The 'Hot News' Doctrine in the Digital Age

The genesis of the hot news doctrine derives from the Supreme Court's nearly century-old decision, International News Service v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918). AP brought suit to prevent a competing wire service from lifting facts from AP news bulletins and selling them as their own to affiliated newspapers and also from selling stories from just-published East Coast AP newspapers to West Coast newspapers whose editions had yet to appear. The Supreme Court held that the defendant's use of AP's information was unlawful. Specifically, the Court found that one who expends effort and expense to gather breaking news for the purpose of profitable publication has a “quasi property” right in the results of its enterprise as against a rival in the same business, such that the economic misappropriation of hot news can be actionable. The ability to appropriate a news publisher's product at a nominal cost and subsequently disseminate a competing product at a lower price would destroy the incentive to collect breaking news, and as a result, the public would suffer. See NBA v. Motorola, Inc., 105 F.3d 841, 853 (2d Cir. 1997).

The hot news doctrine was implicitly narrowed by the 1976 Copyright Act, which pre-empted state claims that were essentially equivalent to the exclusive rights within the subject matter of copyright. Yet, the Second Circuit has held that hot news misappropriation claims under New York common law survive pre-emption by the Copyright Act. See e.g., Financial Information, Inc. v. Moody's Investors Service, Inc., 808 F.2d 204, 209 (2d Cir. 1986).

The Second Circuit has applied the hot news doctrine in the modern technological context. In NBA v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), a case involving the transmission of “real time” basketball scores over handheld pagers, the Second Circuit laid out the narrow prerequisites for a valid hot news claim: 1) the plaintiff generates or gathers information at a cost; 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 is in direct competition with a product or service offered by the plaintiffs; and 5) 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. Id. at 845.

Recent Decisions

The Associated Press v. All Headline News decision was arguably one of the first court decisions to discuss the hot news doctrine in the online context. In that case, the AP alleged that the defendant, an online news aggregator, engaged in “free-riding” on the AP's news articles. The AP claimed that the defendant did not undertake original reporting, but instead reworded or copied AP articles in full and republished them as its own original reporting. In declining to dismiss the AP's common law hot news misappropriation claim, the court stated that a hot news cause of action “remains viable under New York law” and that the defendant had not advanced any reason why the Second Circuit's copyright pre-emption analysis from the NBA decision should be rejected. AP v. All Headline News Corp., 608 F. Supp. 2d at 461.

Subsequently, the Southern District considered copyright and hot news misappropriation claims in a case brought by the owner of a celebrity gossip Web site who alleged that a competitor copied her content and re-posted it on his site. See Silver v. Lavandeira, 2009 WL 513031 (S.D.N.Y. Feb. 26, 2009). In denying the plaintiff's request for a preliminary injunction, the magistrate judge found that the plaintiff's hot news claim was unlikely to succeed on the merits. The court noted that the claim was deficient in several respects, because the information gathered by the plaintiff was widely available from other Internet sources before it was published by the plaintiff, and the plaintiff failed to show that she incurred any significant costs in obtaining the allegedly misappropriated information.

Similarly, a Pennsylvania district court ruled that a newspaper's hot news claim was pre-empted by the Copyright Act, because the defendant's alleged misappropriation of non-copyrighted, time-sensitive obituaries from plaintiff's newspapers and Web site did not pose a threat to the existence of plaintiff's publications. See The Scranton Times, LP v. Wilkes-Barre Publishing Co., 90 U.S.P.Q.2d 1161 (M.D. Pa. Mar. 6, 2009). While the allegedly plagiarized obituaries were time-sensitive and the defendant allegedly was “free-riding” off of the plaintiff's efforts in collecting them, the court ultimately concluded that such copying did not substantially threaten the quality of the plaintiff's publications or compromise the plaintiff's ability to continue the timely publication of the obituaries.

