On June 20, 2011, the U.S. Court of Appeals for the Second Circuit issued a decision dramatically confining the “hot news” misappropriation doctrine available under New York state law. Barclays Capital Inc. v. TheFlyOnTheWall.com Inc., 2d Cir., No. 10-1372-cv.

Reversing in part a judgment from the lower federal court, the Second Circuit ruled that the “hot news” misappropriation claim, under the facts of the case at hand, was preempted by federal copyright law, and threw into doubt whether that doctrine has any continued vitality in the digital age.

Background

The case featured a dispute between a group of prominent investment banks that issue daily investment recommendations to their clients before markets open, and an Internet newsletter (“Fly”) that reported the recommendations to its readers. The investment banks claimed that Fly was committing overt acts of misappropriation and copyright infringement by obtaining and reusing market information created by the banks without authorization. After the lower federal court found that the newsletter committed “hot news” misappropriation, the defendants appealed. An army of media companies filed an amicus brief supporting Fly’s position in relation to copyright preemption of the “hot news” doctrine.

The Second Circuit Decision

The appellate court determined that the defendant’s acts did not meet the exceptions for a “hot news” misappropriation claim as recognized by National Basketball Association v. Motorola, effectively allowing Fly and other newsletters to publish the investment firms’ research recommendations before they have made them available to their paying customers. Central to the circuit court’s analysis was the determination that Fly was not “free riding” and was not in direct competition with the investment banks. In the court’s terms, the banks were “making the news,” while Fly was “breaking it.”

The court also determined that the misappropriation claim of the banks was within the general scope of copyright law and protected the same kinds of rights as those secured under copyright law. The court then vacated the injunction against Fly and dismissed the complaint, noting that one of the bedrock principles of federal copyright law is that facts are in the public domain and are not copyrightable.

It is worth underscoring that the Second Circuit did not abolish the hot news doctrine per se but left only a slim prospect that some future case might present facts that would lead to a finding of hot news misappropriation. That being said, news aggregators like Fly still must avoid actual copying of expression beyond what can be justified as a fair use (e.g., copying facts is permitted; copying the exact expression of those facts is suspect as possible copyright infringement).

The court’s decision begs the question of whether any set of facts or circumstances could be presented that would merit application of whatever remains of the “hot news” doctrine.