Opinion ID: 219099
Heading Depth: 3
Heading Rank: 2

Heading: Preemption and This Appeal

Text: We conclude that applying NBA and copyright preemption principles to the facts of this case, the Firms' claim for hot news misappropriation fails because it is preempted by the Copyright Act. First, the Firms' reports culminating with the Recommendations satisfy the subject matter requirement because they are all works of a type covered by section[] 102, i.e., original works of authorship fixed in a[] tangible medium of expression. 17 U.S.C. § 102. As discussed above, it is not determinative for the Copyright Act preemption analysis that the facts of the Recommendations themselves are not copyrightable. See NBA, 105 F.3d at 850. Second, the reports together with the Recommendations fulfill the general scope requirement because the rights may be abridged by an act which, in and of itself, would infringe one of the `exclusive rights' provided by federal copyright law, Altai, Inc., 982 F.2d at 716 (citing Harper & Row, 723 F.2d at 200), i.e., acts of reproduction, performance, distribution or display, id. (internal quotation marks omitted). Third and finally, the Firms' claim is not a so-called INS -type non-preempted claim because Fly is not, under NBA 's analysis, free-riding. It is collecting, collating and disseminating factual information  the facts that Firms and others in the securities business have made recommendations with respect to the value of and the wisdom of purchasing or selling securities  and attributing the information to its source. The Firms are making the news; Fly, despite the Firms' understandable desire to protect their business model, is breaking it. [36] As the INS Court explained, long before it would have occurred to the Court to cite the First Amendment for the proposition: [T]he news element  the information respecting current events contained in the literary production  is not the creation of the writer, but is a report of matters that ordinarily are publici juris ; it is the history of the day. It is not to be supposed that the framers of the Constitution, when they empowered Congress to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries (Const., Art. I, § 8, par. 8), intended to confer upon one who might happen to be the first to report a historic event the exclusive right for any period to spread the knowledge of it. INS, 248 U.S. at 234, 39 S.Ct. 68. The use of the term free-riding in recent hot news misappropriation jurisprudence exacerbates difficulties in addressing these issues. Unfair use of another's labor, skill, and money, and which is salable by complainant for money, INS, 248 U.S. at 239, 39 S.Ct. 68, sounds like the very essence of free-riding, and, the term free-riding in turn seems clearly to connote acts that are quintessentially unfair. It must be recalled, however, that the term free-riding refers explicitly to a requirement for a cause of action as described by INS. As explained by the NBA Court, [a]n indispensable element of an INS `hot news' claim is free-riding by a defendant on a plaintiff's product. NBA, 105 F.3d at 854. The practice of what NBA referred to as free-riding was further described by INS. The INS Court defined the hot news tort in part as 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 ... appropriating it and selling it as [the defendant's] own.... INS, 248 U.S. at 239, 39 S.Ct. 68. That definition fits the facts of INS: The defendant was taking news gathered and in the process of dissemination by the Associated Press and selling that news as though the defendant itself had gathered it. But it does not describe the practices of Fly. The Firms here may be acquiring material in the course of preparing their reports, but that is not the focus of this lawsuit. In pressing a hot news claim against Fly, the Firms seek only to protect their Recommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting. Moreover, Fly, having obtained news of a Recommendation, is hardly selling the Recommendation as its own, INS, 248 U.S. at 239, 39 S.Ct. 68. It is selling the information with specific attribution to the issuing Firm. Indeed, for Fly to sell, for example, a Morgan Stanley Recommendation as its own, as INS sold the news it cribbed from AP to INS subscribers, would be of little value to either Fly or its customers. If, for example, Morgan Stanley were to issue a Recommendation of Boeing common stock changing it from a hold to a sell, it hardly seems likely that Fly would profit significantly from disseminating an item reporting that  Fly has changed its rating of Boeing from a hold to a sell. It is not the identity of Fly and its reputation as a financial analyst that carries the authority and weight sufficient to affect the market. It is Fly's accurate attribution of the Recommendation to the creator that gives this news its value. We do not perceive a meaningful difference between (a) Fly's taking material that a Firm has created (not acquired) as the result of organization and the expenditure of labor, skill, and money, and which is (presumably) salable by a Firm for money, [37] and selling it by ascribing the material to its creator Firm and author (not selling it as Fly's own), and (b) what appears to be unexceptional and easily recognized behavior by members of the traditional news media  to report on, say, winners of Tony Awards or, indeed, scores of NBA games with proper attribution of the material to its creator. [38] INS did not purport to address either. It is also noteworthy, if not determinative, that INS referred to INS's tortious behavior as amount[ing] 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.... Id. at 240, 39 S.Ct. 68 (emphases added). As we have seen, the point at which the Firms principally reap their profit is upon the execution of sales or purchases of securities. It is at least arguable that Fly's interference with the normal