Opinion ID: 219099
Heading Depth: 5
Heading Rank: 2

Heading: Extra-Element Test

Text: Having decided that the two preliminary factors counseled in favor of preemption, the NBA panel observed: [C]ertain forms of commercial misappropriation otherwise within the general scope requirement will survive preemption if an extra-element test is met. As stated in Altai: But if an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action, then the right does not lie `within the general scope of copyright,' and there is no preemption. Altai, 982 F.2d at 716 (quoting 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 1.01[B] at 1-14-15 (1991)). NBA, 105 F.3d at 850; see also Harper & Row, 723 F.2d at 200 ([W]hen a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like, the rights involved are not equivalent and preemption will not occur.). It is with respect to the extra elements that the NBA Court proffered a three-factor analysis: We ... find the extra elements  those in addition to the elements of copyright infringement  that allow a `hotnews' claim to survive preemption are: (i) the time-sensitive value of factual information, (ii) the free-riding by a defendant, and (iii) the threat to the very existence of the product or service provided by the plaintiff. Id. at 853 (emphasis added).
The NBA Court briefly summarized the Supreme Court's seminal 1918 hot news decision, International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918) ( INS ): INS involved two wire services, the Associated Press (AP) and International News Service (INS), that transmitted news stories by wire to member newspapers. Id. INS would lift factual stories from AP bulletins and send them by wire to INS papers. Id. at 231 [39 S.Ct. 68]. INS would also take factual stories from east coast AP papers and wire them to INS papers on the west coast that had yet to publish because of time differentials. Id. at 238 [39 S.Ct. 68]. The Supreme Court held that INS's conduct was a common-law misappropriation of AP's property. Id. at 242 [39 S.Ct. 68]. NBA, 105 F.3d at 845. INS itself is no longer good law. Purporting to establish a principal of federal common law, the law established by INS was abolished by Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which largely abandoned federal common law. But, as the NBA panel pointed out, [b]ased on legislative history of the 1976 [Copyright Act amendments], it is generally agreed that a `hot-news' INS -like claim survives preemption. NBA, 105 F.3d at 845 (citing H.R.Rep. No. 94-1476 at 132). The House of Representatives Report with respect to the preemption provisions of the 1976 Copyright Act amendments commented in this regard: Misappropriation is not necessarily synonymous with copyright infringement, and thus a cause of action labeled as misappropriation is not preempted if it is in fact based neither on a right within the general scope of copyright as specified by [17 U.S.C. §] 106 [specifying the general scope of copyright] nor on a right equivalent thereto. For example, state law should have the flexibility to afford a remedy (under traditional principles of equity) against a consistent pattern of unauthorized appropriation by a competitor of the facts (i.e., not the literary expression) constituting hot news, whether in the traditional mold of [ INS ], or in the newer form of data updates from scientific, business, or financial data bases. H.R. No. 94-1476 at 132, reprinted in 1976 U.S.C.C.A.N. at 5748 (footnote omitted), quoted in NBA, 105 F.3d at 850. The House Report thus anticipated that INS -like state-law torts would survive preemption. It did not itself create such a cause of action or recognize the existence of one under federal law. It allowed instead for the survival of such a state-law claim. The NBA Court thus used INS as a description of the type of claims   INS -like  that, Congress has said, are not necessarily preempted by federal copyright law. Some seventy-five years after its death under Erie, INS thus maintains a ghostly presence as a description of a tort theory, not as precedential establishment of a tort cause of action.
One source of confusion in addressing these misappropriation cases is that INS itself was a case brought in equity to enjoin INS from copying AP's uncopyrightable news. In that context, the INS Court emphasized the unfairness of INS's practice of pirating AP's stories. It condemned, in what sounded biblical in tone, the defendant's reap[ing] where it ha[d] not sown. [27] INS, 248 U.S. at 239, 39 S.Ct. 68. The Court said: This defendant ... admits that it is taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and that defendant in appropriating it and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant's members is appropriating to itself the harvest of those who have sown. Stripped of all disguises, the process amounts to an unauthorized interference with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself, and a court of equity ought not to hesitate long in characterizing it as unfair competition in business. Id. at 239-40, 39 S.Ct. 68 (emphasis added). This dicta has been absorbed by New York misappropriation law: New York courts have noted the incalculable variety of illegal practices falling within the unfair competition rubric, calling it a broad and flexible doctrine that depends more upon the facts set forth than in most causes of action. It has been broadly described as encompassing any form of commercial immorality, or simply as endeavoring to reap where one has not sown; it is taking the skill, expenditures and labors of a competitor, and misappropriating for the commercial advantage of one person a benefit or property right belonging to another. The tort is adaptable and capacious. Roy Exp. Co. Establishment of Vaduz, Liech. v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir.1982) (citation and alteration omitted). And it has been reflected in the rhetoric of federal district courts applying New York law. See, e.g., Fly I, 700 F.Supp.2d at 336 (quoting INS ); NBA v. Sports Team Analysis & Tracking Sys. ( NBA SDNY ), 939 F.Supp. 1071, 1075 (S.D.N.Y.1996) (quoting INS ), rev'd, NBA, 105 F.3d 841. The NBA Court also noted that the district court whose decision it was reviewing had described New York misappropriation law as standing for the `broader principle that property rights of commercial value are to be and will be protected from any form of commercial immorality'; that misappropriation law developed `to deal with business malpractices offensive to the ethics of [] society'; and that the doctrine is `broad and flexible.' NBA, 105 F.3d at 851 (brackets in original) (quoting NBA SDNY, 939 F.Supp. at 1098-1110) (internal citation omitted). But Judge Winter explicitly rejected the notion that hot news misappropriation cases based on the disapproval of the perceived unethical nature of a defendant's ostensibly piratical acts survive preemption. The Court concluded that such concepts are virtually synonymous [with] wrongful copying and are in no meaningful fashion distinguishable from infringement of a copyright. The broad misappropriation doctrine relied upon by the district court is, therefore, the equivalent of exclusive rights in copyright law. NBA, 105 F.3d at 851 (deeming preempted the broad theory of misappropriation embodied in Metropolitan Opera Ass'n v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 101 N.Y.S.2d 483 (N.Y. County Sup. Ct.1950), aff'd, 279 A.D. 632, 107 N.Y.S.2d 795 (1st Dep't 1951)). No matter how unfair Motorola's use of NBA facts and statistics may have been to the NBA  or Fly's use of the fact of the Firms' Recommendations may be to the Firms  then, such unfairness alone is immaterial to a determination whether a cause of action for misappropriation has been preempted by the Copyright Act. [28] The adoption of new technology that injures or destroys present business models is commonplace. Whether fair or not, [29] that cannot, without more, be prevented by application of the misappropriation tort. Indeed, because the Copyright Act itself provides a remedy for wrongful copying, such unfairness may be seen as supporting a finding that the Act preempts the tort. See id.
The NBA panel repeatedly emphasized the narrowness of the hot news tort exception from preemption. See id. at 843, 848, 851, 852 (using the word narrow or narrowness five times). Although our discussion of preemption in NBA did not focus on the importance of maintaining the uniform nationwide scheme that the Copyright Act, with its 1976 preemption amendment, 17 U.S.C. § 301, provides, we later underscored it. In Krause v. Titleserv, Inc., 402 F.3d 119, 123 (2d Cir.2005), we declined to limit protection for copyrights held by owners of computer programs to those with formal title to such programs. The first reason we gave was that title may depend on state law that differs from one state to another. The result would be to undermine some of the uniformity achieved by the Copyright Act.... If [the relevant section of the Copyright Act] required formal title, two software users, engaged in substantively identical transactions might find that one is liable for copyright infringement while the other is protected by [the section], depending solely on the state in which the conduct occurred. Such a result would contradict the Copyright Act's express objective of creating national, uniform copyright law by broadly preempting state statutory and common-law copyright regulation.  Community for Creative Non-Violence v. Reid, 490 U.S. 730, 740, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989); see also 17 U.S.C. § 301(a). Id. at 123 (emphasis added). Indeed, central to the principle of preemption generally is the value of providing for legal uniformity where Congress has acted nationally. See, e.g., Paneccasio v. Unisource Worldwide, Inc., 532 F.3d 101, 113 (2d Cir.2008) (The purpose of ERISA preemption is to ensure that all covered benefit plans will be governed by unified federal law, thus simplifying life for employers administering plans in several states, because a patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation. (internal quotation marks and brackets omitted)). This is a pressing concern when considering the narrow hot news misappropriation exemption from preemption. The broader the exemption, the greater the likelihood that protection of works within the general scope of the copyright and of the type of works protected by the Act will receive disparate treatment depending on where the alleged tort occurs and which state's law is found to be applicable. The problem may be illustrated by reference to a recent case in the Southern District of New York. In Associated Press v. All Headline News Corp., 608 F.Supp.2d 454 (S.D.N.Y.2009), the court sought to determine whether there was a difference between New York and Florida hot news misappropriation law in order for it to analyze, under choice-of-law principles, which state's law applied. Judge Castel observed that [n]o authority has been cited to show that Florida recognizes a cause of action for hot news misappropriation. Then again, defendants have not persuasively demonstrated that Florida would not recognize such a claim. [30] Id. at 459-60. It appears, then, that the alleged hot news misappropriation in All Headline News Corp. might have been permissible in New York but not in Florida. The same could have been said for the aggregation and publication of basketball statistics in NBA, and the same may be said as to the aggregation and publication of Recommendations in the case at bar. To the extent that hot news misappropriation causes of action are not preempted, the aggregators' actions may have different legal significance from state to state  permitted, at least to some extent, in some; prohibited, at least to some extent, in others. It is this sort of patchwork protection that the drafters of the Copyright Act preemption provisions sought to minimize, and that counsels in favor of locating only a narrow exception to Copyright Act preemption.