News service avoided 'hot news' claim by crediting sources

The analysts had claimed that the news service violated the hot news doctrine which protects newsgatherers in some circumstances. A US appeals court disagreed and said that Theflyonthewall.com was entitled to publish the information.

In some US states the hot news doctrine gives newsgatherers a protection similar to an intellectual property right over facts. It gives them a period of time in which nobody else can report the facts they uncover.

Facts themselves cannot be copyrighted, only the exact way that those facts are expressed. The hot news doctrine has been controversial because it gives rare, though only partial, protection to facts.

The New York-based federal appeals court said that because the hot news doctrine is a state law and covers the same ground as a federal law, the Copyright Act, it is the Copyright Act that should apply to the dispute, not the state law. The hot news doctrine was 'preempted' by the Copyright Act, it ruled.

There are cases in which parts of a hot news doctrine can still apply in such cases, but this was not one of them, the court said.

The Copyright Act outlines what pre-emption means: it says that where material is covered by the Act a state law covering the same ground cannot apply. Copyright law applied to the brokers' material because the material was inventive enough to be protected by that law, the court ruled.

There are some exceptions to the pre-emption rule, where even material that is copyright-protected can be subject to the hot news doctrine. But the court ruled that this case was not one of those exceptions because Theflyonthewall.com was not 'free riding' on the brokers' work because it did not claim the work as its own.

The court said that the concept of 'free riding' was commonly misunderstood, but that it had a specific meaning.

"The use of the term 'free-riding' in recent hot news misappropriation jurisprudence exacerbates difficulties in addressing these issues," said the ruling. "Unfair use of another's 'labor, skill, and money, and which is salable by complainant for money,' ... sounds like the very essence of 'free-riding,' and, the term 'free-riding' in turn seems clearly to connote acts that are quintessentially unfair."

But 'free riding' only refers to the act of taking someone else's material and claiming it as your own. Because Theflyonthewall.com credited the brokers this did not apply, the court ruled.

Theflyonthewall.com summarised stock market tips made by employees of Barclays, Merrill Lynch and Morgan Stanley. The tips formed part of wider market research the analysts distributed to potential traders every day, the ruling said.

Theflyonthewall.com obtained access to the tips before financial markets opened and published them before the analysts made them public, the court ruling said. The analysts said this destroyed their business model, but the court said that the hot news doctrine could not outlaw activity just because it was unfair..

"Whether fair or not, that cannot, without more, be prevented by application of [the hot news doctrine protection]," the Court of Appeals ruling (88-page / 182KB PDF) said.

News organisations, including Associated Press (AP), Agence France-Presse (AFP), the New York Times and local paper giant Gannet, had argued that upholding the hot news doctrine was a "vital" protection against companies piggy-backing on their journalistic resources.

A lower court had backed those claims and said that Theflyonthewall.com would have to change the way that it used the analysts' information.  It said the news agency could not republish the tips for half an hour after stock markets opened or two hours after it was published, if markets were open at the time.

The hot news doctrine is the product of a 1918 US Supreme Court ruling which sought to allow Associated Press (AP) to benefit from the investment it had made in sending reporters across the world to report on the First World War.

International News Service (INS) copied AP's stories but copyright law could not be used to stop the practice because it covers the expression of an idea, not the idea or fact lying behind it.

The Supreme Court gave AP and other news-gatherers the right to protect facts. Fact-gatherers were given a period of time in which nobody else could report facts that it had uncovered.

This was called the hot news doctrine and it made its way on to state and federal statute books until repealed at a federal level. Some states, including New York, retain it on their statute books.