• by Wendy Davis , Staff Writer @wendyndavis, August 6, 2010

Federal appellate judges sparred with attorneys for Google, the Associated Press, investment banks and the financial site TheFlyOnTheWall.com for two hours on Friday morning, as the court considered whether the "hot news" doctrine remains viable.

The dispute grew out of a lawsuit filed by three banks against the Fly Web site for aggregating and distributing stock tips early in the morning -- occasionally before the banks' clients had received the information. U.S. District Court Judge Denise Cote granted an injunction against the site, ordering it to refrain from publishing summaries of the recommendations before 10 a.m.

But the order was immediately criticized by some civil rights lawyers for banning the publication of information, including news that was already in the public domain because it had been reported elsewhere.

TheFlyOnTheWall.com appealed the ruling to the 2nd Circuit, which temporarily lifted the injunction.

While the lawsuit was relatively low-profile until Cote issued the injunction in March, the case has now drawn the attention of major tech companies and media outlets, including Google, Twitter, TheStreet.com, The Associated Press and others. Google and Twitter argue that The Fly has the right to summarize the banks' news. The Associated Press (and a host of newspaper companies) said they wanted to see the court rule that companies can still sue for hot news misappropriation.

Kathleen Sullivan, the attorney representing Google (which, along with Twitter and TheStreet.com, filed a friend-of-the-court brief) told the 2nd Circuit Court of Appeals that hot news is obsolete in the Internet age. "Hot news becomes cold in a nanosecond," said Sullivan, a partner at the law firm Quinn Emmanuel Urquhart & Sullivan and former dean of Stanford Law School.

But one hurdle to declaring the doctrine dead is that the 2nd Circuit decided as recently as 1997 that misappropriation of hot news -- generally defined as summarizing a competitor's time-sensitive scoops -- is still actionable in New York.

Sullivan urged the court to reconsider that holding, saying that communications technology had changed considerably in the last 13 years. Among other arguments, she said that not a single New York state court had found a hot news violation since 1997, which she said is evidence that the doctrine has fallen into disuse.

That point might have gone over better if TheFlyOnTheWall.com hadn't itself attempted to sue competitors for misappropriating its hot news -- a fact pointed out by Judge Reena Raggi, one of three panelists who heard the case.

Still, in what might be a good sign for The Fly, one judge on the panel, Rosemary Pooler, wanted to know why the banks objected to The Fly summarizing their stock tips, but not CNBC. The answer -- that CNBC delivers a "broad spectrum" of reporting, while The Fly is more specialized -- didn't seem all that compelling.

A decision isn't expected for at least several weeks, and possibly not for months.