ELECTRONIC NEWSLETTER

Abelman, Frayne, &Schwab

In Barclays Capital, Inc. v. Theflyonthewall.com, Inc., the United States Court of Appeals for the Second Circuit ruled that the "plaintiffs' claim against the defendant for 'hot news' misappropriation of the plaintiff financial firms' recommendations to clients and prospective clients as to trading in corporate securities is preempted by federal copyright law." The "hot news" claim traces its roots to the 1918 United States Supreme Court case International News Service v. Associated Press. In that case, the International News Service ("INS") wire service copied wire service stories from the Associated Press and distributed them on its own wire service without attribution to the Associated Press. The Supreme Court held that INS's conduct was common law misappropriation of the Associated Press' property-like interest in the timeliness of the news that it had gathered at great effort and expense. When the Copyright Act was rewritten in 1976 to include strong preemption provisions, it was generally considered that "hot news" misappropriation type claims had not been completely preempted, but could in certain circumstances fall within a narrow exception to Copyright Act preemption where the defendant was "free riding" on the plaintiff's efforts (as INS did by using the Associated Press' materials without crediting it).

The Second Circuit in Barclays Capital held that the defendant Theflyonthewall.com, Inc.'s conduct in collecting and disseminating the plaintiff brokerage houses' investment reports early and widely did not amount to free riding because the reports were properly attributed to the brokerage houses that had authored them. So the Second Circuit found the plaintiffs' common law "hot news" misappropriation claim to be preempted by the Copyright Act. Although the Second Circuit appears to disfavor the "hot news" misappropriation claim, it did not broadly hold that all such claims are preempted, and left open the possibility that a "hot news" misappropriation claim with facts closely similar to those in International News Service case might survive preemption.