Policy Limiting Tweeting at UW Basketball Games Excessive, Unconstitutional

The University of Washington’s enforcement of its Live Coverage Policy at UW basketball games has the media crying foul.  The UW’s Live Coverage Policy states that members of the media who are “Credential Holders” “are not permitted to promote or produce in any form a ‘real time’ description of the event.”  A local reporter was recently reprimanded for sending excessive tweets during a UW basketball game. 

On what legal authority does the UW base the adoption of its Live Coverage Policy?  When considered in light of the live NBA broadcast, hot news and college football First Amendment cases discussed below, the UW’s actions exceed the scope of its live broadcast rights and violate the First Amendment.

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Wall Street Firms Cannot Protect Business Model with “Hot News” Misappropriation Claim

Fly, despite the Firms’ understandable desire to protect their business model, is breaking it.

(Opinion pdf page 60).

Financial services firms Barclays Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and Morgan Stanley & Co., Inc., (the Firms) sued news aggregator (pdf) Theflyonthewall.com (Fly) for copyright infringement and for committing the New York state law tort of “hot news” misappropriation.  Fly did not dispute the copyright claims.  The district court ruled in favor of the Firms on the “hot news” misappropriation claim.  On appeal, the Second Circuit Court of Appeals reversed the district court’s ruling on that issue.

The Parties.  The Firms generate research reports on publicly traded companies, employing hundreds of research analysts and spending hundreds of millions of dollars on these activities each year.  Before the market opens in the morning, the Firms release their Recommendations generated by their research activities to a select group of people.  The Firms believe that investors are more likely to place a trade with a Firm if the investor receives that information directly from the Firm.  “They assert that the timely, exclusive delivery of research and Recommendations therefore is a key to what they frequently refer to as their ‘business model.”  (Opinion pdf pages 12-13). 

Fly is a news aggregator, defined by the court as “a website that collects headlines and snippets of news stories from other websites.”  (Opinion pdf page 13).  Fly offers a subscription service providing early access to investors who are not authorized by the Firms to receive their Recommendations.  Fly compiles information and does not perform any independent analysis.  Fly views itself as a source of breaking financial news.  It continually updates its online newsfeed between 5:00 a.m. and 7:00 p.m. on market days.  Fly obtains its information from news outlets, chat rooms, IM blasts and conversations with its industry contacts.  The Firms view Fly’s activities as a threat to their business model and filed suit against it.

Copyright Preemption in generalPreemption is the principle that federal laws made pursuant to the U.S. Constitution are “the supreme law of the land” and that federal law displaces state law when there is a conflict between the two.  My blog post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law discusses preemption as viewed by the Ninth Circuit, which is slightly different from the Second Circuit’s discussion.

Title 17 U.S.C. § 301, enacted in 1976, sets forth a two-part test to determine whether a state-law claim is preempted by the Copyright Act, with a further ‘extra elements’ exception we discuss below. Such a claim is preempted (i) if it seeks to vindicate ‘legal or equitable rights that are equivalent’ to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C. § 106 — the ‘general scope requirement’; and (ii) if the work in question is of the type of works protected by the Copyright Act under 17 U.S.C. §§ 102 and 103 — the ‘subject matter requirement.’

(Opinion pdf pages 36-37).

The Second Circuit in Fly discussed the three prong “extra-element” test from the NBA case described below, declined to apply the test, but did not articulate its own test.

What is “hot news”?  The court illustrated what “hot news” is through its discussion of two other hot news cases:  International News Service v. Associated Press (INS) and National Basketball Association v. Motorola, Inc. (NBA).

In INS, AP investigated and reported the news.  INS took news facts from AP bulletins and wired them to INS papers, representing those facts as resulting from its own work, when it did not gather the facts or independently investigate them.  The U.S. Supreme Court “held that INS’s conduct was a common-law misappropriation of AP’s property.”  (Opinion pdf page 41).  The INS court indicated that the facts gathered by AP were the news of the day and were not copyrightable.  The decision was based on unfair competition law and not on copyright law.

The INS court defined the ‘hot news’ tort in part as ‘taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and appropriating it and selling it as the defendant’s own.’

(Opinion pdf page 61).

In NBA, one of the defendants gathered information on NBA games as they were occurring, including score changes, ball possession, free-throw bonus, the quarter and time left in the quarter.  These statistics were transmitted to pagers owned or leased by Motorola almost simultaneously with the live games.  The NBA sued Motorola and the statistics gathering firm, claiming hot news misappropriation.  The Second Circuit ruled that since the statistics firm incurred the expense of gathering its own statistics, the defendants were not free-riding on the NBA’s product and that the defendants did not misappropriate the NBA’s hot news.

Although the Second Circuit in NBA ruled that Motorola did not commit the tort of hot news misappropriation, the court set out some factors to determine when the hot news misappropriation tort has been committed.  Both the district court judge and the parties in Fly thought that the correct analysis was to apply the NBA factors.  The Second Circuit disagreed:

[I]n NBA, the Court held that the facts of that case could not support a non-preemted “hot news” claim.  Its language regarding the elements that might in some later case allow a claim to avoid preemption, and its discussion of why such an exception to preemption was narrow, were useful commentaries on the reasoning and possible implications of the Court’s holding.  But the language itself was not meant to, and did not, bind us, the district court, or any other court to subsequently consider this subject.

(Opinion pdf, footnote 32, page 54).

The Second Circuit in Fly pointed out that the NBA opinion sets out two inconsistent five-part tests and a three prong “extra element” test as further justification that those parts of the opinion cannot be the law.

Copyright Preemption applied to this case.  The court ruled that the Firms claims under the New York state law tort of “hot news” misappropriation were preempted by the Copyright Act:

  • The Firms’ reports and Recommendations are works of the type covered by 17 U.S.C. §102, i.e. original works of authorship fixed in a tangible medium of expression, fulfilling the subject matter requirement.
  • The Firms’ reports and Recommendations fulfill the “general scope” requirement because the rights in those materials may be diminished by an act that, by itself, such as reproduction, performance or distribution, would infringe an exclusive right under the Copyright Act.
  • Fly is not “free-riding” on the Firms’ efforts.

The rest of this post focuses on the court’s third point – the lack of free-riding.  Free-riding in this context is “unfair use of another’s labor, skill, and money, and which is salable by complainant for money.”  (Opinion pdf page 61).  The term “free-riding” implies acts that are inherently unfair.  Fly collects, collates and disseminates factual information.  The Firms’ Recommendations are news in and of themselves.  The court noted that Recommendation of the Firms can influence the price of a stock, at least in the short term.

The court also made the point that

In pressing a “hot news” claim against Fly, the Firms seek only to protect their Recommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting.

(Opinion pdf page 62).

The court summed up by stating:

We conclude that in this case, a Firm’s ability to make news — by issuing a Recommendation that is likely to affect the market price of a security — does not give rise to a right for it to control who breaks that news and how.

(Opinion pdf page 71).

The panel consisted of Judges Rosemary S. Pooler, Robert D. Sack and Reena Raggi.  Judge Sack wrote the opinion for the panel.  Judge Raggi wrote her own concurring opinion.  She agreed that the Firms’ hot news misappropriation claim was preempted by federal copyright law, but did not think the NBA five factor test should be rejected.

This case is Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372.