Will "Hot News" Fly Away with Flyonthewall Ruling?

Almost a year after it heard arguments in the case, the Second Circuit Court of Appeals has ruled that Wall Street analyst's buy and sell recommendations are legitimate news, and that financial and investment firms cannot prevent dissemination of these facts by a website, Theflyonethewall.com.


The case was an appeal of a permanent injunction and an award of $12,750 in statutory damages, plus interest and attorneys' fees, to three financial research firms against Theflyonthewall, which charged subscribers for summaries of the research reports that the financial firms offer to their own clients, including recommendations to buy, sell or hold securities.

The firms claimed that Theflyonthewall violated their copyrights in the reports, and that the site's actions constituted unfair competition under the "hot news" doctrine, which protects use of valuable information gathered by others at considerable expense.

The 2d Circuit held that the "hot news" doctrine applied only to information collected by an entity seeking to protect it; not to information, such as the recommendations at issue in this case, created by the entity.


Fly is not ... "free-riding." It is collecting, collating and disseminating factual information -- the facts that [the financial 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. ...


In pressing a  "hot news" claim against Fly, the Firms seek only to protect their Recommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting.

Barclays Capital Inc. v. Theflyonthewall.com, Inc., Civil No. 10-1372 (2d Cir. June 20, 2011), at 60, 62 (original emphasis) (decision).



Using this limited definition of the "hot news" doctrine, the court held that it was preempted by the federal copyright law: even though the the factual information at issue in the case -- the financial firm's recommendations -- was not protectable by copyright.


In a concurring opinion, Judge Reena Raggi reached the same conclusion, but was not as dismissive as the majority of a prior decision involving NBA scores.

The flyonthewall ruling limits the "hot news doctrine," which was already on weak ground. It was created in International News Service v. Associated Press, 248 U.S. 215 (1918), in which the U.S. Supreme Court found that a news agency's use and sale of news information collected and published by a rival agency constituted misappropriation.

The only matter that has been argued before us is whether defendant may lawfully be restrained from appropriating news taken from bulletins issued by complainant or any of its members, or from newspapers published by them, for the purpose of selling it to defendant's clients. ... Regarding news matter as the mere material from which these two competing parties are endeavoring to make money, and treating it, therefore, as quasi property for the purposes of their business because they are both selling it as such, defendant's conduct differs from the ordinary case of unfair competition in trade principally in this that, instead of selling its own goods as those of complainant, it substitutes misappropriation in the place of misrepresentation, and sells complainant's goods as its own. 

International News Service v. Associated Press, at 232, 242.

The INS decision, as a common law creation of a federal court, is no longer valid law because of the Supreme Court's later rejection of any federal common law. See Erie Railroad Co. v. Tompkins, 304 U.S.64 (1938). Thus the hot new doctrine survives, if it does at all, only in states that have adopted it as part of their common law. Barclays Capital Inc. v. Theflyonthewall.com, Inc., slip op. at 42.  And now the Second Circuit has held that it is preempted by federal copyright law if the claim involves reporting (with attribution) of information put out by others.

We conclude that in this case, a Firm's ability to make news -- by issuing a Recommendation that is likely to affect the market price of a security -- does not give rise to a right for it to control who breaks that news and how.

Barclays Capital Inc. v. Theflyonthewall.com, Inc., slip op. at 71.