Barclays Capital Inc. v. Theflyonthewall.Com Inc.

Citation2011 Copr.L.Dec. P 20117,650 F.3d 876,39 Media L. Rep. 2009,99 U.S.P.Q.2d 1247
Decision Date20 June 2011
Docket NumberDocket No. 10–1372–cv.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
PartiesBARCLAYS CAPITAL INC., Merrill Lynch, Pierce, Fenner & Smith Inc., and Morgan Stanley & Co. Inc., Plaintiffs–Appellees,v.THEFLYONTHEWALL.COM, INC., Defendant–Appellant.

OPINION TEXT STARTS HERE

Glenn F. Ostrager, Ostrager Chong Flaherty & Broitman P.C. (Joshua S. Broitman, of counsel), New York, NY, for Appellant.R. Bruce Rich, Weil Gotshal & Manges LLP (Benjamin Marks, Jonathan Bloom, and Lisa R. Eskow, of counsel), New York, NY, for Appellees.Kathleen M. Sullivan, Quinn Emanuel Urquhart & Sullivan, LLP ( Marc L. Greenwald, Jonathan B. Oblak, and Todd Anten, of counsel), New York, NY, for Amici Curiae Google Inc. and Twitter, Inc.Andrew L. Deutsch, DLA Piper LLP (US) (Nicholas Aldrich, of counsel), New York, NY, for Amici Curiae Advance Publications, Inc., Agence France–Presse, A.H. Belo Corporation, The Associated Press, Belo Corp., The E.W. Scripps Company, Gannett Company, Inc., The McClatchy Company, Newspaper Association of America, The New York Times Company, Philadelphia Media Holdings, LLC, Stephens Media LLC, Time Inc., and the Washington Post.Stephen Kinnaird, Paul, Hastings, Janofsky & Walker LLP (Barry Sher, William F. Sullivan, Peter M. Stone, and Morgan J. Miller, of counsel), Washington, DC, for Amicus Curiae The Securities Industry and Financial Markets Association.Christopher A. Mohr, Meyer, Klipper & Mohr, PLLC, Washington, DC, for Amicus Curiae Reed Elsevier Inc.Robert P. LoBue, Patterson Belknap Webb & Tyler LLP, New York, NY, for Amicus Curiae Dow Jones & Company, Inc.William D. Edick, Pickard & Djinis LLP, Washington, DC, for Amicus Curiae The Investorside Research Association.Henry R. Kaufman, Henry R. Kaufman, P.C. (Michael K. Cantwell, of counsel), New York, NY, for Amicus Curiae StreetAccount LLC.Fred Von Lohmann (Corynne McSherry, of counsel), San Francisco, CA, for Amici Curiae Citizen Media Law Project, Electronic Frontier Foundation, and Public Citizen, Inc.Before: POOLER, SACK, and RAGGI, Circuit Judges.SACK, Circuit Judge:

The parties, the district court, and amici have raised a wide variety of interesting legal and policy issues during the course of this litigation. We need not address most of them. We conclude that under principles that are well established in this Circuit, the plaintiffs' claim against the defendant for “hot news” misappropriation of the plaintiff financial firms' recommendations to clients and prospective clients as to trading in corporate securities is preempted by federal copyright law. Based upon principles explained and applied in National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir.1997) (sometimes hereinafter “ NBA ”), we conclude that because the plaintiffs' claim falls within the “general scope” of copyright, 17 U.S.C. § 106, and involves the type of works protected by the Copyright Act, 17 U.S.C. §§ 102 and 103, and because the defendant's acts at issue do not meet the exceptions for a “hot news” misappropriation claim as recognized by NBA, the claim is preempted. We therefore reverse the judgment of the district court with respect to that claim.

The plaintiffs-appellees—Barclays Capital Inc. (Barclays); 1 Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch); and Morgan Stanley & Co. Inc. (Morgan Stanley) (collectively, the “Firms”)—are major financial institutions that, among many other things, provide securities brokerage services to members of the public. Largely in that connection, they engage in extensive research about the business and prospects of publicly traded companies, the securities of those companies, and the industries in which those companies are engaged. The results of the research are summarized by the Firms in reports, which customarily contain recommendations as to the wisdom of purchasing, holding, or selling securities of the subject companies. Although the recommendations and the research underlying them in the reports are inextricably related, it is the alleged misappropriation of the recommendations, each typically contained in a single sentence, that is at the heart of the district court's decision 2 and the appeal here.

Each morning before the principal U.S. securities markets open, each Firm circulates its reports and recommendations for that day to clients and prospective clients. The recipients thus gain an informational advantage over non-recipients with respect to possible trading in the securities of the subject companies both by learning before the world at large does the contents of the reports and, crucially for present purposes, the fact that the recommendations are being made by the Firm. The existence of that fact alone is likely to result in purchases or sales of the securities in question by client and non-client alike, and a corresponding short-term increase or decrease in the securities' market prices. The Firms and similar businesses, under their historic and present business models, profit from the preparation and circulation of the reports and recommendations principally insofar as they earn brokerage commissions when a recipient of a report and recommendation turns to the firm to execute a trade in the shares of the company being reported upon.

