Lead Opinion
Thе parties, the district court, and amici have raised a wide variety of interesting legal and policy issues during the course of this litigation. We need not address most of them. We conclude that under principles that are well established in this Circuit, 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. Based upon principles explained and applied in National Basketball Association v. Motorola, Inc.,
The plaintiffs-appellees — Barclays Capital Inc. (“Barclays”);
Each morning before the principal U.S. securities markets open, each Firm circulates its reports and recommendations for that day to clients and prospective clients. The recipients thus gain an informational advantage over non-recipients with respect to possible trading in the securities of the subject companies both by learning before the world at large does the contents of the reports and, crucially for present рurposes, the fact that the recommendations are being made by the Firm. The existence of that fact alone is likely to result in purchases or sales of the securities in question by client and non-client alike, and a corresponding short-term increase or decrease in the securities’ market prices. The Firms and similar businesses, under their historic and present business models, profit from the preparation and circulation of the reports and recommendations principally insofar as they earn brokerage commissions when a recipient of a report and recommendation turns to the firm to execute a trade in the shares of the company being reported upon.
The defendant-appellant is the proprietor of a news service distributed electronically, for a price, to subscribers. In recent years and by various means, the defendant has obtained information about the Firms’ recommendations before the Firms have purposely made them available to the general public and before exchanges for trading in those shares open for the day. Doing so tends' to remove the informational and attendant trading advantage of the Firms’ clients and prospective clients who are authorized recipients of the reports and recommendations. The recipients of the information are, in turn, less likely to buy or sell the securities using the brokerage services of the reporting and recommending Firms, thereby reducing the incentive for the Firms to create such reports and recommendations in the first place. This, the Firms assert, will destroy their business models and have a severely deleterious impact on their ability to engage in further research and to create further reports and recommendations.
The Firms instituted this litigation as part of the same endeavor. The first of their two sets of claims against the defendant sounds in copyright and is based on allegations of verbatim copying and dissemination of portions of the Firms’ reports by the defendant. The Firms have been entirely successful on these copyright claims. See Fly /,
What remains before us, then, is the second set of claims by the Firms, alleging that Fly’s early republication of the securities recommendations that the Firms create — their “hot news” — is tortious under the New York State law of misappropriation. The district court agreed and granted carefully measured injunctive relief. It is to the misappropriation cause of action that this appeal and therefore this opinion is devoted.
BACKGROUND
We find little to take issue with in the district court’s careful findings of facts, to which we must in any event defer. We therefore borrow freely from them.
The Firms and their Research Reports
The Firms are multinational financial entities that provide a variety of asset management, sales and trading, investment banking, and brokerage services to institutional investors, businesses of various sizes, and individuals. Among their many activities, the Firms compile research reports on specific companies whose securities are publicly traded, on industries, and on economic conditions generally. They disseminate such reports and accompanying trading recommendations to clients, such as hedge funds, private equity firms, pension funds, endowments, and individual investors. The reports, which vary in format, range from a single page to hundreds of
In preparing a company report, an analyst will gather data related to its business, and may visit its physical facilities, converse with industry experts or company executives, and construct financial or operational models. The analyst then uses that information in light of his or her expertise, experience, and judgment to arrive at formal projections and recommendations regarding the value of the company’s securities.
This litigation concerns the trading “Recommendations,” a term which the district court defined as “actionable reports,” i.e., Firm research reports “likely to spur any investor into making an immediate trading decision[
Most Recommendations are issued sometime between midnight and 7 a.m. Eastern Time, allowing stock purchases to be made on the market based on the reports and Recommendations upon the market opening at 9:30 a.m.
The Firms typically provide complimentary copies of the reports and Recommendations to their institutional and individual clients using a variety of methods.
The Firms contend that clients are much more likely to place a trade with a Firm if they learn of the Recommendation directly from that Firm rather than elsewhere, and estimate that more than sixty percent of all trades result from Firm solicitations, including those highlighting Recommendations. It is from the commissiоns on those trades that Firms profit from the creation and dissemination of their reports and Recommendations. They assert that the timely, exclusive delivery of research and Recommendations therefore is a key to what they frequently refer to as their “business model.”
The defendant-appellant Theflyonthewall.com, Inc. (“Fly”) is, among other things, a news “aggregator.” For present purposes, “[a]n aggregator is a website that collects headlines and snippets of news stories from other websites. Exam-pies include Google News and the Huffing-ton Post.” Tony Rogers, “Aggregator,” About.com Guide, available at http:// journalism.about.com/od/journalism glossary/g/aggregatordefinition.htm (latest visit Jan. 4, 2011).
Understanding that investors not authorized by the Firms to receive the reports and Recommendations are interested in and willing to pay for early access to the information contained in them — especially the Recommendations, which are particularly likely to affect securities prices — several aggregators compile securities-firm recommendations, including the Recommendations of the Firms, sometimes with the associated reports or summaries thereof, and timely provide the information to their own subscribers for a fee. Fly is one such company. It employs twenty-eight persons, about half of whom are devoted to content production. It does not itself provide brokerage, trading, or investment-advisory services beyond supplying that information.
Typical clients of the Firms are hedge funds, private equity firms, pension funds, endowments, and wealthy individual investors. By contrast, Fly’s subscribers are predominately individual investors, institutional investors, brokers, and day traders.
In addition to maintaining its website, Fly distributes its content through third-party distributors and trading platforms, including some, such as Bloomberg and Thomson Reuters, that also separately provide authorized dissemination of the Firms’ Recommendations. Fly has about 3,300 direct subscribers through its website, and another 2,000 subscribers who use third-party platforms to receive the service.
Fly characterizes itself as a source for breaking financial news, claiming to be the “fastest news feed on the web.” Fly I,
The cornerstone of Fly’s offerings is its online newsfeed, which it continually updates between 5:00 a.m. and 7:00 p.m. during days on which the New York Stock Exchange is open. The newsfeed typically streams more than 600 headlines a day in ten different categories, including “hot stocks,” “rumors,” “technical analysis,” and “earnings.” One such category is “recommendations.” There, Fly posts the recommendations (but not the underlying research reports or supporting analysis) produced by sixty-five investment firms’ analysts, including those at the plaintiff Firms. A typical Recommendation headline from 2009, for example, reads “EQIX: Equinox initiated with a Buy at BofA/Merrill. Target $110.” Id. at 323.
Fly’s headlines, including those in the “recommendations” category, are searchable and sortable. Users can also subscribe to receive automated e-mail, pop-up, or audio alerts whenever Fly posts content relevant to preselected companies’ securities.
Fly publishes most of its recommendation headlines before the New York Stock Exchange opens each business day at 9:30 a.m. Fly estimates that the Firms’ Recommendation headlines currently comprise approximately 2.5% of Fly’s total content, down from 7% in 2005.
According to Fly, over time it has changed the way in which it obtains information about recommendations. Some investment firms, such as Wells Fargo’s investment services, will send Fly research reports directly as soon as they are released. Others, including the plaintiff Firms, do not. Until 2005, for recommendations of firms that do not, including the plaintiff Firms, Fly relied on employees at the investment firms (without the firms’ authorization)' to e-mail the research reports to Fly as they were released. Fly staff would summarize a recommendation as a headline (e.g., “EQIX initiated with a Buy at BofA/Merrill. Target $110.”). Sometimes Fly would include in a published item an extended passage taken verbatim from the underlying report.
