Opinion ID: 219099
Heading Depth: 5
Heading Rank: 3

Heading: Three- and Five-Part Tests

Text: Before concluding that the NBA's claim was preempted, the NBA panel set forth in its opinion  twice  a five-part test for identifying a non-preempted hot news misappropriation claim. The district court in this case, when applying NBA, structured its conclusions-of-law analysis around NBA 's first iteration of the test: We hold that the surviving hot-news INS -like claim is limited to cases where: (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. We conclude that SportsTrax does not meet that test. NBA, 105 F.3d at 845; see Fly I, 700 F.Supp.2d at 334-35 (quoting the passage but omitting the first fifteen prefatory words). But the panel restated the five-part inquiry later in its opinion: In our view, the elements central to an INS claim are: (i) the plaintiff generates or collects information at some cost or expense, see [ Financial Information, Inc. v. Moody's Investors Serv., 808 F.2d 204, 206 (2d Cir.1996) ( FII )]; INS, 248 U.S. at 240, 39 S.Ct. 68; (ii) the value of the information is highly time-sensitive, see FII, 808 F.2d at 209; INS, 248 U.S. at 231, 39 S.Ct. 68; Restatement (Third) Unfair Competition, § 38 cmt. c.; (iii) the defendant's use of the information constitutes free-riding on the plaintiff's costly efforts to generate or collect it, see FII, 808 F.2d at 207; INS, 248 U.S. at 239-40, 39 S.Ct. 68; Restatement § 38 at cmt. c.; McCarthy, § 10:73 at 10-139; (iv) the defendant's use of the information is in direct competition with a product or service offered by the plaintiff, FII, 808 F.2d at 209, INS, 248 U.S. at 240, 39 S.Ct. 68; (v) the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened, FII, 808 F.2d at 209; Restatement, § 38 at cmt. c.; INS, 248 U.S. at 241, 39 S.Ct. 68 ([INS's conduct] would render [AP's] publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return.). NBA, 105 F.3d at 852. Throughout this litigation the parties seem to have been in general agreement that the district court and we should employ a five-part analysis taken from the NBA opinion. It is understandable, of course, that counsel and the district court did in this case, and do in other comparable circumstances, attempt to follow our statements in precedential opinions as to what the law is  which we often state in terms of what we hold. But that reading is not always either easy to make or technically correct. As Judge Friendly put it in colorful terms: A judge's power to bind is limited to the issue that is before him; he cannot transmute dictum into decision by waving a wand and uttering the word `hold.' United States v. Rubin, 609 F.2d 51, 69 (2d Cir.1979) (Friendly, J., concurring), quoted in Pierre N. Leval, Judging Under the Constitution: Dicta about Dicta, 81 N.Y.U. L.Rev. 1249, 1249 (2006). See also generally Leval, supra (containing seminal discussion of judicial use of the term holding); id. at 1256 (A dictum [i.e., a conclusion or point of view in an opinion that is not a holding] is an assertion in a court's opinion of a proposition of law [that] does not explain why the court's judgment goes in favor of the winner.); Judith M. Stinson, Why Dicta Becomes Holding and Why it Matters, 76 Brook. L.Rev. 219, 219 n. 2 (2010) (collecting authorities addressing difficulties with judicial use of the term hold). [31] It is axiomatic that appellate judges cannot make law except insofar as they reach a conclusion based on the specific facts and circumstances presented to the court in a particular appeal. Subordinate courts and subsequent appellate panels are required to follow only these previous appellate legal holdings. The NBA panel decided the case before it, and we think that the law it thus made regarding hot news preemption is, as we have tried to explain, determinative here. But the Court's various explanations of its five-part approach are not. [32] Indeed, we do not see how they can be: The two five-part tests are not entirely consistent, and are less consistent still with the three-extra element test, which also appears later in the opinion: We therefore 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. For example, the fifth of the five factors in the first iteration of the test is that 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. NBA, 105 F.3d at 845 (emphasis added). The second iteration is similar, but adds a quotation from INS which can be read to make the factor far more difficult to demonstrate: that the conduct would render [the plaintiff's] publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return. ' Id. at 852 (emphasis added) (quoting INS, 248 U.S. at 241, 39 S.Ct. 68). Then, in rehearsing the extra elements that may avoid preemption, the panel referred to the threat to the very existence of the product or service provided by the plaintiff. Id. at 853 (emphasis added). The distinctions between these various statements of a multi-part test are substantial. Were we required to rule on the district court's findings of fact ourselves in light of these various versions of elements, we might well perceive no clear error in a finding that the existence or quality, id. at 845, of the Firms' reports were placed in jeopardy by what the district court found to be free riding. By contrast, we might otherwise conclude that there is insufficient record evidence to sustain a finding either that the alleged free-riding by Fly and similar aggregators in effect... cut off the [Firms'] service by rendering the cost prohibitive in comparison with the return, id. at 852, or were a threat to the very existence of the product or service provided by the plaintiff[s], id. at 853. [33] It seems to us that each of NBA 's three multi-element statements serves a somewhat different purpose. The first is a general introduction, by way of summary, of what the decision concludes. The second may be described as stating the elements of the tort. ConFold Pac., Inc. v. Polaris Indus., 433 F.3d 952, 960 (7th Cir.2006) (Posner, J. ). And the third focuses on what extra elements are necessary to avoid preemption despite the conclusion that the general scope requirement and the subject matter requirement, NBA, 105 F.3d at 848, have been met. In our view, the several NBA statements were sophisticated observations in aid of the Court's analysis of the difficult preemption issues presented to it. See Leval, supra, at 1254. Inconsistent as they were, they could not all be equivalent to a statutory command to which we or the district court are expected to adhere. [34] We engage in this somewhat extended discussion because the parties agreed that the district court should employ the five-part analysis derived NBA, and the district court did so. But we cannot supplant this Court's view of the law with the view of the parties. See, e.g., Kamen v. Kemper Fin. Servs. Inc., 500 U.S. 90, 99, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991); Hankins v. Lyght, 441 F.3d 96, 104 (2d Cir.2006); Becker v. Poling Transp. Corp., 356 F.3d 381, 390 (2d Cir.2004).