Peter Waldkirch is a second year LL.B. student at the University of Ottawa.
Can someone own facts? According to the US “hot news” doctrine, the answer is – sorta. Under certain circumstances, a news gathering organization can receive “quasi-property” rights in facts against allegedly free-riding competitors. As neither property nor copyright, the rarely used hot news doctrine has perhaps been something of a black sheep when it comes to conceptualizing legal protection for intellectual labour; for most, I would hazard, it hardly springs to mind when discussing intellectual property.
As detailed by the Citizen Media Law Project, though, the recent case of Barclay Capital Inc. v. TheFlyOnTheWall.com has brought renewed attention to this doctrine – attention which may give news aggregators around the Internet some pause for thought.
The hot news doctrine began life as a matter of US federal common law in 1918 in International News Service v. Associated Press. There, William Randolph Hearst’s INS was using data published by the AP as the basis for its own stories, skipping the messy business of at-the-source journalism. This problem was particularly acute when one considers time zones: the INS could buy an early edition of an AP paper on the East Coast and have their version of the story out at the same time as the AP’s early edition on the West Cost. Although the AP’s stories were themselves published openly (and copyright does not subsist in facts themselves – as Justice Pitney wrote, it was “the history of the day”), the US Supreme Court ultimately held that INS’s practice of using the AP stories as a basis for their own was a form of anti-competitive misappropriation. As a remedy, it prevented INS from publishing news obtained from the AP for several hours after publication.
Although the US federal common law is now of limited scope, several state courts adopted it and the doctrine lives on to this day. In 1997 it was revisited and reformulated in order to not interfere with federal copyright law in National Basketball Association v. Motorola, Inc. There, Motorola had developed an automated text messaging system that sent out game updates to subscribers. The Second Circuit Court of Appeals developed the current test for the hot news doctrine:
1. plaintiff generates or gathers information at cost;
2. the information is time-sensitive;
3. the defendant’s use of the information constitutes free-riding on the plaintiff’s efforts;
4. the defendant is in direct competition with a product or service offered by the plaintiffs; and
5. the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.
Although the NBA was unsuccessful in passing this test, the doctrine was given new life and a modern formulation.
The hot news TheFlyOnTheWall.com spread were the equity recommendations made by Barclay Capital, Morgan Stanley, and Merrill Lynch. These recommendations (culminating in buy or sell recommendations and target prices) are the product of the expertise of these firms and represent considerable expenditure of effort. Generally, these firms produce ongoing reports which are released to their subscribers (ranging from financial news services such as Reuters to large institutional investors) prior to the opening of the equity markets, with updates potentially being released throughout the day. These recommendations can be highly time-sensitive, as the mere fact of an upgrade or downgrade can motivate large trades and itself lead to significant movement in the stock price. TheFlyOnTheWall.com pioneered an aggregation service (since widely imitated) that spreads financial news, including recommendations made by equity analysts. The recommendations themselves are tightly controlled through contracts with the firms’ subscribers, but of course, leaks happen (TheFlyOnTheWall.com at first used employees within the firms to get information, but that practice ceased several years ago).
TheFlyOnTheWall.com was ultimately found liable, and must now wait until 10am to publish recommendations made prior to the start of trading, or two hours in the case of recommendations made during trading hours. Citizen Media provides an excellent in-depth critical analysis of the decision (as well as a link to a scan of it), so I’d like to just point out what seems to me to be one of the major weaknesses.
In “Misappropriation: A Dirge”, Richard Posner (linked to by Citizen Media, available here) argues that the real “meat” of the NBA test is step five, with the prior steps “identifying the conditions in which the criterion stated in (v) is likely to be satisfied.” I found the analysis of this step in the present case to be unconvincing. The firms showed that their research divisions had been clawed back in recent years, but no real effort was made to clearly demarcate to what extent that was a result of activities of operators such as TheFlyOnTheWall.com. Mention is made of the recent economic recession, as well as the fact that the firms were part of a $1.4 billion settlement with US regulators over conflicts-of-interest in their analysis operations in the Global Research Analyst Settlement. To meet the NBA test, the existence or quality of the operations in question must be “substantially threatened”. On a plain reading, this to me suggests a quite high bar. Judge Cote wrote that, “…the misappropriation of their Recommendation by Fly and others has also had a profound effect on their business model.” Does affecting a business model meet the bar set in step 5 of the NBA test?
TheFlyOnTheWall.com pointed out that many other sites published the recommendations, and so they should therefore be considered public. The court disagreed. However, Judge Cote did order a review in one-year, putting an obligation on the firms to take actions against these other misappropriators. This decision should also give other, unrelated news aggregators some reason for concern. This court specifically excluded non-systematic, contextual reporting from this order, which leaves the door open for action against other systematic aggregators. It’s no secret, for example, that Rupert Murdoch is looking for some way of convincing Google to pay him for the privilege of linking to his newspapers through services such as Google News. In an editorial for the New York Times last year, two lawyers advocated for the expansion of the hot-news doctrine precisely as a way of combating Google, writing that the US should, “Federalize the ‘hot news’ doctrine. This doctrine protects against types of poaching that copyright might not cover — the stealing of information not by direct copying but simply by taking the guts of the content. While the Internet has made news vulnerable to pilfering because of the ease of linking from one site to the next, the hot-news doctrine has limited use because it is only recognized in a few states.”
So far, the hot news doctrine doesn’t seem to have been tried in Canada. Such an attempt would raise some interesting federalism questions. Still, if hot news does become a weapon against online news aggregators in the US, it will certainly affect practices north of the border as well. It will be interesting to see if this doctrine, originally developed in the age of the wire service, gains relevance in the age of the Internet.