Barclays Capital Inc., et al. v. Theflyonthewall.com

After a bench trial, the district court entered judgment in favor of plaintiff financial institutions on their claims of copyright infringement and “hot news misappropriation” against online aggregator of financial information.

Plaintiffs are major financial institutions that devote substantial resources to creating financial research reports on various publicly traded equity securities (called “equity research”). Plaintiffs distribute most of these reports to selected clients before the opening of the trading day and then contact their clients to encourage trades; commissions earned from the trades are a principal source of revenue for plaintiffs. As the court noted, the value of the research derives not just from its quality but also from its exclusivity and timeliness. Plaintiffs’ recommendations are a valuable benefit to plaintiffs’ clients because the recommendations can provide them an early
informational advantage. Plaintiffs have also devoted substantial resources to try to control the distribution of their reports.

Defendant operates a website at www.theflyonthewall.com which provides access to “financial news, rumors and other information flowing from Wall Street,” including plaintiffs’ recommendations, in an online subscription newsfeed. Defendant’s marketing materials describe it as the “fastest newsfeed on the web” that delivers “actionable, equity news in a concise and timely manner.” Defendant does not conduct its own equity research or include any original research in its newsfeeds. Before this litigation, defendant’s newsfeed contained headlines based on plaintiffs’ and other firms’ recommendations and, on occasion, verbatim excerpts from plaintiffs’ reports. After plaintiffs filed suit, defendant stopped providing excerpts. Defendant estimated at trial that about 80% of its recommendation headlines are posted before the market opens at 9:30 am Eastern. Subscriptions to defendant’s content range from $25 - $50 per month and $240 - $480 per year.

Plaintiffs sent cease and desist letters to defendant and eventually filed suit in 2006 for copyright infringement and “hot news misappropriation. (In 2007, defendant filed an action against a competitor for copyright infringement and hot news misappropriation, claiming that TTN was misappropriating time sensitive, proprietary information by broadcasting content from defendant’s newsfeed on TTN’s website within seconds of the content being posted. The parties settled with a monetary payment to defendant.)

New York courts recognize hot news misappropriation as a form of New York common law unfair competition. The elements of a hot news misappropriation claim, established in NBA v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), are: (1) the plaintiff generates or collects information at some cost or expense; (2) the information is time sensitive; (3) the defendant’s use of the information constitutes free-riding on the plaintiff’s efforts; (4) the defendant’s use of the information is in direct competition with the plaintiff; and (5) the ability of other parties to free-ride on the efforts of the plaintiff reduce the incentive to produce the product or service such that its existence or quality is substantially threatened.

In a lengthy decision which fully summarizes the law on “hot news,” the court held that plaintiffs established all five elements of the hot news misappropriation tort. Defendant did not dispute the first two elements – that plaintiffs incur substantial expense in generating their research reports and recommendations and that plaintiffs’ reports and recommendations are time sensitive. Regarding the free-riding element, the court rejected defendant’s argument that plaintiffs’ recommendations are “public” because other news organizations, as well as chat rooms and blast IMs, have already published them. “The fact that others also engage in unlawful behavior does not excuse a party’s own illegal conduct. . . . [I]t is not a defense to misappropriation that a Recommendation is already in the public domain by the time Fly reports it.”

The court also rejected defendant’s argument that it invested substantial resources of its own to create the content of its newsfeed. As the court explained, defendant’s “core business is its free-riding off the sustained, costly efforts by the Firms and other investment institutions to generate equity research that is highly valued by investors. Fly does no equity research of its own, nor does it undertake any original reporting or analysis that could generate the opinions reflected in the headlines published in the “Recommendations” section of its newsfeed. Fly’s Recommendation headlines consist entirely of regurgitations of the Firms’ Recommendations and those of other investment institutions. Because it makes no investment of its own in equity research, Fly can sell the reprinted Recommendations at a cut-rate price to its subscribers and still make a profit. Its only cost is the cost of locating and lifting the Recommendations and then entering a few keystrokes into its newsfeed software.”

Regarding direct competition, the court held plaintiffs and defendant are in direct competition in disseminating recommendations to investors for their use in making investment decisions, even though defendant does not offer any brokerage services. And regarding the fifth factor – reduced incentives to produce the reports – the court held that plaintiffs provided ample evidence that the continued conduct of defendant, and others like defendant, would reduce their incentive to invest the resources necessary to produce equity research reports.

The court enjoined defendant from publishing plaintiffs’ recommendations that are released while the market is closed for one-half hour after trading begins and, for recommendations that are released while the market is open, two hours after their release. The court also awarded two of the plaintiffs statutory damages and prejudgment interest on the statutory damages for copyright infringement of their reports.