Fly maintains that because of threats of litigation in 2005, it no longer obtains recommendations directly from such investment firms. Instead, it gathers them using a combination of other news outlets, chat rooms, “blast IMs” sent by people in the investment community to hundreds of recipients, and conversations with traders, money managers, and its other contacts
The Firms’ Response to The Threat Posed by Fly and Other Aggregators
Because the value of the reports and Recommendations to an investor with early access to a Recommendation is in significant part derived from the informational advantage an early recipient may have over others in the marketplace, most of the trading the Firms generate based on their reports and Recommendations occurs in the initial hours of trading after the principal U.S. securities markets have opened. Such sales activity typically slackens by midday. The Firms’ ability to generate revenue from the reports and Recommendations therefore directly relates to the informational advantage they can provide to their clients. This in turn is related to the Firms’ ability to control the distribution of the reports and Recommendations so that the Firms’ clients have access to and can take action on the reports and Recommendations before the general public can.
The Firms have employed a variety of measures in an attempt to stem the early dissemination of Recommendations to non-clients. Most of them have either been instituted or augmented relatively recently in response to the increasing availability of Recommendations from Fly and competing aggregators and news services. The Firms describe these steps as follows:
The Firms have made a “very substantial and costly effort to study the unauthorized dissemination of their research reports and ... to plug the leaks they have found.” Merrill Lynch, for example, has: (a) worked with third-party vendors to limit access to Merrill Lynch clients; (b) employed an internal security program to detect breaches of security; (c) investigated Merrill Lynch employees, including a review of cell phones, for leaks to third parties; (d) internalized Merrill Lynch’s email subscription system; (e) identified and blacklisted websites that seek to post links to Merrill Lynch content; and (f) created unique signature URLs when links to research are sent to clients so that clients’ usage can be monitored and abuse tracked, [citation to record] (describing breach control as an “all-consuming task”). Barclays and Morgan Stanley have undertaken comparable measures to protect their research.
Each Firm has a restrictive mediа and communications policy intended to preserve the time-sensitive value of Recommendations for their clients. The policies provide that any disclosure of equity research to the press occurs only after expiration of a prescribed period of time, and even then it is limited to entities that use the research as part of contextual news reporting and analysis.
Appellees’ Br. at 13 (citations omitted). As outlined above, the district court also cataloged these efforts, emphasizing their
The Complaint and Pre-Trial District Court Proceedings
In 2004, the Firms identified Fly as one of several entities systematically publishing the Recommendations without the Firms’ permission. Others doing the same included larger and better-known news outlets with far broader audiences, such as Bloomberg, Dow Jones, and Thomson Reuters.
In March and April 2005, the Firms complained to Fly that its publication of the Firms’ Recommendations in February and March of that year infringed the Firms’ copyrights and was tortious under New York State’s “hot news” misappropriation doctrine. The Firms demanded that Fly cease and desist. Fly’s counsel responded in April and May 2005, representing that Fly had altered its reporting practices so that it no longer obtained the Recommendations from research reports sent by employees of the Firms, instead gathering the information from independent, public sources. Fly continued posting the Firms’ Recommendations. On June 26, 2006, the Firms filed this suit naming Fly as the sole defendant.
The Firms assert two causes of action in their complaint: copyright infringement based on Fly’s extensive excerpting of 17 research reports released in February and March 2005, and “hot news” misappropriation based on Fly’s continual electronic publication of the Firms’ Recommendations. The gravamen of the latter claim is that the aggregate widespread, unauthorized reporting of Recommendations by Fly and other financial news providers— including bettеr known, better financed, more broadly accessed outlets — has threatened the viability of the Firms’ equity research operations. The Firms allege
On August 16, 2006, Fly answered, raising several affirmative defenses, including “fair use” and protections purportedly afforded to it and its dissemination of news by the First Amendment.
On May 18, 2009, after completion of discovery, the Firms and Fly cross-moved for summary judgement. The district court (Denise L. Cote, Judge) denied the summary judgment motions on November 6, 2009. The Firms then waived their claims for actual damages, and the court set the case for a bench trial.
The Trial and The District Court Decision
In a joint pre-trial order dated February 12, 2010, the parties stipulated to, among other things, the district court’s jurisdiction and the identification of the issues presented for trial. Joint Pre-Trial Order (Dkt. No. 167), Barclays Capital Inc. v. Theflyonthewall.com, No. 06-cv-4908 (S.D.N.Y. April 21, 2010) (the “Joint Pretrial Order”). The parties also agreed that:
The following affirmative defenses previously asserted by Defendant are not to be tried:
Defendant’s publication of daily news from firms in the financial industry, including Plaintiffs, is constitutionally protected by the First Amendment to the U.S. Constitution.
Joint Pre-trial Order at 5 (emphasis in original). The district court read this to mean that Fly had waived any First Amendment defenses to the Firms’ “hot news” misappropriation claim. See Bar-clays Capital Inc. v. Theflyonthewall.com (“Fly II”),
Fly also abandoned the “fair use” copyright-infringement defense, thereby effectively conceding liability on the copyright claim. An injunction “which restrains Fly from further infringement of ‘any portion of the copyrighted elements of any research reports’ generated by Barclays Capital or Morgan Stanley,” Fly I,
In the pre-trial order, the Firms contended that they satisfied all five “elements” of the tort purportedly identified in NBA,
At a four-day bench trial in early March of last year, the witnesses for the plaintiffs were primarily Firm executives responsible for or familiar with a Firm’s research activities. The defendant called, inter alios, Fly employees to testify, including Fly’s President and majority owner, Ron Etergino. Inasmuch as Fly had effectively conceded liability for copyright infringement, the primary issues at trial were (1) the scope of remedies for copyright infringement, (2) whether Fly was liable for “hot news” misappropriation and, if so, (3) the appropriate remedy.
On March 18, 2010, the district court issued its Opinion and Order, deciding for the plaintiffs on both the copyright-infringement and the “hot news” misappropriation claims. It awarded the plaintiffs statutory damages and attorney’s fees
Relying upon one of two — or arguably three — iterations of NBA’s multi-factor “test,” the district court concluded that for a misappropriation claim under New York law to survive federal copyright law preemption, and for the plaintiff to succeed on the claim, the plaintiff is required to demonstrate that:
(i) [it] 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 plaintiffs 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.
Fly I,
The district court decided with respect to the third factor, “free riding,” that, “[i]n essence, [it] exists where a defendant invests little in order to profit from information generated or collected by the plaintiff at great cost.” Id. at 336. According to the court, “Fly does no equity research of its own, nor does it undertake any original reporting or analysis.” Id. at 336.
In deciding in the Firms’ favor on this issue, the district court rejected Fly’s ar
In concluding that the fourth factor, direct competition, was present, the district court relied on its finding that both Fly and the Firms were engaged in “disseminating Recommendations to investors for their use in making investment decisions,” that production and distribution of the reports was among the Firms’ “primary businesses,” and that the companies used similar distribution channels. Id. at 339-40. The court also thought significant Fly’s then-recent attempts to link its subscribers to discount brokerage services, which in the district court’s view had the potential to further draw commission revenue away from the Firms.
The district court rejected Fly’s contention that our decision in NBA required the court to find “head-to-head competition in a primary market,” concluding that neither Fly’s lack of brokerage and investment-advisory services nor its role as a news aggregator was inconsistent with a finding of direct competition. Id. at 340. The court appeared to conclude that Fly’s other activities were immaterial, so long as Fly, like the Firms, was engaged in the business of disseminating Recommendations.
