Appeals Court Realizes Hot News Makes No Sense; Dumps Injunction On TheFlyOnTheWall

from the hot-news-loss dept

"Hot news" was pretty much dead a few years ago. The court-created doctrine, which resulted in a weird quasi-intellectual property on factual information about a century ago, hadn't been used for years and many people had assumed that it was pretty much gone. However, old legal doctrines die hard and, a few years back, some Wall Street firms sought to revive it, claiming that the website theFlyOnTheWall.com violated their "hot news" rights by accurately reporting on how those Wall Street firms were rating stocks. That's factual information and not protected by copyright, but the firms claimed it undermined their business models via hot news... and the lower court agreed, issuing an injunction.

Thankfully, an appeals court has dumped all of that, claiming that hot news is preempted by federal copyright law and that there's nothing wrong with reporting on factual information. The court mainly relies on the famous NBA v. Motorola case, which found that basketball scores and stats were facts and not protected by copyright or hot news. Using the same rules, the court finds that copyright wipes out any "hot news" in this case as well.
We conclude that applying NBA and copyright preemption principles to the facts of this case, the Firms' claim for "hot news" misappropriation fails because it is preempted by the Copyright Act. First, the Firms' reports culminating with the Recommendations satisfy the "subject matter" requirement because they are all works "of a type covered by section 102," i.e., "original works of authorship fixed in a... tangible medium of expression." 17 U.S.C. § 102. As discussed above, it is not determinative for the Copyright Act preemption analysis that the facts of the Recommendations themselves are not copyrightable. See NBA, 105 F.3d at 850. Second, the reports together with the Recommendations fulfill the "general scope" requirement because the rights "may be abridged by an act which, in and of itself, would infringe one of the exclusive rights' provided by federal copyright law," Altai, Inc., 982 F.2d at 716 (citing Harper & Row, 723 F.2d at 200), i.e., "acts of reproduction, performance, distribution or display," id. (internal quotation marks omitted).

Third and finally, the Firms' claim is not a so-called INS-type non-preempted claim because Fly is not, under NBA's analysis, "free-riding." It is collecting, collating and disseminating factual information -- the facts that Firms and others in the securities business have made recommendations with respect to the value of and the wisdom of purchasing or selling securities -- and attributing the information to its source. The Firms are making the news; Fly, despite the Firms' understandable desire to protect their business model, is breaking it. As the INS Court explained, long before it would have occurred to the Court to cite the First Amendment for the proposition:
[T]he news element -- the information respecting current events contained in the literary production -- is not the creation of the writer, but is a report of matters that ordinarily are publici juris; it is the history of the day. It is not to be supposed that the framers of the Constitution, when they empowered Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (Const., Art I, § 8, par. 8), intended to confer upon one who might happen to be the first to report a historic event the exclusive right for any period to spread the knowledge of it.
The court also distinguishes the classic "hot news" case (INS) by noting that in that case, the competing firm was taking AP news, rewriting it, and pretending it was its own. That's not what's going on here, where ratings are simply being aggregated.

This is an excellent ruling, though I doubt we've seen the end of "hot news" yet. There may still be appeals, and there are a few other such hot news cases out there. But it's nice to see the judges toss this one out.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Anonymous Coward, Jun 20th, 2011 @ 4:01pm

    I just love it when the same story gets picked up on multiple alternative media sites ; )

    Here is the link to the story at Zero Hedge:

    http://www.zerohedge.com/article/little-fly-wall-defeats-big-banks

     

    reply to this | link to this | view in thread ]

  2.  
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    Capitalist Lion Tamer (profile), Jun 20th, 2011 @ 4:28pm

    And who owns the original concept of "hot news?" (Not that it's worth "owning.") The newspapers who deliver stone-cold news once a day?

    If anything, small media sites like flyonthewall should be commended for out-hustling the big guys. If your business model can be undermined that easily (especially for well-funded Wall Street firms), then it's not really much of a business model, is it?

     

    reply to this | link to this | view in thread ]

  3.  
    identicon
    Anonymous Coward, Jun 20th, 2011 @ 10:07pm

    Re:

    The problem is they don't out hustle, they just wait for the big boys to report it and then jump all over it.

     

    reply to this | link to this | view in thread ]

  4.  
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    letherial (profile), Jun 21st, 2011 @ 3:05am

    "and that there's nothing wrong with reporting on factual information"

    No shit Sherlock, no wonder our government is so dysfunctional, it takes two courts to come to a conclusion i was taught in first grade.

     

    reply to this | link to this | view in thread ]

  5.  
    identicon
    Tim, Jun 21st, 2011 @ 7:16am

    Interesting quote used by the justices

    It is not to be supposed that the framers of the Constitution, when they empowered Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (Const., Art I, § 8, par. 8), intended to confer upon one who might happen to be the first to report a historic event the exclusive right for any period to spread the knowledge of it.

    That seems to imply that passing around a news story isn't infringement.

     

    reply to this | link to this | view in thread ]

  6.  
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    leichter (profile), Jun 23rd, 2011 @ 3:33am

    A note of caution

    See "Second Circuit Strikes Down “Hot News” Injunction Against Flyonthewall — but Will the Misappropriation Tort Become More Invasive?" http://pubcit.typepad.com/clpblog/2011/06/second-circuit-strikes-down-hot-news-injunction-against-fl yonthewall-but-will-the-misappropriation-t.html for a note of caution about this ruling. Briefly, Paul Alan Levy is concerned that the ruling ignored First Amendment and other broad issues and narrowly focused on the detailed fact pattern. It explicitly did *not* strike down the Hot News doctrine. As a result, it may have little precedential value - and leaves Hot News like "fair use", something that no court has fully pinned down so that you never know for sure where the boundaries like.

    It's certainly true that courts consider it a virtue to rule as narrowly as possible, and only answer questions actually asked by a particular case. But we also need broader principles to emerge so that people can have reasonable certainty of how new, but not completely novel, cases will be treated. If Levy is correct, we're going to have to see more Hot News cases decided before we really know where we stand.

    -- Jerry

     

    reply to this | link to this | view in thread ]


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