Posted by Melise Blakeslee on October 10, 2011
Topic: Copyrights
The Fly on the Wall Decision is Really Bugging Me

Anyone who distributes news on a website, such as financial analysis, industry news on an association page, or even bloggers who quickly spread niche news, should pay attention to the threat of this decision.

This is a decision by a federal court that perpetuates the doctrine that certain “hot news” can be protected under the common law of unfair competition. When information is classified as “hot news,” third parties can be prevented from using it for a period of time until the news “cools off,” whether it was obtained lawfully or not. In the United States District Court for the Southern District of New York an injunction was issued requiring Fly on the Wall to delay reporting stock recommendations. The District Court applied a very old five point test developed by the Second Circuit. The District Court focused on two parts of the test: the issue of “free-riding” and broadly interpreted what it means to be in “direct competition.”

What is “free-riding” in an age when anyone nowadays can re-distribute news and information in nanoseconds with an Internet connection or cell phone? Should this doctrine continue to be viable?

This is the fundamental question on appeal to the Second Circuit in the case of Barclays Capital Incorporated, et al v., Inc. Despite having taken the issue up on an expedited basis in June, the Second Circuit has not yet issued an opinion on this doctrine – a doctrine that is already having a chilling effect on how news is reported on the Internet.

Why is this important to you? As we all know, facts are not protected by copyright. Yet, newsgathering organizations are trying to protect their stock in trade, i.e. facts, by looking to the common law doctrine of unfair competition. Anyone who distributes news on a website, such as financial analysis, industry news on an association page, or even bloggers who quickly spread niche news, should pay attention to this threat.

The basic idea behind the doctrine of “hot news” is that if certain facts are “hot” enough and if those facts are obtained by a direct competitor only through unfair competition, then the original reporter should have the benefit of its news gathering efforts for some exclusive period of time as against the wrongdoer. This seems somewhat reasonable on its face – but, in this era, can there ever be a set of circumstances where facts are so exclusive and “hot” that they warrant such protection? And what happens if the so-called “hot news” is already being distributed widely, yet, a competitor gains access to the news by an arguably wrongful means? Are they still liable despite many others already having the news? According to the Fly decision, the answer is “yes.”

The original “hot news” doctrine was enunciated in a dispute about the distribution of news gathered by reporters risking themselves on the battlefields of the Great War in Europe. At the time there were only two news-reporting wires in the US – the International News Service (INS) and the Associated Press (AP). British censors barred INS reporters from sending overseas cables. News from the World War I battlefields was obviously “hot.” INS had to compete. So, INS paraphrased news stories from the AP news bulletins publically posted on the east coast. As a result, INS was able to compete at least on the west coast using the time difference to its advantage.

The court enunciated a five-point test in adjudging INS liable for misappropriation.

The same factors were recently applied in the Fly dispute. The complaint was brought by several securities trading firms who objected to Fly’s online reporting of whether a particular trading firm had “upgraded” or “downgraded” a stock prior to the market’s opening bell. Fly’s defense was that it was reporting facts that were already being reported elsewhere, such as: “Morgan Stanley has downgraded ‘xyz’ stock.” To no avail, the Court prohibited Fly from publishing this information for a period of one half hour after the opening bell on the New York Stock Exchange.
Fly immediately appealed in April 2010. The Second Circuit took the issue up on an expedited basis. Arguments were heard in June. It was an extraordinary hearing. The Court heard the parties and numerous other interested parties, such as Google, Dow Jones. Many others were also given the opportunity to speak because of the important public policy issues raised. The courtroom was packed with press.

Yet, here we are in the New Year, without a decision.

In the meantime, probably encouraged by the Fly decision, Dow Jones sued over the use of headlines published on the Dow Jones news wire and the Wall Street Journal Online. Other newsgathering organizations may also be taking this opportunity to lock down facts.

If the doctrine of hot news remains viable at all, it needs to be modified to take into account the digital world. The elements should resemble something closer akin to the test for trade secrets, namely: the plaintiff must have gathered the information exclusively, taken significant and effective steps to keep the information confidential, the information must be extremely time sensitive, and the wrong-doer must be a direct competitor. Hopefully the Second Circuit will consider my opinion.

(In the interest of full disclosure, I represented in its defense against Dow Jones’ claims of hot news misappropriation.)

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