Finally, the district court concluded that the fifth factor, sufficiently reduced economic incentives, was present. The court found that “common sense and the circumstantial evidence about the plaintiffs’ business model make the Firms’ contentions about [their] reduced incentives utterly credible.” Id. at 342. The Finns had asserted that they had been forced to cut their analyst staffs and budgets significantly during the previous five years, in significant measure although by no means exclusively because of competition from unauthorized redistributions of their Recommendations. They acknowledged, as did the court, that there were unrelated substantial causes for the contraction during this period, including the then-recent recession and accompanying stock-market collapse, and the April 2003 Global Research Analyst Settlement.
Fly sought to portray the Firms’ evidence of reduced economic incentives, which was based almost entirely on the testimony of the Firms’ own research executives, as speculative and self-serving. The district court concluded to the contrary (1) that the еxecutives’ testimony was credible despite their employment by the Firms, (2) that the Firms did not need to demonstrate actual harm, but rather merely show that harm would occur if Fly and others were allowed to continue their conduct, and (3) that the precise impact of the recent recession and the Global Research Analyst Settlement was irrelevant, because the mere showing that Fly and
Having concluded that the Firms had established the tort of “hot news” misappropriation, the district court entered a permanent injunction barring Fly from reporting a Recommendation until either (a) half an hour after the market opens, if the report containing the recommendation was released before 9:30 a.m., or (b) two hours after release, if the report was released after 9:30 a.m.
Perhaps because Fly purported to waive its First Amendment defenses, the district court’s opinion contains no explicit discussion of First Amendment doctrine beyond the court’s reference, in consideration of the propriety of injunctive relief, to “public policy considerations,” and the balancing of “the public interest in unrestrained access to information.” Id. at 344. Similarly, although in the court’s thorough recitation of the history of the law of “hot news” misappropriation, it explained in some detail the role of Copyright Act preemption of state tort law, it did not expressly consider whether “hot news” misappropriation was preempted by federal copyright law in this case. Instead, it adopted as determinative NBA’s ruling that a narrow form of the “hot news” misappropriation tort survives preemption, and it applied language from that decision indicating the tort’s limitations by virtue of preemption doctrine.
Postr-Trial Procedural History
Fly filed a notice of appeal on April 9, 2010. Four days later, it moved before the district court to stay or modify the injunction pending that appeal. In support of its motion, Fly argued (1) that it was likely to succeed on the merits on appeal, specifically with regard to the direct competition and reduced incentive elements of the misappropriation claim; (2) that it would suffer irreparable harm from the operation of the injunction as customers cancelled their subscriptions; and (3) that the injunction’s curtailment of First Amendment protected speech required a finding of irreparable harm. On May 7, 2010, the district court denied Fly’s motion on the grounds (1) that Fly was not likely to succeed on the
Fly thereupon moved in this Court for a stay of the injunction and an expedited appeal. On May 19, 2010, a panel of this Court granted the motion.
On appeal, Fly argues principally that (1) the district court erred in finding that the plaintiffs established “hot news” misappropriation under New York law, specifically in that the plaintiffs failed to prove time-sensitivity, free-riding, direct competition, and reduced incentives; (2) that the district court’s injunction violates Fly’s free-speech rights under the First Amendment; (3) that the district court’s finding of “hot news” misappropriation violates the Copyright Clause of the Constitution and the Copyright Act; (4) that the district court failed to apply the proper standard in granting injunctive relief; and (5) that the injunction is unreasonably overbroad.
DISCUSSION
I. Standard of Review
“When reviewing a judgment following a bench trial in the district court, we review the court’s findings of fact for clear error and its conclusions of law de novo.” Tiffany (NJ) Inc. v. eBay Inc.,
II. Viability of the “Hot News” Misappropriation Tort
Amici Google, Inc. and Twitter, Inc., referring to the “hot news” misappropriation tort as an “end-run” around the Constitution’s Copyright Clause and Supreme Court precedent, and arguing that their position is supported by “[ijmportant public policy concerns,” urge us to “repudiate the tort.” Brief for Google, Inc. and Twitter, Inc. as Amici Curiae Supporting Reversal at 3, Barclays Capital Inc. v. Theflyonthewall.com, No. 10-1372-cv (2d Cir. June 22, 2010).
We need not address the viability vel non of a “hot news” misappropriation tort under New York law. Were we to do so, though, plainly we would be bound by the conclusion of the previous Second Circuit panel in NBA that the tort survives. See, e.g., United States v. Jass,
Were we indeed called upon to consider the continued viability of the tort under New York law, perhaps we would certify that issue to the New York Court of Appeals. The issue we address, however, is federal preemption. As a federal court, we answer that question ourselves.
III.Copyright Act Preemption
A. National Basketball Association v. Motorola, Inc.
National Basketball Association v. Motorola, Inc.,
There, defendant Motorola, Inc. produced and sold (or otherwise provided) to members of the public a telephonic pager called SportsTrax. Motorola’s co-defendant, STATS, Inc., supplied statistical information about National Basketball Association (“NBA”) professional basketball games. The information was transmitted to SportsTrax pagers owned or leased by Motorola and STATS customers roughly simultaneously with the playing of the games. NBA,
The information [was] updated every two to three minutes, with more frequent updates near the end of the first half and the end of the game. There [was] a lag of approximately two or three minutes between events in the game itself and when the information appeared] on the pager screen.
Id.
SportsTrax gathered the information for the service by employing persons who would watch the games on television or listen to accounts of them on the radio and supply the information to STATS’s host computer. The computer compiled, analyzed, and formatted the data for retransmission. The information was then sent to FM radio stations which retransmitted them to the subscribers’ individual SportsTrax pagers.
The NBA itself also publicly disseminated similar, and therefore to some extent competitive, information. As Judge Winter wrote for the NBA panel:
[T]he NBA does provide, or will shortly do so, information like that available through SportsTrax. It now offers a service called “Gamestats” that provides official play-by-play game sheets and half-time and final box scores within each arena. It also provides such information to the media in each arena. In the future, the NBA plans to enhance Gamestats so that it will be networked between the various arenas and will support a pager product analogous to SportsTrax. SportsTrax will of course directly compete with an enhanced Gamestats.
Id. at 853.
The district court whose decision was on appeal in NBA had found for the plaintiff on its New York-law “hot news” misappropriation claim arising out of the defendants’ taking, redistributing, and profiting from the facts generated by the NBA in the course of the playing of NBA games. The district court therefore had entered a permanent injunction against the defendants, but stayed that injunction pending appeal. Id.
1. NBA Preemption Analysis.
a. Copyright Act
The NBA panel began its analysis by noting that prior to the 1976 amendments to the Copyright Act, the Act contained no
Title 17 U.S.C. § 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 we discuss below. 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. § 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. §§ 102 and 108 — the “subject matter requirement.”
The NBA panel observed that “[t]he subject matter requirement” — the second factor in a preemption analysis — “is met when the work of authorship being copied or misappropriated 'falls within the ambit of copyright protection.’ ” Id. at 849 (quoting Harper & Row, Inc. v. Nation Enters.,
In NBA, facts about what transpired during broadcasted NBA basketball games thus fell within the subject matter of copyright for the purpose of the court’s preemption analysis, even though the games themselves were not copyrightable. Id. at 848^49 (“Although game broadcasts are copyrightable while the underlying games are not, the Copyright Act should not be read to distinguish between the two when analyzing the preemption of a misappropriation claim based on copying or taking from the copyrightable work.”).
