. The standard required the government to show the Stolen Valor Act's prohibition on speech was "narrowly tailored to achieve a compelling governmental interest."

In applying the standard, the judges said that Congress has "an interest, even a compelling interest" in preserving the integrity of its military honors system. However they found it was "speculative at best" to conclude that the act was narrowly tailored to preserve that interest. The government's subsequent appeal for a rehearing en banc was denied.

U.S. Solicitor General Donald Verrilli appealed to the Supreme Court. He said the law prohibited only a narrow category of knowingly made false factual claims, lies that steal the honor and prestige associated with military medals.

He said cases challenging the constitutionality of the Stolen Valor Act are pending in the 4th, 8th, 10th and 11th circuits.

Jonathan Libby, a deputy federal public defender in Los Angeles who represented Alvarez, urged the Supreme Court to reject the appeal because the question did not involve broad importance and the appeals court simply applied settled law.

He said Alvarez made his false claim introducing himself as an elected officer at a political event, a water district meeting, and was unconstitutionally punished for political speech.

Libby said that in the nearly five years since the law went into effect, 45 cases that have been brought.

Legislation was introduced in the U.S. House of Representatives in May to amend the law to make misrepresentations about receiving a medal or decoration a crime only if there had been intent to profit.

The Supreme Court is expected to hear arguments in the case early next year, with a ruling likely by the end of June.

In addition to the Alvarez case, the Supreme Court agreed on Monday to hear another case involving the federal government.

The justices will hear arguments over whether federal courts have jurisdiction over federal employees' requests for injunctive relief and other equitable claims. The case, Elgin v. U.S. Department of Treasury, involves four government workers who were fired for refusing to register for selective service, which is required for federal employees. The four employees sued in federal court, claiming their due process rights had been violated. When their case reached the 1st Circuit, the court acknowledged a split in circuit courts and upheld the district court's holding that federal courts are precluded for granting equitable relief for constitutional injuries.

The Supreme Court case is United States v. Xavier Alvarez, No. 11-210.

The appeals court case was USA vs. Xavier Alvarez, No. 08-50345

For the petitioner: Donald Verrilli, U.S. Solicitor General

For the Respondent: Jonathan Libby, Deputy Federal Public Defender

(Reporting by James Vicini; additional reporting by Rebecca Hamilton and Erin Geiger Smith in New York)

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