Article of the Month: Maryland Federal Court Rejects “Hot News” Misappropriation Claim

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A recent decision from the District of Maryland, provides an interesting take on the “hot news” misappropriation tort. Agora Financial LLC v. Samler, No. 09-1200 (D. Md. June 17, 2010). At issue in the case were financial recommendations similar to those at issue in the closely-watched Barclays v. TheFlyOntheWall case currently pending before the Second Circuit. In Agora, the court denied plaintiffs’ motion for a default judgment and dismissed their “hot news” case because, the magistrate judge found, that plaintiffs’ financial recommendations were likely “original works” within the scope of the Copyright Act, and therefore any misappropriation claim involving them was preempted by Section 301. Magistrate Judge Beth Gesner’s findings were adopted in a summary order on July 15 by Judge William Quarles.


Plaintiffs Agora Financial, LLC, Oxford Club, LLC, Taipan Publishing Group, LLC, Stansberry and Associates Investment Research, LLC, and Sovereign Offshore, LLC publish financial investment newsletters, featuring the recommendations of financial analysts for investment strategies, specific investments, and summary lists. The newsletters are only sent to paid subscribers.

Plaintiffs brought suit on Nov. 23, 2009 against defendant Martin Samler, who operates the website (which is also only available to paid subscribers). Samler’s website lists a number of different analysts; each analyst’s name links to a page that summarizes the analyst’s latest recommended investments as well as statistical information about the stocks’ performance. The website had a disclaimer that noted that “the picks above are, unless otherwise stated, entered by registered members of,” and noted that any analyst may have recommended trades not listed, as well as different entry/exit strategies. The disclaimer also disavowed any affiliation with or endorsement by the analysts.

Samler did not respond to the complaint, and on January 22, 2010, Judge Quarles asked the magistrate to consider entry of default judgment. The magistrate accepted the complaint as true, but questioned whether the plaintiffs had pled a legitimate cause of action.

“Hot News” Claim

Magistrate Judge Gesner studied the history, as well as the current status of the “hot news” misappropriation tort, from International News Service v. Associated Press, 249 U.S. 215 (1918), to the state of the doctrine after the 1976 revisions to the Copyright Act, which explicitly preempted any state cause of action if the state rights are “equivalent to any of the exclusive rights within the general scope of copyright” and the work falls “within the subject matter of copyright.”

She paid particular attention to the 1991 Supreme Court holding that facts are not copyrightable because they are not original to the author. Feist Publ’n Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 345 (1991). The Feist Court expressly noted that it was not overturning the 1918 INS decision. Feist, 499 U.S. at 354. She then came to the 1997 Second Circuit decision that held that hot news claims were not preempted by Section 301. National Basketball Assoc. v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997). (She also noted that the Fourth Circuit had never recognized the NBA test, and that it had been explicitly rejected by Judge Quarles in Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737 (D. Md. 2003)). The magistrate took particular note of two separate passages in NBA. First, the NBA court defined what it considered to be the essential five elements of an INS claim:

(i) the plaintiff generates or collects information at some cost or expense, (ii) the value of the information is highly time-sensitive, (iii), the defendant’s use of the information constitutes free-riding on the plaintiff’s costly efforts to generate or collect it, (iv) the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff, and (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.

NBA, 105 F.3d at 852. The NBA court noted that INS is not about ethics, but “the protection of property rights in time-sensitive information. The next passage in NBA was the one Magistrate Judge Gesner focused on:

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, 105 F.3d at 853 (emphasis added).

Magistrate Judge Gesner noted that in the three-element test, the work at issue must be facts – and noted that the Agora plaintiffs had not set forth any proof or pleading that the material at issue was “factual information.” “Instead,” she wrote, “this material appears to be ‘original’ works, which are copyrightable, and, therefore, not subject to protection under the NBA court's formulation of the INS doctrine.

She noted that “most courts applying the NBA test have only applied it where the material at issue was ‘factual,’ and therefore not copyrightable, citing Scranton Times, L.P. v. Wilkes-Barre Publ’g Co., No. 3:08-cv-2135, 2009 U.S. Dist. LEXIS 17278 (M.D. Pa. Mar. 6, 2009) (facts from plaintiff’s obituaries), Pollstar v. Gigmania Ltd., 170 F. Supp. 2d 974 (E.D. Cal. 2000) (time-sensitive concert information); Fred Wehrenberg Circuit of Theatres, Inc. v. Moviefone, Inc., 73 F. Supp. 2d 1044 (E.D. Mo. 1999) (plaintiff’s theaters’ movie listings).

Notable exceptions to this reading of NBA included the recent Barclays Capital, Inc. v., No. 06-cv-4908, 2010 U.S. Dist. LEXIS 25728 (S.D.N.Y. Mar. 18, 2010) (stock investment recommendations) and X17, Inc. v. Lavandeira, 563 F. Supp. 2d 1102 (C.D. Cal. 2008) (copyrighted photographs).

The magistrate reviewed the pleadings and found that there was no allegation that the work at issue was “factual,” and accordingly recommended the court deny the motion for default judgment. She also considered a Lanham Act claim, but held plaintiffs had failed to state a claim there as well because the disclaimers on the defendant’s website made clear that the website was in no way affiliated with plaintiffs or their employees, the analysts.

Judge Quarles accepted the magistrate’s recommendations in a summary order on July 15.

The recent Barclays decision only focused on the five-factor NBA test, and did not consider the three-prong test. Although many amicus briefs have been filed in the Barclays dispute – some arguing that Feist overruled INS and obliterated any protection for facts -- not one amicus seems to argue that investment recommendations are within the scope of copyright. (Instead, argues the brief of Google and Twitter: “The state law tort of ‘hot news’ misappropriation is unenforceable because the Copyright Clause has been construed to ban the removal of facts from the public domain, because application of ‘hot news’ misappropriation obstructs this constitutional mandate, and because states are precluded from implementing laws that interfere with constitutional guarantees.” Brief for Amici Curiae Google Inc. and Twitter, Inc. In Support of Reversal at 17, Barclays Capital, Inc. v., Inc., No. 10-1372-CV (2d Cir. June 22, 2010).) Oral argument for the Barclays case was held on August 6; a decision is still pending.

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