Turning to the other preemption element, the NBA panel thought it clear that what the NBA was seeking to protect fell within the “general scope of copyright.” Title 17 U.S.C. § 106, which states that the general scope of copyright, “affords a copyright owner the exclusive right to: (1) reproduce the copyrighted work; (2) prepare derivative works; (3) distribute copies of the work by sale or otherwise; and, with respect to certain artistic works, (4) perform the work publicly; and (5) display the work publicly. See 17 U.S.C. 106(l)-(5).” Computer Assocs. Int’l, Inc. v. Altai Inc.,
The court was thus satisfied that both preemption factors were met.
b. Extra-Element Test
Having decided that the two preliminary factors counseled in favor of preemption, the NBA panel observed:
[C]ertain forms of commercial misappropriation otherwise within the general scope requirement will survive preemption if an “extra-element” test is met. As stated in Altai:
But if an “extra element” is “required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action, then the right does not lie ‘within the general scope of copyright,’ and there is no preemption.”
Altai982 F.2d at 716 (quoting 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 1.01[B] at 1-14-15 (1991)).
NBA,
The NBA Court briefly summarized the Supreme Court’s seminal 1918 “hot news” decision, International News Service v. Associated Press,
INS involved two wire services, the Associated Press (“AP”) and International News Service (“INS”), that transmitted news stories by wire to member newspapers. Id. INS would lift factual stories from AP bulletins and send them by wire to INS papers. Id. at 231 [39 S.Ct. 68 ]. INS would also take factual stories from east coast AP papers and wire them to INS papers on the west coast that had yet to publish because of time differentials. Id. at 238 [39 S.Ct. 68 ]. The Supreme Court held that INS’s conduct was a common-law misappropriation of AP’s property. Id. at 242 [39 S.Ct. 68 ].
NBA
INS itself is no longer good law. Purporting to establish a principal of federal common law, the law established by INS was abolished by Ene Railroad Co. v. Tompkins,
The House of Representatives Report with respect to the preemption provisions of the 1976 Copyright Act amendments commented in this regard:
“Misappropriation” is not necessarily synonymous with copyright infringement, and thus a cause of action labeled as “misappropriation” is not preempted if it is in fact based neither on a right within the general scope of copyright as specified by [17 U.S.C. § ] 106 [specifying the general scope of copyright] nor on a right equivalent thereto. For example, state law should have the flexibility to afford a remedy (under traditional principles of equity) against a consistent pattern of unauthorized appropriation by a competitor of the facts (i.e., not the literary expression) constituting “hot” news, whether in the traditional mold of [INS], or in the newer form of data updates from scientific, business, or financial data bases.
H.R. No. 94-1476 at 132, reprinted in 1976 U.S.C.C.A.N. at 5748 (footnote omitted), quoted in NBA
The NBA Court thus used INS as a description of the type of claims — “INS-like” — that, Congress has said, are not necessarily preempted by federal copyright law. Some seventy-five years after its death under Erie, INS thus maintains a ghostly presence as a description of a tort theory, not as precedential establishment of a tort cause of action.
ii. Moral Dimensions
One source of confusion in addressing these misappropriation cases is that INS itself was a case brought in equity to enjoin INS from copying AP’s uncopyrightable news. In that context, the INS Court emphasized the unfairness of INS’s practice of pirating AP’s stories. It condemned, in what sounded biblical in tone, the defendant’s “reaping] where it ha[d] not sown.”
*895 This defendant ... admits that it is 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 that defendant in appropriating it and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant’s members is appropriating to itself the harvest of those who have sown. Stripped of all disguises, the process amounts 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; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself, and a court of equity ought not to hesitate long in characterizing it as unfair competition in business.
Id. at 239-40,
New York courts have noted the incalculable variety of illegal practices falling within the unfair competition rubric, calling it a broad and flexible doctrine that depends more upon the facts set forth than in most causes of action. It has been broadly described as encompassing any form of commercial immorality, or simply as endeavoring to reap where one has not sown; it is taking the skill, expenditures and labors of a competitor, and misappropriating for the commercial advantage of one person a benefit or property right belonging to another. The tort is adaptable and capacious.
Roy Exp. Co. Establishment of Vaduz, Liech. v. Columbia Broad. Sys., Inc.,
The NBA Court also noted that the district court whose decision it was reviewing had “described New York misappropriation law as standing for the ‘broader principle that property rights of commercial value are to be and will be protected from any form of commercial immorality’; that misappropriation law developed ‘to deal with business malpractices offensive to the ethics of [ ] society’; and that the doctrine is ‘broad and flexible.’ ” NBA,
No matter how “unfair” Motorola’s use of NBA facts and statistics may have been to the NBA — or Fly’s use of the fact of the Firms’ Recommendations may be to the Firms — then, such unfairness alone is immaterial to a determination whether a cause of action for misappropriation has been preempted by the Copyright Act.
iii. Narrowness of the Preemption Exception
The NBA panel repeatedly emphasized the “narrowness” of the “hot news” tort exception from preemption. See id. at 843, 848, 851, 852 (using the word “narrow” or “narrowness” five times). Although our discussion of preemption in NBA did not focus on the importance of maintaining the
The result would be to undermine some of the uniformity achieved by the Copyright Act.... If [the relevant section of the Copyright Act] required formal title, two software users, engaged in substantively identical transactions might find that one is liable for copyright infringement while the other is protected by [the section], depending solely on the state in which the conduct occurred. Such a result would contradict the Copyright Act’s “express objective of creating national, uniform copyright law by broadly preempting state statutory and common-law copyright regulation. ” Community for Creative Non-Violence v. Reid,490 U.S. 730 , 740,109 S.Ct. 2166 ,104 L.Ed.2d 811 (1989); see also 17 U.S.C. § 301(a).
Id. at 123 (emphasis added).
Indeed, central to the principle of preemption generally is the value of providing for legal uniformity where Congress has acted nationally. See, e.g., Paneccasio v. Unisource Worldwide, Inc.,
This is a pressing concern when considering the “narrow” “hot news” misappropriation exemption from preemption. The broader the exemption, the greater the likelihood that protection of works within the “general scope” of the copyright and of the type of works protected by the Act will receive disparate treatment depending on where the alleged tort occurs and which state’s law is found to be applicable.
The problem may be illustrated by reference to a recent case in the Southern District of New York. In Associated Press v. All Headline News Corp.,
It appears, then, that the alleged “hot news” misappropriation in All Headline News Corp. might have been permissible in New York but not in Florida. The same could have been said for the aggregation and publication of basketball statistics in NBA and the same may be said as to the aggregation and publication of Recommendations in the case at bar. To the extent that “hot news” misappropriation causes of action are not preempted, the aggregators’ actions may have different
c. Three- and Five-Part “Tests”
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 aрplying NBA structured its conclusions-of-law analysis around NBA’s first iteration of the “test”:
We hold that the surviving “hot-news” INS-Hke 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 plaintiffs 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
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 plaintiffs 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,
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
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.
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,
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 plaintifffs],” id. at 853.
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.
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. Sens. Inc.,
2. NBA Preemption Analysis Applied to The NBA Facts
Applying the principles of preemption it had identified, the NBA Court concluded that the tort claim that the NBA sought to assert against Motorola and STATS was preempted by the Copyright Act because, the “general scope requirement” and the “subject matter requirement” having been satisfied, the “extra elements” necessary for such a claim nonetheless to survive preemption were absent. This was so despite the fact that Motorola and STATS were indeed disseminating, on a timely basis, information about NBA games that the NBA was also circulating.
