Judge Orders Financial Site To Delay Publishing Banks' Stock Recommendations

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Siding with three major banks against a Web publisher, an influential federal judge has ruled that the site Theflyonthewall.com misappropriates "hot news" by summarizing and publishing research reports prepared by financial institutions.

"Fly's core business is its free-riding off the sustained, costly efforts by the firms and other investment institutions to generate equity research that is highly valued by investors," U.S. District Court Judge Denise Cote in New York wrote in a decision issued last week. "Fly does no equity research of its own, nor does it undertake any original reporting or analysis that could generate the opinions reflected in the headlines published in the 'Recommendations' section of its newsfeed."

Cote ordered Fly to refrain from publishing much of the banks' research until 10 a.m. on trading days.

The decision marks the second time in recent years that a court has relied on the controversial "hot news" doctrine to rule that an aggregator has acted unlawfully. Last year, a federal judge in New York ruled that The Associated Press could sue All Headline News for misappropriating hot news by publishing rewritten AP articles.

Cote's ruling stemmed from a lawsuit against Fly brought by Barclays, Bank of America's Merrill Lynch and Morgan Stanley. They alleged that Fly was misappropriating "hot news" -- that is, their time-sensitive research and recommendations -- by rewriting it and publishing before the banks' own clients had received it.

Fly argued that much of the material was already public because it had been published by other sites by the time Fly sent it out. But Cote indicated that all of those publishers might be misappropriating the banks' work. "The fact that others also engage in unlawful behavior does not excuse a party's own illegal conduct."

What's more, Cote specifically rejected Fly's argument that it isn't "free-riding" on the banks' research because it also adds value by gathering and editing the research. "The value reflected in that act of aggregation does not controvert the fact that Fly expends no effort to produce the recommendations and does not contribute to the underlying research and analysis process," Cote wrote.

Media law expert Sam Bayard, assistant director of the Citizen Media Law Project, says the ruling appears problematic because Cote doesn't seem to take into account the First Amendment implications of banning a company from summarizing news that has been publicly reported on other sites.

"It's regulation of speech to say, 'You must delay your publication of this news that's in the public domain, that's been publicly reported by others,'" Bayard says. "That raises a red flag that Judge Cote doesn't look at."

Eric Goldman, director of the High Tech Law Institute at Santa Clara University, adds that the decision might bode poorly for other financial aggregators, but not necessarily sites that summarize less time-sensitive news. "I don't think I would recommend that aggregators change their business, except in the financial sector," he says. "This opinion's going to basically clean up all those rumor mills for stock information."

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