Different types of intellectual property law protect different things. Copyright law prohibits unauthorized copying of creative expression, but not facts (not even if those facts are embodied in creative expression). Trade secret law can protect facts, but only when they are competitively valuable and kept secret. Neither body of law protects factual information, perhaps developed through great effort and expense, that is in high demand for a brief time, and that is provided to those willing to pay for it. It is called “hot news.” Harnessing the power of computers and instant communications technologies, many businesses have built profitable businesses based on compiling, assembling, and selling such valuable, time-sensitive information. Given the gap between copyright and trade secret law, however, these businesses face a major challenge in trying to prevent competitors from taking their hot news, once public, and using it for their own benefit. Doing so is very hard, as is illustrated by a recent Second Circuit decision that has attracted much interest in the financial sector.
An old Supreme Court decision, International News Service (1918), recognized a federal common law cause of action for “misappropriation” of hot news, and relied upon it to bar INS from cribbing elements of Associated Press news stories and selling them to its own subscribers. Hot news misappropriation is no longer a federal law cause of action, but it is still recognized in some states, most notably New York. Some businesses trading in hot news contractually bind their licensees to be bound by New York law in order to maximize their ability to take advantage of the tort.
In a widely-cited 1997 decision, NBA v. Motorola, the Second Circuit considered whether Motorola misappropriated hot news about NBA games by hiring people to watch games on television and enter information about the progress of games on a computer, and then compile that information and send it via pager, in real time, to paying customers. The NBA claimed the factual information as part of its copyrighted broadcasts, that the facts about games were hot news, and that the Motorola service undercut its efforts to develop a similar service. At that time, the Second Circuit concluded that the NBA’s hot news claims were in large part pre-empted by the Copyright Act, and that the NBA could not make a claim under what little of the hot news misappropriation claims survived pre-emption. Specifically, the NBA did not prove two essential elements of a misappropriation claim: Motorola’s service was not directly competitive with what the NBA provided and there was no evidence of a competitive effect; in addition, Motorola was not “free riding” on the NBA’s product because it bore its own effort and costs in assembling and delivering its information.
Courts have generally followed the narrow reading of hot news misappropriation since NBA v. Motorola. A 2010 decision by a district court in New York, however, attracted much attention when it ruled in favor of several financial firms who alleged that a web service called Theflyonthewall.com misappropriated their trading recommendations or stock calls they issued in reports, before the market opened, to their larger investors. The firms then contacted those investors so that any trades could be placed (with them, of course) when the market opened, before the stock calls were generally published. Despite the firms’ efforts to control access to the reports, Theflyonthewall.com managed to get early, legal access to them, aggregate the stock calls from the reports, and then quickly provide compilations of the recommendations to its subscribers, mostly smaller investors to whom the financial firms did not provide their pre-opening reports.
Dampening the hopes of purveyors of financial hot news, the Second Circuit issued an opinion in June 2011, in Barclay’s Capital, Inc. v. Theflyonthewall, Inc., reversing the district court holding. It followed NBA v. Motorola strictly and reaffirmed the narrow reading of the misappropriation tort. On the facts, it concluded that the financial firms’ misappropriation claim was pre-empted by the Copyright Act because the defendant’s actions amount to no more than copying of information in their reports. The copying was not copyright infringement, however, because Theflyonthewall.com was not disseminating the full reports, just compilations of facts, for example, the fact that brokerage X downgraded stock Y. Moreover, the court held, Theflyonthewall.com’s acts were not hot news misappropriation because it, like Motorola, was not free riding. Instead, it was expending effort and resources to gather and publish the news, the news being the facts of the firms’ stock calls. That, it found, is breaking news in its own right.
Barclays clarifies the NBA definition of hot news, but last month’s appellate decision mostly reaffirms rather than extends NBA. In terms of new law, then, the decision is not “hot news” (yes, the title above is a tease). Yet, its lengthy analysis will give guidance to others, both those making and those taking hot news. Aggregators of information must consider whether their acts are of a nature that they will be subject to copyright or misappropriation claims, and if the former whether they are taking expression or facts. To the extent they may face a misappropriation claim, they must consider whether they are acting in direct competition with their sources, and whether are expending enough additional effort in order to not be free riding. For their part, financial firms and other generators of time-sensitive information must devise additional, practical ways to prevent aggregators from obtaining lawful access to the time-sensitive information. The plaintiffs in Barclays tried a number of “self-help” measures, though in the end they were not enough.
Chris Mugel practices intellectual property law in Kaufman & Canoles’ Richmond, Virginia office. –Christopher J. Mugel