The Barclays Decision

Most recently, in Barclays Capital Inc. v. TheFlyOnTheWall.com, 2010 WL 1005160 (S.D.N.Y. Mar. 18, 2010), the Southern District of New York issued another noteworthy opinion upholding the hot news doctrine. In Barclays, a financial newsfeed Web site that posted key information from proprietary, time-sensitive equity research reports distributed by several Wall Street investment firms to subscribing investors prior to the opening bell was liable for hot news misappropriation. Following a bench trial, the court, among other things, issued a permanent injunction barring the defendant from publishing information culled from research reports for a specific amount of time after the investment firms release the reports to top investors (i.e., the defendant must wait until one-half hour after the market's opening bell (10:00 a.m.) for equity research reports released while the market is closed, and two hours for reports released while the market is open for trading). The court found that the plaintiffs satisfied the five-part test for hot news misappropriation, namely that: 1) the plaintiffs produced the equity research at great expense; 2) the value of the information was highly time-sensitive; 3) the defendant's use of the information constituted “free-riding,” despite the fact that the research reports may have already been posted online by other entities; 4) the defendant was in direct competition with the plaintiff in disseminating equity research to investors; and 5) the defendant's continued conduct would reduce the plaintiffs' incentive to produce equity research reports and would threaten the continued viability of plaintiffs' research business.

In a further ruling, the court denied the defendant's motion for a stay of the permanent injunction pending its appeal. Barclays Capital Inc. v. TheFlyOnTheWall.com, No. 06-4908 (S.D.N.Y. Opinion & Order May 7, 2010). The court found, among other things, that the defendant had not demonstrated a likelihood of success on appeal, rejecting the defendant's argument that the plaintiffs failed to prove the fourth and fifth elements of their hot news claim. As to the fourth element, the court stated that the parties ' financial service companies and a media Web site ' were in direct competition with respect to the market at issue, namely, the market for disseminating equity research recommendations. Regarding the fifth element, the court stressed the presence of convincing evidence that the plaintiffs' equity research businesses had already been harmed by the defendant's activities. Moreover, the court rejected the defendant's contention that it would suffer irreparable harm from the terms of the injunction, finding that the court's order expressly permits the defendant the right to apply within one year from the issuance of the injunction to modify or vacate it if the defendant can demonstrate that the plaintiffs have not taken reasonable steps to police the market and restrain the unauthorized misappropriation of their equity research by other online entities. Lastly, the court refused to consider the defendant's claims that the injunction violates its First Amendment rights, because the defendant expressly disclaimed the defense in a pre-trial pleading.

The defendant subsequently filed an appeal to the Second Circuit. The appeals court granted the defendant's request for expedited treatment of its appeal and most notably, granted the defendant's request for a stay of the district court's injunction. See Barclays Capital Inc. v. TheFlyOnTheWall.com, Inc., No. 10-1372 (2d Cir. May 19, 2010).

Going Forward

The Barclays decision was certainly a resounding victory for the investment banks, at least at the lower court level, and demonstrated that hot news claims are viable in the online context. The verdict will likely spur news publishers to take a more active approach to prevent unauthorized republication of their timely news material on the Internet, particularly since copyright law is not well-suited to prevent such misappropriation. To that end, the AP recently announced that it would pursue legal action against news aggregators that reprinted its materials without permission. Going forward, it remains to be seen whether other content providers will test the limits of the newly revived hot news doctrine to prevent online aggregators and other competitors from republishing timely information, and to what extent such attempts will be successful.

Richard Raysman, a member of this newsletter's Board of Editors, is a partner at Holland & Knight LLP and co-author of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press).

Ever since (and likely long before) Paul Revere's famous “Midnight Ride” of 1775, breaking news has been a hot commodity. And given the ease of distribution of information in the digital age, news organizations and content providers have found it increasingly difficult to prevent its wide release over the Internet, particularly uses that do not necessarily constitute copyright infringement. It seems, however, that the old “hot news” misappropriation doctrine ' first outlined by the Supreme Court in its almost century-old International News Service v. Associated Press , 248 U.S. 215 (1918) decision ' may offer a limited remedy against Web sites that “free-ride” on content providers' costly efforts to collect and generate time-sensitive news and materials.

