The Second Circuit Court of Appeals continued but restated the "hot news" misappropriation tort, arguably paving the way for aggregators to use news collected by others. The ruling held that a New York state "hot news" misappropriation claim brought by New York investment firms Barclay's Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. Inc. (the "Firms") against an on-line subscription news aggregation service, theflyonthewall.com ("Fly"), was preempted by federal copyright law. A majority of the panel held that because there was no evidence of "free-riding" by Fly, there was no element that would allow such a claim to survive federal preemption challenge.

Fly gathers the Firms’ stock analysts' daily recommendations and republishes them without the Firm’s permission. The Firms asserted "hot news" misappropriation and copyright infringement claims against Fly. The Firms claimed Fly’s reports, which are published as close in time to the Firms’ originals as possible, were merely republications of the Firms’ daily stock recommendations, impacting the Firms’ ability to benefit from the time advantage their clients enjoyed before the recommendations became generally known. The District Court agreed with the Firms and held that Fly violated New York’s "hot news" misappropriation tort. The District Court enjoined Fly from disseminating the information for at least 30 minutes after the financial markets opened, thereby allowing the Firms’ clients to trade before the news became generally available to others.

The Second Circuit reversed, and in so doing simplified the five-factor preemption test adopted by it in Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997) (interpreting Int’l News Service v. Associated Press, 248 U.S. 215 (1918)). The Second Circuit focused on one of the factors, whether Fly was "free riding" on the Firms’ information. The Court held that Fly was not making news by reporting the Firms’ recommendations, but merely breaking it. That is, Fly was "collecting, collating and disseminating factual information" - i.e., the simple fact that the Firms had made recommendations, and not utilizing the Firms’ information as its own. Accordingly, the Court held that Fly was not "free riding" on the Firms’ coat tails by attempting to pass off the Firms’ recommendations as its own. Absent "free riding", the "hot news" claim was preempted by federal copyright law. The Court remanded the case to the District Court with instructions to dismiss the Firms’ misappropriations claim.

This case seems to acknowledge the way information is disseminated in the internet age and bodes well for content providers that aggregate and disseminate information of others, as long as they do not claim the information as their own. However, preemption of the "hot news" misappropriation tort by copyright does not give aggregators a free pass. Those who participate in aggregation activities still need to be mindful of potential copyright infringement claims.