An indispensable element of an INS “hot news” claim is free-riding by a defendant on a plaintiffs product, enabling the defendant to produce a directly competitive product for less money because it has lower costs.... Appellants are in no way free-riding on [the NBA service that provided game statistics to the public]. Motorola and STATS expend their own resources to collect purely factual information generated in NBA games to transmit to [Motorola] pagers. They have their own network and assemble and transmit data themselves.
To be sure, if appellants in the future were to collect facts from an enhanced [NBA] pager to retransmit them to [Motorola’s] pagers, that would constitute free-riding and might well cause [the*902 NBA service] to be unprofitable because it had to bear costs to collect facts that [Motorola] did not. If the appropriation of facts from one pager to another pager service were allowed, transmission of current information on NBA games to pagers or similar devices would be substantially deterred because any potential transmitter would know that the first entrant would quickly encounter a lower cost competitor free-riding on the originator’s transmissions.
However, that is not the case in the instant matter. [Motorola] and [the NBA] are each bearing [its] own costs of collecting factual information on NBA games, and, if one produces a product that is cheaper or otherwise superior to the other, that producer will prevail in the marketplace. This is obviously not the situation against which INS was intended to prevent: the potential lack of any such product or service because of the anticipation of free-riding.
NBA,
B. Preemption and This Appeal
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,
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.
[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,
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,
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 plaintiffs 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,
Moreover, Fly, having obtained news of a Recommendation, is hardly selling the Recommendation “as its own,” INS,
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 ex
It is also noteworthy, if not determinative, that INS referred to INS’s tortious behavior as “amounting] 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,
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,
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
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,
Here, like the defendants in NBA and unlike the defendant in INS, Fly “[has its] own network and assemble[s] and trans-mitts] data [it] selffl.” NBA
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 plaintiffs 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,
By way of comparison, we might, as the NBA Court did, see id.,
C. Judge Raggi’s Concurrence
Judge Raggi would reach the same outcome as do we, but “would apply the NBA test to this case and reverse on the ground that the Firms failed to satisfy its direct competition requirement for a non-preempted claim.” Post, at 912. We express no opinion as to whether there is or was direct competition between the Firms and Fly with regard to the Recommendations because we are bound by the holding of NBA. On the facts of that case, the plaintiffs cause of action was preempted by the copyright law because the defendants did not “free ride” on the plaintiffs work product.
CONCLUSION
We conclude that in this case, a Firm’s ability to make news — by issuing a Recommendation that is likely to affect the market price of a security — does not give rise to a right for it to control who breaks that news and how. We therefore reverse the judgment of the district court to that extent and remand with instructions to dismiss the Firms’ misappropriation claim.
Notes
. Lehman Brothers, Inc. was originally a party to this action. Following Barclays' acquisition in late 2008 of Lehman's North American operations, Barclays successfully moved to substitute itself for Lehman Brothers as a plaintiff.
. The district court made this emphatically clear in the first three sentences of its opinion:
This litigation confronts the phenomenon of the rapid and widespread dissemination of financial services firms’ equity research recommendations through unauthorized channels of electronic distribution. This dissemination frequently occurs before the firms have an opportunity to share these recommendations with their clients — for whom the research is intended — and to encourage the clients to trade on those recommendations. The firms contend that their recommendations are "hot news” and that the regular, systematic, and timely taking and redistribution of their recommendations constitutes misappropriation, which is a violation of the New York common law of unfair competition.
Barclays Capital Inc. v. Theflyonthewall.com (“Fly I"),
. The irony of doing so in the context of a copyright-infringement and "hot news”-misappropriation case is not lost on us.
. We refer to Recommendations by the Firms, as opposed to others who make recommendations but are not party to this litigation, with a capital “R.” o
. Securities may be traded off the exchange before the exchange or exchanges on which the securities are traded open. For example, shares of Boeing stock closed at 65.26 on the last business day of 2010. See http://www. bigcharts.com/custom/wsjie/wsjbb-historical. asp Psymb=B A&close_date =12/31/2010 (latest visit Jan. 19, 2011). Before trading reopened on the first trading day of the New Year, the Wall Street Journal reported: "Boeing Raised To Overweight From Neutral by J.P. Morgan,” Wall St. J. (Jan. 3, 2011, 7:47 a.m.), available to subscribers at http://online. wsj.com/article_email/BT-CO-20110103702795-kIyVDAtMUMxTzAtMzIwMDMxWj. html, and before market opening, that “[f]inancial-services firm J.P. Morgan [today] upgraded Boeing Co. (BA) to overweight from neutral.... J.P. Morgan raised its price target for Boeing to $83 from $80. Shares of Boeing rose 1.6% in recent premarket action to $66.30,” id. (emphasis added). The stock closed up another ten cents, at $66.40, at the close of trading for the day. See http://www. bigcharts.com/custom/wsjie/wsjbb-historical. asp?symb=BA&sid=8630&close_date=l/3/ 2011 (latest visit Jan. 27, 2011).
The parties and the district court have not treated pre-market trading as significant to the resolution of the issues before us, and we have been given no reason to do otherwise.
.The Firms distribute reports directly to some of their clients via, inter alia, online platforms that the Firms maintain which provide authorized individuals with access to such research. The Firms also grant licenses to third-party distributors such as Bloomberg, Thomson Reuters, FactSet, and Capital IQ to distribute the reports and Recommendations on their respective platforms.
The universe of authorized report recipients is strikingly large. Morgan Stanley estimates that it distributes its research reports to 7,000 institutional clients and 100,000 individual investors. Each institutional client may in turn identify multiple employees to receive reports. Morgan Stanley estimates that in aggregate
. Each of the Firms conducts a daily morning meeting at roughly 7:15 a.m. During this meeting, analysts will describe to the sales force interesting or important Recommendations issued the previous night. Starting around 8:00 a.m., the sales staff will in turn call, e-mail, and instant message clients to draw their attention to the report and Recommendation, in the hopes that a client will decide to place a trade with the Firm as a result of this contact, earning the firm a commission.
. Firm witnesses repeatedly referred to their concern for the well-being of their "business models.” See, e.g., Hurewitz Aff. in lieu of direct testimony (referring to the "business model” four times), and his articulate testimony on cross examination and redirect examination in open court, reproduced at Appendix 749-870 (referring to "business model” fifteen times); see also Fly I,
. The Firms allege, and the district court found, that Fly continued to use reports sent by sources inside the Firms as late as June 2006. Ply I,
. The Firms also generate revenue from these reports through what is known as the "embargoed market.” The embargoed market receives reports one to two weeks after initial distribution. Customers on the embargoed market, such as law firms, consulting firms, and universities, pay per-report or subscription fees to receive the Firms’ reports. Revenues from the embargoed market are relatively modest and are immaterial to this appeal.
. See Fly I,
. The contractual terms the Firms impose on their clients are presumably enforceable irrespective of the viability of a "hot news” cause of action. See ProCD, Inc. v. Zeidenberg,
. Some such outlets are also licensed distributors of Firm Recommendations and reports. See supra n. 6. In those cases, Firms normally insist that distributors maintain "firewalls” to divide the distributors' research and media arms, which in theory will prevent organizations from reporting on Recommendations and reports by virtue of their status as licensed distributors. Fly I,
. Bloomberg recently hired Fly’s Chief Operating Officer to oversee its publication of Firm Recommendations. Fly I,
. Fly also asserted counterclaims for defamation, tortious interference with prospective business relations, and unfair competition. These counterclaims were dismissed by the district court (George B. Daniels, Judge), which dismissal is not challenged on appeal. See Order Dismissing Def.’s Counterclaims (Dkt. No. 20), Barclays Capital Inc. v. Theflyonthewall.com, No. 06-cv-4908 (S.D.N.Y. March 16, 2007). The case was reassigned from Judge Daniels to Judge Cote on June 8, 2009.
