'Hot news' case could impact online news aggregation

A case before a federal appeals court could have important ramifications for news organizations seeking to protect time-sensitive stories from online aggregators that siphon away readers and advertisers by repackaging and distributing news secondhand on their own site.

The U.S. Court of Appeals in New York City (2nd Cir.) is poised hear arguments as soon as this summer in a case that pits three financial firms against defendant Theflyonthewall.com – a subscription Web site that aggregates financial news.

The firms – Barclays Capital, Merrill Lynch and Morgan Stanley – have sued Theflyonthewall.com for “hot news” misappropriation, claiming the website took the firms’ investment research without authorization and redistributed the recommendations before the firms had a chance to share it with their clients.

A federal judge in March ruled in favor of the firms and prevented Theflyonthewall.com from publishing pre-market research until 30 minutes after the stock market opens. Theflyonthewall.com was also ordered to wait two hours to publish research issued while the market is open.

Last week, however, the Second Circuit set aside the injunction pending an expedited appeal by Theflyonthewall.com, which argues that the injunction violates the First Amendment. Final briefs in the case are due by July 26.

The case is being watched by traditional media organizations, which are increasingly invoking the hot news doctrine as they seek to protect costly, original reporting from online news aggregators that simply repackage and sell the information without permission at a cheaper cost.

In April, for instance, Dow Jones filed a lawsuit alleging hot news misappropriation against Briefing.com. The news service accused the Web site of copying its headlines and stories and republishing the information minutes later.

Experts say Theflyonthewall.com case is significant for two reasons: it is one of the few hot news cases to actually go to trial and the judge set a specific time limit on how long the facts in question had value.

“It is definitely the first case to really consider the remedy phase of the hot news claim – how long, how exclusive can an injunction [against an aggregator] be,” said Andrew L. Deutsch, an attorney with DLA Piper who recently represented The Associated Press in its case against news aggregator All Headline News. That case was ultimately settled out of court.

The federal Copyright Act offers news organizations only limited protection from aggregators because copyright protects expression, not facts. The hot news doctrine, however, recognizes “the tremendous value in the timeliness of information,” said Victoria Smith Ekstrand, a professor at Bowling Green State University, who has written a book about the issue. “Hot news is about having value in data [and] facts for some limited amount of time,” she said.

The hot news doctrine was established in 1918 in the case International News Service v. Associated Press. In that case, the AP alleged that INS was obtaining AP stories from early edition newspapers and then copying or rewriting the stories to sell to other publishers. The Supreme Court rejected AP’s argument that it had property rights to the news but said that a competing news service could be prevented from taking another news service’s original content “until its commercial value as news … has passed away.”

In his dissent, however, Judge Brandeis criticized the court’s decision, stating: “The general rule of law is, that the noblest of human productions – knowledge, truths ascertained, conceptions, and ideas – became, after voluntary communication to others, free as the air to common use.”

Deutsch said the hot news doctrine doesn’t prohibit others from reporting facts. Instead, the doctrine is about preventing unfair competition. “If you destroy news organizations, we’re not advancing the purposes of the First Amendment,” he said.

Only a handful of states explicitly recognize the hot news doctrine, and it has a narrow reach. In 1997, the Second Circuit held that to establish a hot news claim, the plaintiff must show that: it generates or gathers time-sensitive information at a cost; the defendant’s use of the information constitutes free-riding; the defendant is in direct competition with the plaintiff’s product or service; and that if others could also free-ride on the plaintiff’s efforts, the plaintiff’s incentive to produce the product or service would be substantially threatened.

Those watching the Theflyonthewall.com case say they are particularly interested in how the Second Circuit rules on whether the parties were actually in direct competition and if so, whether Theflyonthewall’s actions were so egregious to substantially threaten the investment banks’ services. Those rulings could set important precedents for future hot news claims.