Jin Lee/Bloomberg News
A federal appeals court ruled on Monday that investment banks could not stop a financial Web site from immediately publishing the research recommendations of their stock analysts, delivering a blow to Wall Street and a win for the investing public.
Perhaps more significant, the decision was a victory for Internet companies whose business models depend upon summarizing and commenting on others’ original content. Yet media businesses also cheered the ruling because it left in place legal protections against rogue competitors who copy and resell original news reporting at little or no cost.
“It’s a great decision for the free flow of information in the new media age,” said Kathleen M. Sullivan, a lawyer who filed a brief in the case on behalf of two clients, Google and Twitter.
In a lawsuit closely followed by the world’s largest financial, media and technology businesses, a panel of three judges on the United States Court of Appeals for the Second Circuit in Manhattan ruled that Barclays, Morgan Stanley and Bank of America could not dictate who reported news about their stock research — nor when they reported it.
The decision leaves in place all traditional federal copyright protections. For example, a site can report on the content of Wall Street research, meaning that it could run a headline like “Morgan Stanley’s semiconductor analyst upgrades Intel.” But the site would violate copyright law if it reprinted the analyst’s report on Intel verbatim.
“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,” Judge Robert D. Sack wrote in the court’s 88-page opinion.
The ruling reversed a controversial lower court decision made last year that required a financial Web site, theflyonthewall.com, to wait until 10 a.m. to publish news about Wall Street research that had been issued before the stock market’s 9:30 a.m. opening bell. The site was also ordered to delay its headlines during the day by two hours.
The ruling effectively gave the banks’ clients a chance to digest market-moving research before everyone else.
The banks had argued that the Web site’s publishing headlines about a bank’s upgrade or downgrade of a company’s stock — often before the information was fully disseminated to the banks’ clients — was tantamount to stealing intellectual property. They contended that delivering stock recommendations exclusively was key to their business because clients were more likely to trade with them if they learned of a stock recommendation from them rather than elsewhere.
Benjamin E. Marks, a lawyer for the banks, said in a statement that they were “disappointed in the court’s decision, and we are reviewing the decision to determine our next steps.” He added: ”Each of the plaintiffs remains committed to protecting their equity research against unauthorized appropriation.”
The banks’ lawsuit against theflyonthewall.com was based on a legal doctrine called ”hot news misappropriation,” which is meant to protect organizations from stealing original content generated by competitors and reselling it. The original “hot news” doctrine evolved from a famous Supreme Court case in 1918, when The Associated Press successfully prevented the International News Service from appropriating its wire reports on the war in Europe.
With the rise of the Internet and digital media, the largely dormant “hot news” doctrine has become more relevant, as competitors can now copy content and repackage it as their own product with just a few keystrokes.
While the Second Circuit upheld the viability of a “hot news” claim — where one organization copies and resells news originally gathered by another — it said that the banks’ case did not fall within this law. In this instance, the court said, the Web site was not “free-riding” on Wall Street firms’ stock recommendations.
“The firms are making the news; Fly, despite the firms’ understandable desire to protect their business model, is breaking it,” Judge Sack wrote.
Corynne McSherry, a lawyer at the Electronic Frontier Foundation, an Internet freedom advocacy group, said that while the ruling preserves the protections of the “hot news” doctrine, it seems to limit its use.
“While it may have survived this case, it now appears to have been narrowed to within an inch of its life,” Ms. McSherry said.
Media outlets applauded the ruling. The Associated Press, which submitted a brief to the court along with 13 other news organizations, including The New York Times, said in a statement that it viewed the decision “as a victory for the news media and the public.”
“The ruling upholds the traditional protections of the news media against competitors who would copy the gathered news and resell it in direct competition with the original news gatherer,” Andrew L. Deutsch, a lawyer who filed the brief on behalf of the companies. “It preserves the economic incentive to engage in news gathering.”
Lawyers for Google and Twitter had argued that it was antiquated for a court to ban a Web site from immediately disseminating news. A Web site’s swift republishing of facts — whether a bank’s investment recommendation or a scoop from The New York Times — has become a firmly entrenched part of the news reporting ecosystem, they said.
“This ruling acknowledges the reality of new media,” said Ms. Sullivan, the lawyer for the Internet companies. “Hot news goes cold in a nanosecond.”
Theflyonthewall.com, a small outfit in Summit, N.J., has exploited this new reality. The site, which charges $65 a month and has thousands of subscribers, has called itself the “fastest news feed on the web” and ”a one-stop solution for accessing analyst’s comments.” In a statement, the company called the ruling ”a complete victory in its long-running battle with the investment firms.”
Even though the ruling directly affects cases only in the Second Circuit — New York, Connecticut and Vermont — the decision by the influential court is expected to reverberate in cases across the country.
Judge Sack is considered one of the country’s leading experts on copyright law, which could enhance the ruling’s influence.
U.S. Court of Appeals for the Second Circuit ruling in Banks v. The Fly on the Wall
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