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Catching Flies

By 7 July 2010 One Comment

The big copyright case this summer is not primarily about copyright – it is Barclay’s Capital, Inc. v. Theflyonthewall.com in the U.S. Court of Appeals for the Second Circuit, and it is about the state law tort of misappropriation of assets belonging to another.

But it is a bit like the battle of Gettysburg, which started out as a collision between a Confederate raiding party looking for shoes and the advance elements of the Army of the Potomac, and then sucked in the whole of both armies. So here, Fly has turned into a collision not only between the original parties but between Google & Twitter (supporting Fly) on the one side and the Army of the Content Industries on the other (though this group coyly says that it supports neither party). An amicus brief has also been filed by Citizen Media Law Project, Electronic Frontier Foundation, and Public Citizen, Inc.. This one, too, is “in Support of Neither Party,” but it was written by Fred von Lohmann, who has now gone to work for Google. DowJones has also filed an amicus, which is hardly surprising since DJ reacted to the trial decision by filing a similar case against Briefing.com, but it too says it supports neither party in Fly.

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The plaintiffs are a bunch of premier investment firms – Barclays; the ghosts of Lehman and Merrill Lynch; Morgan Stanley – that routinely send their clients investment analyses and recommendations in the hopes that this will result in business for the firm. These were usually issued before the stock market opened so that the clients could, in theory, act quickly, before the information percolated out to the market as a whole.

Theflyonthewall.com developed a business of finding out these recommendations and publishing them immediately, which pretty much zeroed out their value.

The banks sued, charging not only copyright infringement but that “the regular, systematic, and timely taking and redistribution of their recommendations constitutes misappropriation, which is a violation of the New York common law of unfair competition.”

The trial court found for plaintiffs on both counts.

On copyright, it noted that while copyright doctrine is indeed that  facts are not subject to copyright, the information at issue here was a kind of mixed fact and opinion – “soft facts” – that has been granted protection by the courts.

On misappropriation, the court hewed to NBA v. Motorola, a 1997 case stating that a claim of “hot news misappropriation” could survive only if:

(i) a plaintiff generates or gathers information at a cost; (ii) the information is time-sensitive; (iii) a defendant’s use of the information constitutes free riding on the plaintiff’s efforts; (iv) the defendant is in direct competition with a product or service offered by the plaintiffs; and (v) the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.

Absent these factors, the claim is pre-empted by Federal copyright law.

The legal arguments are complex and interesting. Google is, of course, supporting the idea that nothing is protected from anything, since its whole business model is premised on appropriation of the work of others. The content companies, which both produce and take, are more nuanced.

But the content companies’ amicus brief does contain an excellent depiction of the basic dilemma:

INS  [the original Supreme Court case on “hot news”] permits a news originator to obtain injunctive relief against an entity that systematically and continuously copies the originator’s’ published news while it is still timely, and then republishes that news in a product that competes with the originator’s own product.

The INS doctrine ultimately rests on the public interest. It recognizes that free-riders who have not invested in a journalistic infrastructure can always undersell news originators. Unless generalized free-riding on news originators’ efforts is restrained, originators will be unable to recover their costs of newsgathering and publication, the incentive to engage in the news business will be threatened, and the public will ultimately have fewer sources of original news.

The DowJones press release on its law suit puts it this way:

“Dow Jones invests considerable resources to produce timely and trusted news and business information,” said Mark H. Jackson, general counsel for Dow Jones. “Briefing.com has been brazenly taking a free ride on the reputation of our publications and on the investment Dow Jones makes in quality, real-time journalism.”

One can readily see why Google feels threatened.

A final irony of the case: Fly at one point sued another net firm for “misappropriating Fly’s valuable, time-sensitive, proprietary information [i.e., the material Fly had lifted from the banks] by broadcasting content from Fly’s newsfeed on its own website within seconds of the content being posted.” There is no honor among parasites.

It will take a while for the case to get through the appellate mill, and then, whichever way it goes, it looks like pretty good Supreme Court fodder, so there is lots of time for more armies to come tramping up. And lots more time for comment here on the issues involved.

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