Last year, the Southern District of New York reignited the 90-year-old hot news doctrine and applied it in the Internet context. In The Associated Press v. All Headline News Corp. , 608 F. Supp. 2d 454 (S.D.N.Y. 2009), the district court found that a newswire's hot news misappropriation claim against a news aggregation Web site that collected news stories on the Internet and repackaged them under its own banner was valid under New York law. Since that decision, a number of entities have attempted to use the hot news doctrine to prevent the unauthorized use of time-sensitive content, including most recently, financial firms and media outlets attempting to prevent news-oriented Web sites from publishing their well-researched content.

The 'Hot News' Misappropriation Doctrine

The genesis of the hot news doctrine derives from the Supreme Court's nearly century-old decision, International News Service v. Associated Press , 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918). AP brought suit to prevent a competing wire service from lifting facts from AP news bulletins and selling them as their own to affiliated newspapers and also from selling stories from just-published East Coast AP newspapers to West Coast newspapers whose editions had yet to appear. The Supreme Court held that the defendant's use of AP's information was unlawful. Specifically, the Court found that one who expends effort and expense to gather breaking news for the purpose of profitable publication has a “quasi property” right in the results of its enterprise as against a rival in the same business, such that the economic misappropriation of hot news can be actionable. The ability to appropriate a news publisher's product at a nominal cost and subsequently disseminate a competing product at a lower price would destroy the incentive to collect breaking news, and as a result, the public would suffer. See NBA v. Motorola, Inc. , 105 F.3d 841, 853 (2d Cir. 1997).

The hot news doctrine was implicitly narrowed by the 1976 Copyright Act, which pre-empted state claims that were essentially equivalent to the exclusive rights within the subject matter of copyright. Yet, the Second Circuit has held that hot news misappropriation claims under New York common law survive pre-emption by the Copyright Act. See e.g., Financial Information, Inc. v. Moody's Investors Service, Inc. , 808 F.2d 204, 209 (2d Cir. 1986).

The Second Circuit has applied the hot news doctrine in the modern technological context. In NBA v. Motorola, Inc. , 105 F.3d 841 (2d Cir. 1997), a case involving the transmission of “real time” basketball scores over handheld pagers, the Second Circuit laid out the narrow prerequisites for a valid hot news claim: 1) the plaintiff generates or gathers information at a cost; 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 is in direct competition with a product or service offered by the plaintiffs; and 5) 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. Id. at 845.

Recent Decisions

The Associated Press v. All Headline News decision was arguably one of the first court decisions to discuss the hot news doctrine in the online context. In that case, the AP alleged that the defendant, an online news aggregator, engaged in “free-riding” on the AP's news articles. The AP claimed that the defendant did not undertake original reporting, but instead reworded or copied AP articles in full and republished them as its own original reporting. In declining to dismiss the AP's common law hot news misappropriation claim, the court stated that a hot news cause of action “remains viable under New York law” and that the defendant had not advanced any reason why the Second Circuit's copyright pre-emption analysis from the NBA decision should be rejected. AP v. All Headline News Corp. , 608 F. Supp. 2d at 461.

Subsequently, the Southern District considered copyright and hot news misappropriation claims in a case brought by the owner of a celebrity gossip Web site who alleged that a competitor copied her content and re-posted it on his site. See Silver v. Lavandeira, 2009 WL 513031 (S.D.N.Y. Feb. 26, 2009). In denying the plaintiff's request for a preliminary injunction, the magistrate judge found that the plaintiff's hot news claim was unlikely to succeed on the merits. The court noted that the claim was deficient in several respects, because the information gathered by the plaintiff was widely available from other Internet sources before it was published by the plaintiff, and the plaintiff failed to show that she incurred any significant costs in obtaining the allegedly misappropriated information.