. Both Fly I, the district court’s March 18, 2010 findings of fact and conclusions of law after trial, and Fly II, the сourt’s May 7, 2010 ruling on Fly's subsequent motion to stay or modify the injunction, have the same citation:
. In recognition of the economic disparity between Fly and the Firms, the district court limited its award to those litigation expenses that "directly and predominately concerned the [Firms'] prosecution of their copyright infringement claims." Fly I,
. The district court omitted fifteen prefatory words from the NBA quotation that were unnecessary for the district court’s purposes: "We hold that the surviving 'hot-news’ INS-like claim is limited to cases where....” NBA,
. The Global Research Analyst Settlement resolved an SEC enforcement action aimed at conflicts of interest within investment firms. Allegedly, the banks' investment banking arms inappropriately pressured analysts to issue positive ratings to certain stocks in the hopes that such a rating would help the firm land that company's investment banking business. See Press Release, SEC, Ten of Nation's Top Investment Firms Settle Enforcement Actions Involving Conflicts of Interest Between Research and Investment Banking (Apr. 28, 2003), available at http://www.sec.gov/news/ press/2003-54.htm (latest visit Jan. 11, 2011).
. The injunction prohibited Fly from reporting a Recommendation until:
(a) the later of one half-hour after the opening of the New York Stock Exchange or 10:00am ... for those Recommendations first distributed prior to 9:30am, or (b) two hours after the Recommendation is first distributed by the sponsoring Plaintiff to its clients, for those Recommendations first distributed at or after 9:30am on a given day.
Permanent Injunction at 2-3. Thus for a recommendation distributed at exactly 9:29 a.m., the ban on reporting would last thirty minutes, while for a recommendation distributed at 12:00 a.m., the ban would last for ten hours.
The injunction also contains a blanket, unconditional restriction on copyright infringement and on disseminating the dial-in number or pass codes for conference calls.
. Several features of the injunction may create constitutional or statutory concern, including a provision allowing Fly to petition to modify or vacate the injunction if the Firms do not actively seek to stop similar misappropriation by other individuals or entities. Some amici assert that this thrusts an impermissible duty to police on the part of the Firms. See Br. for Dow Jones & Co., Inc. as Amicus Curiae Supporting Neither Party at 11-14, Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372-cv (2d Cir. June 21, 2010); Br. for Advance Pub!ns, Inc. et al. as Amici Curiae Supporting Neither Party at 28-33, Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372-cv (2d Cir. June 21, 2010). Because we reverse the judgment of the district court on other grounds, we need not and do not reach the question of the propriety of the injunction.
. Initially, Fly also challenged the district court’s award of attorney’s fees to the Firms on the copyright infringement claims. On July 15, 2010, however, following a partial settlement between the parties, Fly, with the Firms' consent, moved to withdraw its appeal as to the attorney’s fees. See Consent Motion for Partial Withdrawal of Appeal, Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372-cv (2d Cir. July 15, 2010).
. The information was also sent to customers using web-based America Online ("AOL”) facilities, but the Court focused its legal analysis on the SportsTrax system. NBA,
. In addition to addressing preemption of the "hot news” misappropriation tort, the panel concluded that the defendants did not infringe a copyright in the underlying games,
.
§ 301. Preemption with respect to other laws
(a) On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
(b) Nothing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to—
(1) subject matter that does not come within the subject matter of copyright as specified by sections 102 and 103, including works of authorship not fixed in any tangible medium of expression; or
(3) activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106.
17 U.S.C. § 301.
. The NBA Court observed that "[t]he legislative history supports this understanding of Section 301(a)'s subject matter requirement. The House Report stated:
As long as a work fits within one of the general subject matter categories of sections 102 and 103, the bill prevents the States from protecting it even if it fails to achieve Federal statutory copyright because it is too minimal or lacking in originality to qualify, or because it has fallen into the public domain.
NBA,
. In the Bible, that turn of phrase seems to be more a threat than a promise. See, e.g.,
. It may nonetheless be worth noting the peculiar nature of the Recommendations insofar as they tend to be self-fulfilling prophecies. Irrespective of the quality of a particular report and Recommendation, the Recommendation alone is likely to move the market price of a security in the short term. See, e.g., Tony Mauro, Drug Company's Argument May Not Pass Smell Test, N.Y. Law J., Jan. 11, 2011, at 1 (reporting on the oral argument before the United States Supreme Court in Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156 (U.S. argued Jan. 10, 2011)). During the argument in Matrixx, a case about the materiality of an omitted statement under the securities laws, Chief Justice Roberts posited to the defendant's counsel:
I'm an investor in [the defendant].... I worry whether my stock price is going to go down. You can have some psychic come out and say [the drug] is going to cause a disease' with no support whatsoever, but if it causes the stock to go down 20 percent, it seems to me that's material.
Id. (internal quotation marks omitted); see also Fly I,
. It is in the public interest to encourage and protect the Firms’ continued incentive to research and report on enterprises whose securities are publicly traded, the businesses and industries in which they are engaged, and the value of their securities. But under the Firms' business models, that research is funded in part by commissions paid by authorized recipients of Recommendations trading not only with the benefit of the Firms’ research, but on the bare fact that, for whatever reason, the Recommendation has been (or is about to be) issued. If construed broadly, the "hot news” misappropriation tort applied to the Recommendations alone could provide some measure of protection for the Firms’ ability to engage in such research and reporting. But concomitantly, it would ensure that the authorized recipients of the Recommendations would in significant part be profiting because of their knowledge of the fact of a market-moving Recommendation before other traders learn of that fact. In that circumstance, the authorized recipient upon whose commissions the Firms depend to pay for their research activities would literally be profiting at the expense of persons from whom such knowledge has been withheld who also trade in the shares in question ignorant of the Recommendation.
None of this affects our analysis, nor do we offer a view of its legal implications, if any. We note nonetheless that the Firms seem to be asking us to use state tort law and judicial injunction to enable one class of traders to profit at the expense of another class based on their court-enforced unequal access to knowledge of a fact — the fact of the Firm’s Recommendation.
. The court concluded that New York law applied, and that the plaintiffs had adequately pleaded a New York "hot news" misappropriation claim. All Headline News,
. Of course, the term "we hold" can be (and often is) used unexceptionably to describe what the outcome of a particular case before a panel is: To use a hypothetical example not far removed from the facts of this case, "We hold that the district court abused its discretion in granting the temporary injunction here.” See also, e.g., Okin v. Vill. of Com-wall-on-Hudson Police Dep’t,
. Indeed, rather than identifying a set of required and specific “extra elements” essential to a non-preempted LATS-like "hot news” claim, the Court in NBA was opining about the hypothetical set of circumstances — not present in that case — that might give rise to such a claim. Because the NBA Court concluded that no such claim could be established on the facts of that case because of the absence of free-riding, its conjecture was descriptive and a helpful window into its reasoning, but could not bind subsequent courts.
