Extra, Extra! Court Reverses

“Hot News” Trend

 

By David Blau, a member of the Patent Practice Group

 

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federal appeals court has ruled that U.S. copyright law, not a state’s “hot news” law, applies to news aggregators that redistribute buy-sell-hold securities recommendations from big brokers. This ruling reverses a modest comeback of the hot news doctrine that we highlighted in March 2009, and significantly undermines the doctrine’s viability.

Under U.S. law, a state law claim for misappropriation of someone else’s hot news will be preempted if the work in question is protectable by federal copyright, and the alleged wrongdoing violates a right provided in the federal copyright law.

The Second Circuit’s recent ruling in Barclays Capital v. Theflyonthewall.com deals with an electronic news service that manages to obtain investment recommendations that are the product of proprietary research performed by major brokerage houses for their clients.

Flyonthewall publicizes this data before the financial institutions release it to the general public. This speedy distribution of data supposedly plays havoc with the firms’ business model and impairs the trading advantage of their clients.

The court clarifies that a hot news claim under state law, while still viable, may cover only works that are not copyrightable or acts that do not infringe the broad rights reserved under federal copyright law.

The ruling represents a severe curtailment of the hot news doctrine. After all, there are few works that are not at least potentially copyrightable under federal law; indeed, copyright broadly covers “original works of authorship fixed in any tangible medium of expression.” 

One major exception is that facts by themselves are not copyrightable. Thus, as was pointed out in the House of Representatives debate over the preemption law, a consistent pattern of unauthorized appropriation by a competitor of the facts reported by a news source (but not their literary expression) may be actionable under state law.

However, this exception does not provide much.  Facts, as they are expressed in a tangible medium in an original work of authorship, are copyrightable.  Indeed, the court held it irrelevant whether the facts contained within the financial recommendations at issue were themselves copyrightable, since the text of the recommendations was protectable.  Because the text of the recommendations was copied and distributed (two rights reserved under federal law), the action under state law was preempted.

The surviving utility of the hot news doctrine appears to be in circumstances that are already covered by other, less restrictive laws.  For instance, the unauthorized and repetitive reception of raw data updates from scientific, business, or financial databases may still be actionable under a state law hot news claim.

However, such acts, if done for profit, are more easily addressed using unfair competition laws. Both are equitable remedies, and establishing misappropriation of hot news in this situation already makes out a claim for unfair competition.

The hot news doctrine is very likely finished as an independent legal theory, and rightly so.  Misappropriation of hot news is best addressed by applying the uniform body of federal copyright law, rather than by navigating a patchwork of conflicting state laws.