Similarly, a Pennsylvania district court ruled that a newspaper's hot news claim was pre-empted by the Copyright Act, because the defendant's alleged misappropriation of non-copyrighted, time-sensitive obituaries from plaintiff's newspapers and Web site did not pose a threat to the existence of plaintiff's publications. See The Scranton Times, LP v. Wilkes-Barre Publishing Co. , 90 U.S.P.Q.2d 1161 (M.D. Pa. Mar. 6, 2009). While the allegedly plagiarized obituaries were time-sensitive and the defendant allegedly was “free-riding” off of the plaintiff's efforts in collecting them, the court ultimately concluded that such copying did not substantially threaten the quality of the plaintiff's publications or compromise the plaintiff's ability to continue the timely publication of the obituaries.

The Barclays Decision

Most recently, in Barclays Capital Inc. v. TheFlyOnTheWall.com, 2010 WL 1005160 (S.D.N.Y. Mar. 18, 2010), the Southern District of New York issued another noteworthy opinion upholding the hot news doctrine. In Barclays, a financial newsfeed Web site that posted key information from proprietary, time-sensitive equity research reports distributed by several Wall Street investment firms to subscribing investors prior to the opening bell was liable for hot news misappropriation. Following a bench trial, the court, among other things, issued a permanent injunction barring the defendant from publishing information culled from research reports for a specific amount of time after the investment firms release the reports to top investors (i.e., the defendant must wait until one-half hour after the market's opening bell (10:00 a.m.) for equity research reports released while the market is closed, and two hours for reports released while the market is open for trading). The court found that the plaintiffs satisfied the five-part test for hot news misappropriation, namely that: 1) the plaintiffs produced the equity research at great expense; 2) the value of the information was highly time-sensitive; 3) the defendant's use of the information constituted “free-riding,” despite the fact that the research reports may have already been posted online by other entities; 4) the defendant was in direct competition with the plaintiff in disseminating equity research to investors; and 5) the defendant's continued conduct would reduce the plaintiffs' incentive to produce equity research reports and would threaten the continued viability of plaintiffs' research business.

In a further ruling, the court denied the defendant's motion for a stay of the permanent injunction pending its appeal. Barclays Capital Inc. v. TheFlyOnTheWall.com, No. 06-4908 (S.D.N.Y. Opinion & Order May 7, 2010). The court found, among other things, that the defendant had not demonstrated a likelihood of success on appeal, rejecting the defendant's argument that the plaintiffs failed to prove the fourth and fifth elements of their hot news claim. As to the fourth element, the court stated that the parties ' financial service companies and a media Web site ' were in direct competition with respect to the market at issue, namely, the market for disseminating equity research recommendations. Regarding the fifth element, the court stressed the presence of convincing evidence that the plaintiffs' equity research businesses had already been harmed by the defendant's activities. Moreover, the court rejected the defendant's contention that it would suffer irreparable harm from the terms of the injunction, finding that the court's order expressly permits the defendant the right to apply within one year from the issuance of the injunction to modify or vacate it if the defendant can demonstrate that the plaintiffs have not taken reasonable steps to police the market and restrain the unauthorized misappropriation of their equity research by other online entities. Lastly, the court refused to consider the defendant's claims that the injunction violates its First Amendment rights, because the defendant expressly disclaimed the defense in a pre-trial pleading.

The defendant subsequently filed an appeal to the Second Circuit. The appeals court granted the defendant's request for expedited treatment of its appeal and most notably, granted the defendant's request for a stay of the district court's injunction. See Barclays Capital Inc. v. TheFlyOnTheWall.com, Inc., No. 10-1372 (2d Cir. May 19, 2010).

Going Forward

The Barclays decision was certainly a resounding victory for the investment banks, at least at the lower court level, and demonstrated that hot news claims are viable in the online context. The verdict will likely spur news publishers to take a more active approach to prevent unauthorized republication of their timely news material on the Internet, particularly since copyright law is not well-suited to prevent such misappropriation. To that end, the AP recently announced that it would pursue legal action against news aggregators that reprinted its materials without permission. Going forward, it remains to be seen whether other content providers will test the limits of the newly revived hot news doctrine to prevent online aggregators and other competitors from republishing timely information, and to what extent such attempts will be successful.

Richard Raysman, a member of this newsletter's Board of Editors, is a partner at Holland & Knight LLP and co-author of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press).