The Hot News on the Hot News Doctrine

June 1, 2010

Originally posted in the American Advertising Federation Report

The consumer thirst for hot news is insatiable—and the Internet is a fire hose of sweet, sweet nectar.  The traditional news media now spend much of their dollars publishing stories for free on the Internet.  To their dismay, they compete for advertising dollars with a growing army of “news aggregators,” who copy, organize and distribute news created by others.  Along this battle field, a century old common law tort doctrine called “hot news misappropriation” has resurfaced.  A case pending before the Second Circuit, Barclays Capital Inc. v. Theflyonthewall.com, will be an important battle in the war ahead.

What Is The Hot News Doctrine?

Traditional copyright law offers very little assistance to media sources who want to prevent bloggers and other aggregators from hijacking their hard-earned scoop and taking their advertisers along with them.  This is because facts are not entitled to copyright protection.  A journalist might uncover facts through an investigation, but that does not make the journalist the owner of those facts.  The journalist only owns her story—her specific expression and arrangement of facts. 

But what happens when the facts are the whole story?  The score of the basketball game.  A company’s stock price.  Aggregators across the Internet are compiling this kind of pure factual information and republishing it as their own.  Some aggregators are wildly popular and garner significant advertising dollars.  For protection against the pilfering of factual information, some are dusting off the “hot news misappropriation” doctrine. 

This “hot news doctrine” dates back to a 1918 U.S. Supreme Court case, titled International News Service v. Associated Press.  According to that case, while the general public was entitled to repeat the news, competing news services did not enjoy the same right.  The doctrine has been adopted in a number of states and generally imposes liability where:  (1) the plaintiff generates or gathers information at a cost, (2) the information is time-sensitive, (3) the defendant’s use of the information constitutes “free riding” on the efforts of the plaintiff, (4) the defendant is in direct competition with a product or service offered by the plaintiff, and (5) the ability of other parties to free-ride on the plaintiff’s efforts would reduce the incentive to produce the information product or service.  National Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997) (“NBA”).

The Current Battleground:  Theflyonthewall.com

The doctrine most recently made a splash in New York district court. Barclays Capital Inc. v. Theflyonthewall.com.  The plaintiffs distributed stock analysis to their clients for a fee.  The value of the information was based upon the plaintiffs’ ability to get the information to its clients before it reached the general public.  Meanwhile, the defendant, Theflyonthewall.com, devoted its efforts to obtaining and aggregating this information and getting it to the general public as quickly as possible.  The plaintiffs sued, asserted a claim under the hot news doctrine.

The district court found that Theflyonthewall.com was liable under the hot news doctrine.  The court issued a unique injunction, preventing the defendant from disseminating plaintiffs’ analyses until 10 a.m. or half an hour after the market opens (whichever is later).  The court reasoned that “free-riding exists where a defendant invests little in order to profit from information generated or collected by the plaintiff at great cost. . . .”

But it was not all good news for the plaintiffs. The district court found that Theflyonthewall.com had many competitors who were also reporting the same information and it would be unfair to restrain only Theflyonthewall.com.  Thus, the court found that Theflyonthewall.com  could have the injunction modified if the plaintiffs did not take “reasonable steps to restrain the . . . misappropriation” including for example, “the initiation of litigation against any parties with whom negotiation proves unsuccessful.”  So, the court seemed to impose a duty on the plaintiffs to sue everyone who was doing the same thing, or risk losing.

Just days ago, the Second Circuit Court of Appeals agreed to stay the district court’s injunction without explanation.  The parties have not yet submitted their appeal briefs in that case and the oral arguments lie ahead.  However, the fact that the Second Circuit at least temporarily disposed of the injunction suggests that they may have some concerns over the district court’s decision.  Maybe the Second Circuit is concerned with violating First Amendment rights and, thus, disagrees with the application of the hot news doctrine altogether.  Or maybe it doesn’t like the district court’s invitation/requirement to file a boat-load more lawsuits raising similar claims. 

Whatever the Second Circuit decides, lawyers and legislators will be watching.  The FTC recently issued a “discussion draft” of potential policy recommendations “to support the reinvention of journalism.” The draft included discussion of the merits of a federal hot news statute.  The media and advertising industry should keep an eye out too.  Advertising dollars will follow the consumer, but the law related to hot news may play an important role where the consumer ultimately goes.

Barclays Capital Inc. v. Theflyonthewall.com, Inc., 10-1372-cv (2d Cir. May 19, 2010).

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