In a closely watched case, a federal appellate court has ruled that the financial site TheFlyOnTheWall.com has the right to publish banks' stock recommendations -- despite the banks' efforts to limit distribution to their clients.
The Second Circuit Court of Appeals rejected the banks' arguments that the financial site was misappropriating "hot news" and free-riding on the banks' work by publishing their tips.
TheFlyOnTheWall.com "is collecting, collating and disseminating factual information -- the facts that 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 appellate court wrote in a decision issued this week. "The firms are making the news; Fly, despite the firms' understandable desire to protect their business model, is breaking it."
The decision permanently lifts an injunction issued last March by U.S. District Court Judge Denise Cote in New York. She ruled that TheFlyOnTheWall.com misappropriated hot news of Barclays, Bank of America's Merrill Lynch and Morgan Stanley by posting summaries of their time-sensitive research and recommendations before their clients had received them.
Cote ordered the site to refrain from publishing summaries of much of the banks' research until 10 a.m. on trading days -- even where other publishers had already posted the same material.
Cote based her decision on a 1918 U.S. Supreme Court decision establishing that rewriting another publication's scoops is actionable as a misappropriation of hot news. That ruling stemmed from a lawsuit by the Associated Press against a competing wire service that rewrote AP stories.
But observers have long questioned whether that century-old holding remains valid, given the developments in copyright law and free speech law in the last 90 years.
Modern copyright law allows content owners to protect the verbatim reposting of articles, but not facts or headlines. In addition, media lawyers say that courts today often recognize a free speech right to republish information.
Still, in recent years, at least two major news organizations have filed lawsuits against competitors that included allegations of "hot news" misappropriation: The AP alleged that All Headline News misappropriated hot news and Dow Jones sued Briefing.com. Both cases were resolved without trials.
TheFlyOnTheWall.com's dispute with the banks drew filings by Web giants Google and Twitter, which argued that the very idea of hot news was obsolete in the Internet era.
A coalition of news organizations, including The AP, The New York Times Company and The Washington Post Company, argued that lawsuits for hot-news misappropriation should still be allowed because otherwise, "free riders" that aggregate and distribute news could put journalists out of business. "Free-riders do not have to cover the originators' costs of journalism and production, and other risks of business," the news companies argued.
The appellate court didn't go as far as Google and Twitter would have liked, but the decision also does not appear to completely endorse the news organizations' stance.
"The adoption of new technology that injures or destroys present business models is commonplace," the appellate court wrote. "Whether fair or not, that cannot, without more, be prevented by application of the misappropriation tort."