operation of the Firms' business is indeed at a point where the Firms' profits are reaped. But it is not at all clear that that profit is being in any substantial sense diverted to Fly by its publication of Recommendations news. The lost commissions are, we would think, diverted to whatever broker happens to execute a trade placed by the recipient of news of the Recommendation from Fly. To be sure, as the district court pointed out, Fly [has made efforts], which have met with some success, to link its subscribers to discount brokerage services. Fly I, 700 F.Supp.2d at 340 (emphasis added). The court viewed these steps as reflect[ing] the final stage in [Fly's] direct competition with the Firms by leveraging its access to their Recommendations and driving away their commission revenue[s]. Fly I, 700 F.Supp.2d at 340. But we see nothing in the district court's opinion or in the record to indicate that the so-called final stage has in fact matured to a point where a significant portion of the diversion of profits to which the Firms object is lost to brokers in league with Fly or its competitors. Firm clients are, moreover, free to employ their authorized knowledge of a Recommendation to make a trade with a discount broker for a smaller fee. And, as we understand the record, the Firms channel fees to their brokerage operations using a good deal more than their Recommendations alone. A non-public Firm report, quite apart from the attached Recommendation  by virtue of the otherwise non-public information the report contains, including general news about the state of the markets, securities, and economic conditions  seems likely to play a substantial part in the Firms' ability to obtain trading business through their research efforts. It is difficult on this record for us to characterize Fly's publication of Recommendations as an unauthorized interference with the normal operation of Firms' legitimate business precisely at the point where the profit is to be reaped which, directly or indirectly, diverts a material portion of the Firms' profits from the Firms to Fly and others engaged in similar practices. See INS, 248 U.S. at 240, 39 S.Ct. 68. We do not mean to be parsing the language of INS as though it were a statement of law the applicability of which determines the outcome of this appeal. As we have explained, the law that INS itself established was overruled many years ago. But in talking about a `hot-news' INS -like claim, as we did in NBA, 105 F.3d at 845, or the INS tort, as the district court did in this case, Fly I, 700 F.Supp.2d at 336, we are mindful that the INS Court's concern was tightly focused on the practices of the parties to the suit before it: news, data, and the like, gathered and disseminated by one organization as a significant part of its business, taken by another entity and published as the latter's own in competition with the former. The language chosen by the INS Court seems to us to make clear the substantial distance between that case and this one. Here, like the defendants in NBA and unlike the defendant in INS, Fly [has its] own network and assemble[s] and transmit[s] data [it] sel[f]. NBA, 105 F.3d at 854. In NBA, Motorola and STATS employees watched basketball games, compiled the statistics, scores, and other information from the games, and sold the resulting package of data to their subscribers. We could perceive no non-preempted hot news tort. Here, analogous to the defendant's in NBA, Fly's employees are engaged in the financial-industry equivalent of observing and summarizing facts about basketball games and selling those packaged facts to consumers; it is simply the content of the facts at issue that is different. And, according to our decision in NBA: An indispensable element of a[ non-preempted] INS `hot-news' claim is free-riding by a defendant on a plaintiff's product, enabling the defendant to produce a directly competitive product for less money because it has lower costs. See id. In NBA, we concluded that the defendant's SportsTrax service was not such a product, in part because it was bearing [its] own costs of collecting factual information on NBA games. Id. In this case, as the district court found, approximately half of Fly's twenty-eight employees are involved on the collection of the Firms' Recommendations and production of the newsfeed on which summaries of the Recommendations are posted. Fly I, 700 F.Supp.2d at 325. Fly is reporting financial news  factual information on Firm Recommendations  through a substantial organizational effort. Therefore, Fly's service  which collects, summarizes, and disseminates the news of the Firms' Recommendations  is not the  INS -like product that could support a non-preempted cause of action for misappropriation. By way of comparison, we might, as the NBA Court did, see id., 105 F.3d at 854, speculate about a product a Firm might produce which might indeed give rise to an non-preempted hot-news misappropriation claim. If a Firm were to collect and disseminate to some portion of the public facts about securities recommendations in the brokerage industry (including, perhaps, such facts it generated itself  its own Recommendations), and were Fly to copy the facts contained in the Firm's hypothetical service, it might be liable to the Firm on a hot-news misappropriation theory. [39] That would appear to be an INS -type claim and might survive preemption. [40] See also, e.g., All Headline News Corp., 608 F.Supp.2d at 454 (suggesting, in a case presenting facts more closely analogous to INS, that the plaintiff may have had a non-preempted hot news cause of action). See generally Complaint (Dkt. No. 1), AP v. All Headline News Corp., No. 08-cv-323 (S.D.N.Y. Jan. 14, 2008). But the Firms have no such product and make no such claim. On the facts of this case, they do not have an  INS -like non-preempted hot news misappropriation cause of action against Fly.