By Kathleen A. Kirby, Partner, Wiley Rein LLP

 

It would seem that legal precedent is being set in today’s online information marketplace that affects everyone from newswire services to blogs to Twitter.  Interestingly, at the heart of one notable dispute is a United States Supreme Court case that dates back to 1918.  Go figure. 

Last week, the United States Court of Appeals for the Second Circuit lifted a district court’s injunction against Theflyonthewall.com, an Internet-based financial news aggregator.  That lower court’s order had required “Fly,” as it is commonly known, to delay reporting of certain analyst research buy-and-sell-stock recommendations from three prominent Wall Street firms—Barclays Capital, Merrill Lynch and Morgan Stanley.  The firms brought their case against Fly based on the so-called “hot news” doctrine, which allows suits for re-reporting time sensitive news.  The banks claimed Fly’s re-postings were damaging their ability to provide the information to clients and earn trading commissions.  The Fly case, which is now on expedited appeal, could have significant ramifications for news organizations seeking to protect time-sensitive stories from online aggregators.  Final briefs in the case are due by July 26.

It is a tenet of copyright law that facts are not copyrightable.  Hot news misappropriation, however, is a theory of unfair competition established by the U.S. Supreme Court in International News Service v. Associated Press, a 1918 case involving a wire service’s use of a competitor’s stories (specifically, Hearst news service’s removal of dispatches posted by the AP on kiosk bulletin boards in New York City and teletyping them to West Coast newspapers that weren’t AP subscribers).  The hot news doctrine was designed to protect a news organization’s incentive to gather factual information that would otherwise be open to use by others, in those situations where the information is commercially valuable for only a brief time.  In the INS case, the court acknowledge that AP had no copyright claim, but enjoined INS from using AP’s news reports in direct competition with AP. 

A handful of states recognize the hot news doctrine, which inherently acknowledges the value in the timeliness of news information, and the investment necessary to gather and publish it.  The doctrine’s continued validity was underscored in 1997, when the U.S. Court of Appeals for the Second Circuit slam-dunked the NBA’s attempt to prevent the instant transmission of game information.  In National Basketball Association v. Motorola, Inc., which is controlling precedent in the Second Circuit, the court held that to establish a hot news claim, the plaintiff must show that: it generates or gathers time-sensitive information at a cost; the defendant’s use of the information constitutes free-riding; the defendant is in direct competition with the plaintiff’s product or service; and that if others could also free-ride on the plaintiff’s efforts, the plaintiff’s incentive to produce the product or service would be substantially threatened.  In this case, the court concluded that the NBA was not in the business of distributing fast sports statistics as was Motorola (using a pager – can you imagine?), and therefore could not satisfy the direct competitor prong necessary to prevail under a hot news misappropriation claim. 

The district court’s decision in the Fly case seemed to indicate that the hot news doctrine is alive and kicking in the modern information age.  Judge Denise Cote found that Fly’s activity was “free-riding that is directly competitive with the [Banks’] production of time-sensitive information, thereby substantially threatening their incentive to continue in the business.”  In fact, rights holders increasingly are invoking the hot news doctrine to protect their investment in original news reporting from regurgitation by online news aggregators.  Last month, Dow Jones sued Briefing.com under the hot news misappropriation theory for copying and republishing its headlines and stories.  The Associated Press brought a similar case against All Headline News that ultimately settled out of court. 

Certainly, it will be interesting to see where the Second Circuit comes out this time around.  There are some who argue that news aggregators and traditional media organizations are not competitors, and that it is difficult to comprehend how the redistribution of information in the public domain would violate the law.  On the other hand, repackaging by news aggregators can siphon eyeballs and ad revenues away from traditional media who invest significantly in their news product.  Certainly, the case could set important precedents with for hot news misappropriation claims.