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Barclays Capital Inc. v. Theflyonthewall.com, Inc. - 650 F.3d 876 (2d Cir. 2011)


Prior to the 1976 amendments to the Copyright Act,17 U.S.C.S. § 101 et seq., the Act contained no express provisions as to the circumstances under which the federal copyright law preempted state law. The 1976 Amendments changed that. Title 17 U.S.C.S. § 301, enacted in 1976, sets forth a two-part test to determine whether a state-law claim is preempted by the Copyright Act, with a further extra elements exception. Such a claim is preempted (i) if it seeks to vindicate legal or equitable rights that are equivalent to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C.S. § 106 — the general scope requirement; and (ii) if the work in question is of the type of works protected by the Copyright Act under 17 U.S.C.S. §§ 102 and 103 — the subject matter requirement.


Plaintiffs, Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and Morgan Stanley & Co. Inc. (Firms) are major financial institutions that, among many other things, provide securities brokerage services to members of the public. Largely in that connection, they engage in extensive research about the business and prospects of publicly traded companies, the securities of those companies, and the industries in which those companies are engaged. Defendant Theflyonthewall.com is the proprietor of a news service distributed electronically, for a price, to subscribers. In recent years and by various means, Defendant has obtained information about the Firms' recommendations before the Firms have purposely made them available to the general public. The Firms brought an action against Defendant for copyright infrlngement of the reports. The district court concluded that on 17 occasions, defendant had infringed the plaintiffs' copyrights in their research reports, and that by collecting and disseminating to its own subscribers the summary recommendations with respect to securities trading contained in the plaintiffs' reports, defendant had committed the New York state-law tort of "hot news" misappropriation. To remedy the copyright violations, the district court ordered the defendant to pay statutory damages, prejudgment interest, and attorney's fees. The court also permanently enjoined the defendant from "further infringement of any portion of the copyrighted elements of any research reports generated by" the plaintiffs. Based on the plaintiffs' "hot news" misappropriation claim, the district court also permanently enjoined the defendant from "dissemination of the Firms' Recommendations until one half-hour after the opening of the New York Stock Exchange or 10:00 a.m., whichever is later." Defendant appeals with respect to the judgment and injunction against it on the "hot news" misappropriation claim. 


Were plaintiffs liable for  "hot news" misappropriation?




The appellate court held that plaintiffs' claim was preempted by federal copyright law, as it fell within the general scope of copyright, 17 U.S.C.S. § 106, and involved the type of works protected by 17 U.S.C.S. §§ 102 and 103. Moreover, defendant's acts did not meet the exceptions for a "hot news" misappropriation claim. Plaintiffs’ ability to make news by issuing recommendations likely to affect securities prices did not give rise to a right for them to control who broke that news and how. In pressing a "hot news" claim, plaintiffs sought to protect their recommendations, created using their expertise and experience, rather than acquired through efforts akin to reporting. Defendant was not selling the recommendations as its own, but rather with specific attribution to plaintiffs. That accurate attribution of to the creator gave the news its value. Thus, plaintiffs did not have a non-preempted "hot news" misappropriation case.

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