In a 9-2 vote, the 9th U.S. Circuit Court of Appeals agreed with three lower court judges who chastised investigators who had a warrant for only 10 drug test results.
Yankees star Alex Rodriguez and Red Sox slugger David Ortiz both have acknowledged being on the list, and The New York Times has reported the Dodgers' Manny Ramirez and Sammy Sosa also can be found on it.
The panel said federal agents trampled on players' protections against unreasonable searches and seizures.
The government seized the samples and records in April 2004 from baseball's drug-testing companies as part of the BALCO investigation into Barry Bonds and others. The list of 104 players said to have tested positive, attached to a grand jury subpoena, has been part of a five-year legal fight, with the players' union trying to force the government to return what federal agents took during raids.
"This was an obvious case of deliberate overreaching by the government in an effort to seize data as to which it lacked probable cause," wrote Chief Judge Alex Kozinski.
He said the case was a significant test of the government's search and seizure powers in the digital age, and issued guidelines for investigators to follow in future raids that included submitting computers to independent computer experts for sorting of data.
Bay Area Laboratory Co-Operative founder Victor Conte has long been critical of the actions of the government, especially then lead investigator Jeff Novitzky.
"I have said that Novitzky has been using illegal tactics and not following the law since the day of the BALCO raid," Conte said. "He seems to just make up his own rules as he goes along."
U.S. attorney spokesman Jack Gillund in San Francisco said the government was reviewing its options, which could include an appeal to the U.S. Supreme Court.
Players' association lawyer Elliot Peters said the union was happy with the ruling but still angry that names of several players allegedly on the list have been leaked to journalists.
"The leaks were crimes," Peters said. "The people who committed the crimes should be investigated and punished."
Peters declined to say whether he asked a federal judge to look into leaks from the list.
"If the government hadn't unconstitutionally seized this in the first place, there wouldn't have been any leaks," Peters said.
The list's genesis goes back six years, to the time when an agreement between MLB and the players' association on drug policing was just being implemented.
In 2003, baseball conducted survey drug testing - without penalties. Each player provided a urine sample and an additional follow-up five-to-seven days later. Up to 240 players could be selected randomly for additional testing.
Two companies were involved, Comprehensive Drug Testing Inc. of Long Beach, Calif., and Quest Diagnostics Inc. of Teterboro, N.J., and samples were marked with codes to keep track as they were processed.
The players' association said it first received the results of the initial round of drug testing on Nov. 11, 2003, and sent a memo on the subject to its members on Nov. 14.
"Promptly thereafter, the first steps were taken to begin the process of destruction of the testing materials and records," union head Donald Fehr said.
But on Nov. 19, the union learned a federal grand jury subpoena had been issued for some of the test results and records as part of the BALCO investigation and the destruction steps halted.
Months of wrangling followed but federal agents finally got a search warrant and seized samples from a Quest lab in Las Vegas and records from CDT in Long Beach on April 8, 2004.
Records the 9th U.S. Circuit Court of Appeals now says the government never should have taken.