The defendant-appellant is the proprietor of a news service distributed electronically, for a price, to subscribers. In recent years and by various means, the defendant has obtained information about the Firms' recommendations before the Firms have purposely made them available to the general public and before exchanges for trading in those shares open for the day. Doing so tends to remove the informational and attendant trading advantage of the Firms' clients and prospective clients who are authorized recipients of the reports and recommendations. The recipients of the information are, in turn, less likely to buy or sell the securities using the brokerage services of the reporting and recommending Firms, thereby reducing the incentive for the Firms to create such reports and recommendations in the first place. This, the Firms assert, will destroy their business models and have a severely deleterious impact on their ability to engage in further research and to create further reports and recommendations.

In an attempt to preserve their business models, the Firms have increasingly taken measures to seek to prevent or curtail such pre-market—and therefore, from their point of view, premature—public dissemination of their recommendations. As the district court reported in Barclays Capital Inc. v. Theflyonthewall.com (“ Fly I ”), 700 F.Supp.2d 310 (S.D.N.Y.2010), the Firms have, for example: “communicated to their employees that the unauthorized dissemination of their equity research or its contents is a breach of loyalty to the Firm, undermines the Firm's creation of revenue, and can result in discipline, including firing,” id. at 319–20; included in their licensing agreements with third-party distributors and in the reports themselves provisions prohibiting redistribution of their content, id. at 320; adopted policies limiting public dissemination of the reports and the information they contain, id.; and employed emerging Internet technology by which the Firms can seek to find the source of such “leaks” and to “plug” them, id. It is not clear from the record the extent to which these efforts are currently effective, but no concern has been expressed to us as to their legality or legitimacy.

The Firms instituted this litigation as part of the same endeavor. The first of their two sets of claims against the defendant sounds in copyright and is based on allegations of verbatim copying and dissemination of portions of the Firms' reports by the defendant. The Firms have been entirely successful on these copyright claims. See Fly I, 700 F.Supp.2d at 328 (“Fly no longer disputes ... that it infringed the copyrights in [seventeen of the Firms' reports].... [J]udgment shall [therefore] be entered for the [Firms] on their claims of copyright infringement.”). Although the extent to which the Firms' success on the copyright claims has alleviated their overall concerns is not clear, their victory on these claims is secure: Fly has not challenged the resulting injunction on appeal. Appellant's Br. at 61.

What remains before us, then, is the second set of claims by the Firms, alleging that Fly's early republication of the securities recommendations that the Firms create—their “hot news”—is tortious under the New York State law of misappropriation. The district court agreed and granted carefully measured injunctive relief. It is to the misappropriation cause of action that this appeal and therefore this opinion is devoted.

BACKGROUND

We find little to take issue with in the district court's careful findings of facts, to which we must in any event defer. We therefore borrow freely from them.3

The Firms and their Research Reports

The Firms are multinational financial entities that provide a variety of asset management, sales and trading, investment banking, and brokerage services to institutional investors, businesses of various sizes, and individuals. Among their many activities, the Firms compile research reports on specific companies whose securities are publicly traded, on industries, and on economic conditions generally. They disseminate such reports and accompanying trading recommendations to clients, such as hedge funds, private equity firms, pension funds, endowments, and individual investors. The reports, which vary in format, range from a single page to hundreds of pages in length. They typically include data analysis, qualitative discussion, and the recommendation. In the process of producing and disseminating the reports, the Firms employ hundreds of research analysts and spend hundreds of millions of dollars annually.

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47 cases
3 books & journal articles
  • New York intellectual property law review.
    • United States
    • Albany Law Review Vol. 75 No. 2, December 2011
    • December 22, 2011
    ...the constitutional question may be ripe for consideration by the Federal Circuit. (1) Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 878 (2d Cir. (2) Salinger v. Colting, 607 F.3d 68, 79-80 (2d Cir. 2010). (3) See, e.g., Music Sales Corp. v. Morris, 73 F. Supp. 2d 364, (S......
  • Equity as Meta-Law.
    • United States
    • Yale Law Journal Vol. 130 No. 5, March 2021
    • March 1, 2021
    ...it is a set of "sophisticated observations in aid" of an analysis of preemption. Barclays Capital, Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 901 (2d Cir. 2011). But see id. at 911 (Raggi, J., concurring) (arguing that the five-part test was necessary to the result in National Basketb......
  • MANDATING DIGITAL PLATFORM SUPPORT FOR QUALITY JOURNALISM.
    • United States
    • Harvard Journal of Law & Technology Vol. 34 No. 2, March 2021
    • March 22, 2021
    ...in Massachusetts and Washington D.C., without a ruling on the merits). (121.) See, e.g., Barclays Cap. Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 898-901 (2d Cir. 2011); Nat'l Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 852 (2d Cir. 1997); Agora Financial LLC v. Samler, 725 F.Su......

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