The NBA Court’s approach, then, was similar to that of the Supreme Court in Sosa v. Alvarez-Machain,
Justice Souter, writing for the Court, however, was emphatic that the Court did not intend, by its opinion, to "close the door to further independent judicial recognition of actionable international norms” under the ATS. Id. at 729,
Analogously, in NBA, the Court held that the facts of that case could not support a non-preempted “hot news” claim. Its language regarding the elements that might in some
. The Firms seek to use the multiplicity of the factors-lists to their advantage. On page 46 of their brief, they assert:
[A]s this Court found in NBA, "hot news” misappropriation contains three [extra elements to avoid preemption]: (1) time sensitivity; (2) free riding; and (3) threat to existence or quality of the product or service offered by the plaintiff. NBA,105 F.3d at 845, 853 .
Appellees Br. at 46 (emphasis added). What the NBA Court in fact said in this context, at the second cited page, was:
We therefore find the extra elements — those in addition to the elements of copyright infringement — that allow a "hot news” 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.
NBA,
. See supra note 31. See also generally, Le-val, supra, at 1256-58; id. at 1256 (Dictum is "an assertion in a court’s opinion of a proposition of law which does not explain why the court's judgment goes in favor of the winner. If the court’s judgment and the reasoning which supports it would remain unchanged, regardless of the proposition in question, that proposition plays no role in explaining why the judgment goes for the winner. It is superfluous to the decision and is dictum.”).
. The Court identified the NBA's "primary products” as the "producing [of] basketball games with live attendance and licensing [of] copyrighted broadcasts of those games,” and concluded that there was "no evidence that anyone regards [the defendants’ products] as a substitute for attending NBA games or watching them on television.” NBA,
. For purposes of evaluating its behavior, at least, INS was not '‘breaking” news in this sense. It was not reporting on news AP was making by itself reporting news — e.g., “The Associated Press and major news networks reported late Sunday that President Obama plans to nominate Solicitor General Elena Kagan to replace retiring Supreme Court Justice John Paul Stevens.” Maureen Hoch, Reports: President Obama to Name Elena Kagan as Supreme Court Pick, PBS Newshour (May 9, 2010, 11:08 PM) available at http://www. pbs.org/newshour/rundown/2010/05/reportsobama-to-name-elena-kagan-as-supremecourt-pick.html (latest visit Mar. 7, 2011) — let alone making news — e.g., "Tamer Fakahany, an assistant managing editor at the AP’s Nerve Center in New York, has been named deputy managing editor overseeing the center at AP headquarters.” Tamer Fakahany Named AP Deputy Managing Editor, Associated Press, Feb. 8, 2011, available at http:// www.cnbc.com/id/41478155 (latest visit Mar. 7, 2011). By significant contrast, in INS, AP broke news, and INS repackaged that news as though it were “breaking” news of its own.
. The Firms do not sell their Recommendations for money. We understand this to be in keeping with their business model, under which the Firms are compensated through commissions for executing trades for clients. But we assume that the Firms could sell the Recommendations, were they so inclined.
. Another analogue that comes readily to mind is the regular practice of members of the news media — traditional and otherwise— to report on political endorsements by the editorial boards of competitors. The fact that the New York Times endorses a particular candidate seems to us to be news. When the newspaper publishes its endorsement, that fact is widely reported, without controversy so far as we know, by other news outlets. See, e.g., Shailagh Murray, Lieberman's Eroding Base, Wash. Post, July 30, 2006, at A4 ("In an editorial published today, the New York Times endorsed [Ned] Lamont over [Senator Joseph] Lieberman [for a U.S. Senate seat in Connecticut], arguing that the senator had offered the nation a ‘warped vision of bipartisanship' by supporting [President] Bush on national security."); John Harwood, Edwards Plies Limited Resources, Wall St. J., Feb. 27, 2004, at A4 (reporting on the endorsement of Senator John Kerry for the Democratic presidential nomination by the New York Times); Major Newspapers Reveal Their Favorite Candidates, L.A. Times, Oct. 23, 2000, at A14 (describing and quoting from various major newspapers’ endorsements during the 2000 U.S. Presidential election).
. The district court pointеd out that in October 2007, while this suit was pending and “settlement talks in this action were ongoing,” Fly brought a "hot news” misappropriation suit against a competitor, TradeTheNews.com. See Fly I,
. Judge Raggi writes that by distinguishing between those who make the news and those who break it, we “foreclose the possibility of a 'hot news’ claim by a party who disseminates news it happens to create.” Post at 913. That issue is simply not before us. We therefore do not address it, let alone suggest or imply that such a claim would necessarily be foreclosed. See ante at 902-03.
. To reiterate:
SportsTrax and Gamestats are each bearing their own costs of collecting factual information on NBA games, and, if one produces a product that is cheaper or otherwise superior to the other, that producer will prevail in the marketplace. This is obviously not the situation against which INS was intended to prevent: the potential lack of any such product or service because of the anticipation of free-riding.
For the foregoing reasons, the NBA has not shown any damage to any of its products based on free-riding by Motorola and STATS, and the NBA's misappropriation claim based on New York law is preempted.
NBA,
It may well be that the NBA’s product, when enhanced, will actually have a competitive edge because its Gamestats system will apparently be used for a number of in-stadium services as well as the pager market, resulting in a certain amount of cost-sharing. Gamestats might also have a temporal advantage in collecting and transmitting official statistics. Whether this is so does not affect our disposition of this matter, although it does demonstrate the gulf between this case and INS, where the free-riding created the danger of no wire service being viable.
Concurrence Opinion
concurring:
I join the court in reversing the judgment in favor of the Firms on their state law claims of “hot news” misappropriation on the ground that such claims are preempted by federal copyright law. See 17 U.S.C. § 301. Unlike my colleagues in the majority, I do not reject the five-part test enunciated in National Basketball Association v. Motorola, Inc.,
1. The Firms’ Claims Satisfy the Subject Matter Requirement for Federal Copyright Preemption
At the outset, I note my agreement with the majority’s conclusion that the Firms’ claims satisfy the subject matter requirement for copyright preemption of state law. See ante at 891-93, 901-03. The written research reports containing the Recommendations are certainly “within the type of works protected by” §§ 102 and 103 of the Copyright Act. Briarpatch Ltd. v. Phoenix Pictures, Inc.,
This conclusion obtains from Congress’s considered choices (1) to withhold copyright protection for ideas but, nevertheless, (2) to preempt that which falls within the subject matter of copyright rather than only what is protected by copyright. See 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 19D.03 [A][2][b], at 19D-28 (2010) (noting Congress’s “policy decision” not to protect ideas with copyright); 5 William F. Patry, Patry on Copyright §§ 18:14-18:15, at 18-49 to 18-53
To be sure, legal theories other than copyright might protect the Firms’ trademarks or prevent confusion regarding the Recommendations’ origins. See, e.g., 15 U.S.C. § 1114(1) (imposing liability for use or imitation of registered marks “likely to cause confusion,” mistake, or deception); id. § 1125(a)(1)(A) (imposing liability for use of “any false designation of origin,” or misleading representations “likely to cause confusion ... as to the origin, sponsorship, or approval” of goods). But the Firms do not allege that Fly passed off its own financial advice as that of the Firms or misrepresented that the Recommendations originated with Fly. Cf. Warner Bros. Inc. v. Am. Broad. Cos.,
2. The Firms’ Claims Satisfy the General Scope Requirement for Preemption Under NBA
I also agree with the majority’s determination that the Firms’ claims satisfy § 301’s general scope requirement because the Firms seek to vindicate rights “that may be abridged by an act which, in and of itself, would infringe one of the exclusive rights provided by federal copyright law.” Computer Assocs. Int’l, Inc. v. Altai, Inc.,
a. NBA’s Test May Not Identify Elements Qualitatively Different from Exclusive Rights Protected by Copyright
Having disclosed reservations as to NBA’s test, I briefly explain them.
