News aggregators won a big victory today in the Second Circuit Court of Appeals in the case of Barclays Capital v. theflyonthewall.com. The Second Circuit held that it is not a violation of the Copyright Act for a news distributor to report the fact that a stock analyst makes an investment recommendation. Nor is it a violation of the "hot news" misappropration tort when the news distributor accurately reports that the investment recommendation originates from its true source.
In the early hours prior to the opening of the stock exchange, Barclays and other investment firms provide investment analysis and recommendations to their subscribers and clients. The sales staff of the investment firms then contact their customers in an effort to procure investment transactions based on the recommendations. theflyonthewall is a news gatherer, or aggregator, that claims to be the "fastest news feed on the web." theflyonthewall somehow obtains the recommendations from the investment firms early in the day, often before the markets open, and distributes the recommendations to its subscribers. In doing so, the investment firms claim that theflyonthewall undercuts their research service and ability to trade on the hot news of their recommendations.
The Second Circuit held that there is no hot news claim if all that is done by theflyonthewall is to truthfully report that an investment firm makes a certain investment recommendation. The fact that an investment firm makes a recommendation is, itself, news. theflyonthewall is merely distributing this news without improperly "free riding." The Second Circuit observed that if theflyonthewall copies the recommendation report of the investment firms so as to induce a customer into believing that the recommendation originates with theflyonthewall, then this would be impermissible free riding and violation of the hot news tort. But theflyonthewall accurately reports a recommendation and the origin of the recommendation from the particular investment firm. In this circumstance, the hot news tort is preempted by the Copyright Act since the recommendations come within the subject matter of copyright and the scope of copyright protection. And because the Copyright Act does not extend protection to facts, the fact that an investment firm makes an in investment recommendation is not protected in copyright, either.
So, in the end, the investment firms who invest significantly in investment research are not able to control their own investment recommendations to their customers. Their recommendations are not protectable by copyright as non-protectable news or fact. Their recommendations are not protectable under the hot news misappropriation theory. This is the case even in relation to a fast acting news distributor who can distribute the recommendation quicker, at potentially less expense, and then seek to direct the customer to make a transaction from a discount trader. It appears that the news distribution problems impacting the newspaper industry now squarely have reached the stock analysts desks on Wall Street.
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