Opinion ID: 219099
Heading Depth: 1
Heading Rank: 5

Heading: The Firms Failed To Establish Direct Competition Between Their Recommendations and Fly's Substantially Different Aggregate Product

Text: In concluding that the Firms failed to establish a non-preempted hot news claim under the test identified in NBA, I rely on facts emphasized by the majority, namely, that Fly produces an aggregate product reporting many Firms' Recommendations among other financial news, and attributing each Recommendation to its source, while the Firms each disseminate only their own Recommendations to clients who engage in a particular level of trading with the Firms. See ante at 901-06. The majority, however, uses these facts to draw a bright line distinguishing between the Firms, who generate news, and Fly and other news aggregators, who break the news, with the former falling outside of hot-news protection. See ante at 902. I am not convinced that this distinction is determinative here because the Firms appear to play both roles. Not only do they generate their Recommendations, they then disseminate them, recouping the cost of generation through trading revenue. I am not prepared to foreclose the possibility of a hot news claim by a party who disseminates news it happens to create. I conclude simply that the facts emphasized by the majority preclude the Firms from stating a non-preempted hot news claim for a different reason derived from NBA : the Firms' product and Fly's newsfeed do not directly compete. Although NBA turned on the plaintiff's failure to show free riding on and a sufficient threat to its services, the court there discussed the direct competition element in noting that the plaintiff had compresse[d] and confuse[d] three different informational products. 105 F.3d at 853. Separating the NBA 's dissemination of live basketball games and copyrighted broadcasts from its collection and transmission of factual material about the games through a pager service, the court determined that only the latter might directly compete with the defendant's product, another pager service providing facts about live games. See id. at 853-54 (noting separate market for pager service). In other words, only products in the keenest of competition satisfy the direct competition requirement for a non-preempted claim. INS, 248 U.S. at 221, 230, 39 S.Ct. 68 (stating that plaintiff and defendant newspaper companies were in the keenest competition in gathering and publishing news throughout United States). In this case, I identify no clear error in the district court's impressively thorough fact-finding. See Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42, 52 (2d Cir.2011) (applying clear error review to factual findings after bench trial). But reviewing legal determinations de novo, see id. at 51, I conclude that the direct competition element of NBA 's test was applied more broadly than warranted. Whatever Fly's ultimate purpose or impact in distributing the Firms' Recommendations, the critical consideration for purposes of identifying direct competition is the substantial similarity of the products in satisfying relevant market demand. In concluding that direct competition was established, the district court observed that both the Firms and Fly disseminate Recommendations to investors for their use in making investment decisions. Barclays Capital Inc. v. Theflyonthewall.com, 700 F.Supp.2d at 339. Such a broad similarity between the companies' overall goals does not constitute the substantial similarity required for direct competition. Even assuming that the Firms' distribution of research reports is one of its primary businesses, each Firm distributes only its own Recommendations to investors most likely to follow its advice and place a trade through it. See id. at 316-19. [4] The Firms do not aggregate or distribute other Firms' Recommendations. See id. at 317. To do so would interfere with the Firms' business model, which is based on investors' inclinations to trade with the Firm from which they received a Recommendation. See id. at 318-19. Indeed, the Firms limit full access to their research to clients who generate sufficient trading revenue. See id. at 319. By contrast, Fly does not produce any of its own recommendations or seek trading commissions. See id. at 322-24. Rather, it collect[s] and publish[es] financial news to anyone interested in such information through a subscription service, the most lucrative aspect of which is the distribution of sixty-five firms' Recommendations, with each Recommendation attributed to its source. Id. at 322-24. It bears noting that, like the district court, I view Fly's conduct as strong evidence of free-riding, or worse depending on how it came into possession of the Recommendations. See id. at 336-37. Although Fly expends some effort to gather and aggregate the Recommendations, Fly is usurping the substantial efforts and expenses of the Firms to make a profit without expending any time or cost to conduct research of its own. I cannot celebrate such practices, which allow Fly to reap where it has not sown. INS, 248 U.S. at 239, 39 S.Ct. 68. As the majority notes, however, such apparent unfairness does not control preemption analysis. See ante at 894-97. Although Fly free-rides on the Firms' efforts, Fly's attribution of aggregate Recommendations demonstrates the crucial difference between the businesses: while the Firms disseminate only their own Recommendations to select clients most likely to follow the advice and place trades with the Firms, Fly aggregates and disseminates sixty-five firms' Recommendations and other financial information to anyone willing to pay for it without regard to whether clients accept or trade on particular Recommendations. An example illustrates the distinction. Two firms might disseminate opposing Recommendations on the same stock. These two firms directly compete in attempting to convince clients to follow their Recommendation and place a trade. Fly, on the other hand, would presumably report both opinions (as well as scores of others) to its readers without regard to whether they trade on the information. Some investors may place a particular value on learning all Recommendations, and some people may have a general interest in learning such news even without wishing to invest. Thus, Fly's product may directly compete with that of other financial news outlets, such as Dow Jones, that also seek to provide all Recommendations to anyone interested in such news. See Associated Press v. All Headline News Corp., 608 F.Supp.2d 454, 457-58, 461 (S.D.N.Y.2009) (holding that plaintiff news agency sufficiently pleaded hot news tort by alleging that defendant news service copied and distributed plaintiff's stories under defendant's name). But Fly's aggregate subscription product is sufficiently distinct from the Firms' business model, which cannot be divorced from the trading market it targets, to preclude a finding of the direct competition required by NBA 's test. [5] The district court observed that Fly intended its newsfeed to fulfill demand for the original work as evidenced by its recent distribution of the newsfeed through discount brokers, thereby creating the final stage of direct competition by driving away commission revenue. Barclays Capital Inc. v. Theflyonthewall.com, 700 F.Supp.2d at 339-40 (internal quotation marks omitted). The discount brokers, however, are simply one of many third-party distributors that disseminate Fly's newsfeed. See id. at 324-25. While the discount brokers separately place trades, Fly does not endorse investment advice or seek commission revenue. Moreover, as the majority points out, even the Firms' authorized clients are free to use discount brokers once they receive a Recommendation. See ante at 904-05. Thus, although some investors may use Fly's newsfeed instead of paying for direct receipt of the Firms' Recommendations, the overlap in potential clients does not make the products or their targeted markets sufficiently similar to satisfy NBA 's direct competition requirement for a non-preempted claim.