States originally exercised concurrent power over copyright as long as their laws
To identify rights “equivalent” to those protected by copyright, courts apply an “extra elements” test that saves from federal preemption claims requiring elements “instead of or in addition to the acts of reproduction, performance, distribution or display.” Computer Assocs. Int’l, Inc. v. Altai Inc.,
In NBA, this court applied the “extra element” test to determine “the extent to which a ‘hot news’ misappropriation claim,” originally identified by the Supreme Court in INS prior to the Copyright Act of 1976, avoided § 301 preemption. See
Although this legislative history is some evidence that Congress did not intend federal copyright law to preempt all “hot news” claims, the scope of that intent is not easily discerned. The House Report references an earlier version of the 1976 Act containing examples of non-preempted actions, including “rights against misappropriation not equivalent to” the еxclusive § 106 rights, “breaches of contract, breaches of trust ... and deceptive trade practices such as passing off and false representation.” H.R.Rep. No. 94-1476, at 24, 1976 U.S.C.C.A.N. 5659, 5748; see also 5 Patry, supra, § 18:8, at 18-21 to 18-27. After the Justice Department raised concerns about the identification of misappropriation as a non-preempted action, Congress chose to omit the entire list from the final bill. See 5 Patry, supra, § 18:8, at 18-27 to 18-31 (discussing confusing colloquy between House Judiciary Committee members regarding deletion of list). Thus, it is not clear what weight the Report excerpt quoted in NBA can bear in any assessment of whether a particular “hot news” claim survives federal copyright preemption. See generally Architectronics, Inc. v. Control Sys., Inc.,
NBA next identified five factors central to a non-preempted “INS-like” claim: (1) the plaintiff incurred costs to generate or gather information (2) that is time-sensitive and (3) used by the defendant in a manner constituting free-riding (4) in direct competition with plaintiffs product when (5) the ability of parties to free-ride so reduces the incentive to produce the product that its existence or quality is' substantially threatened.
b. NBA’s Test Is Not Dictum
Despite my reservations regarding NBA’s test, I think it controls our resolution of this appeal. My colleagues in the majority are of a different view. They conclude that NBA “held” only that the facts presented could not establish a non-preempted “hot news” claim. Ante at 899 & n. 32. They dismiss NBA’s five-part test as an unnecessary discussion of hypothetical circumstances giving rise to a “hot news” claim, which, as dictum, we need not follow. See ante at 898-900 & n. 32. I am not convinced.
In holding that the NBA plaintiff failed to assert a non-preempted “hot news” claim, the court was required to determine the “breadth of the ‘hot news’ claim that survives preemption.” See NBA
The majority doubts whether the five-part test could be part of NBA’s “holding” because the opinion twice describes that test and once identifies three, rather than five, needed “extra elements,” namely, (1) the time-sensitive value of the information; (2) free-riding; and (3) the threat to the existence of plaintiffs product. See ante at 899-901 (citing NBA
Even if the test were dictum, such a strong statement of standards deserves “close consideration” and respect. Jimenez v. Walker,
Thus, I would apply the NBA test to this case and reverse on the ground that the Firms failed to satisfy its direct competition requirement for a non-preempted claim.
c. The Firms Failed To Establish Direct Competition Between Their Recommendations and Fly’s Substantially Different Aggregate Product
In concluding that the Firms failed to establish a non-preempted “hot news”
Although NBA turned on the plaintiffs failure to show free riding on and a sufficient threat to its services, the court there discussed the direct competition element in noting that the рlaintiff had “compressefd] and confuse[d] three different informational products.”
In this case, I identify no clear error in the district court’s impressively thorough fact-finding. See Diesel Props S.r.l. v. Greystone Bus. Credit II LLC,
In concluding that direct competition was established, the district court observed that both the Firms and Fly disseminate “Recommendations to investors for their use in making investment decisions.” Barclays Capital Inc. v. Theflyonthewall.com,
It bears noting that, like the district court, I view Fly’s conduct as strong evidence of free-riding, or worse depending on how it came into possession of the Recommendations. See id. at 336-37. Although Fly expends some effort to gather and aggregate the Recommendations, Fly is usurping the substantial efforts and expenses of the Firms to make a profit without expending any time or cost to conduct research of its own. I cannot celebrate such practices, which allow Fly “to reap where it has not sown.” INS,
An example illustrates the distinction. Two firms might disseminate opposing Recommendations on the same stock. These two firms directly compete in attempting to convince clients to follow their Recommendation and place a trade. Fly, on the other hand, would presumably report both opinions (as well as scores of others) to its readers without regard to whether they trade on the information. Some investors may place a particular value on learning all Recommendations, and some people may have a general interest in learning such news even without wishing to invest. Thus, Fly’s product may directly compete with that of other financial news outlets, such as Dow Jones, that also seek to provide all Recommendations to anyone interested in such news. See Associated Press v. All Headline News Corp.,
The district court observed that Fly intended its newsfeed to fulfill “demand for the original work” as evidenced by its recent distribution of the newsfeed through discount brokers, thereby creating the “final stage” of direct competition by driving away commission revenue. Barclays Capital Inc. v. Theflyonthewall.com,
3. Conclusion
I join the court in deciding to affirm in part and vacate and remand in part the judgment in favor of the Firms. As to the decision to vacate, I must respectfully decline to join in the majority opinion. I conclude that the Firms’ “hot news” misappropriation claims are preempted by federal copyright law because the Firms cannot demonstrate direct competition with Fly as required by this court’s test in NBA,
. Thus, the Firms might protect their authorized clients’ valuable "informational advantage," Barclays Capital Inc. v. Theflyonthewall.com,
. Prеcisely because the Copyright Act preempts only state claims regarding rights equivalent to those protected by copyright, I do not share the majority's "pressing concern” regarding the potential for disparate state law "hot news” doctrines. Ante at 896-98. To be sure, § 301 prevents states from expanding or contracting federal copyright law. See NBA,
I similarly identify nothing troubling with the use of state tort law or a judicial injunction to maintain the Firms’ informational advantage at the expense of other traders. See ante at 896 n. 29. Courts routinely enforce non-preempted state laws that protect one company's exclusive use of information. See, e.g., Russo v. Ballard Med. Prods.,
The issue presented on appeal is thus whether the Firms' claims are preempted, not the similarity of states' "hot news” doctrines or the perceived commercial morality of a company profiting from an informational advantage.
. NBA ’s test is sometimes mischaracterized as identifying the "elements” of a "hot news” tort under state law. See, e.g., Pollster v. Gigmania, Ltd.,
. Noting NBA's discussion of direct competition in a "primary market,” the district court concluded that the Firms’ dissemination of Recommendations is one of their "primary businesses” "central” to the Firms' business model. Barclays Capital Inc. v. Theflyonthewall.com,
. The majority offers an apt hypothetical for how the Firms and Fly might directly compete under different circumstances. If, aside from distributing its own opinion, the Firms disseminated other Firms’ Recommendations, Fly might directly compete with such a similar aggregate product. See ante at 905-06; see also NBA,