Legal Briefing: Court to Review Controversial 'Hot News' Ruling

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TheFlyOnTheWall Saved by the Second Circuit, at Least for Now

In March, four big banks led by Barclays Capital successfully sued TheFlyOnTheWall (Fly), a business/investment news service that gave its clients access to the big banks' research and recommendations by reprinting and distributing that information as soon as Fly could get it. The trial court decided Fly had misappropriated the "hot news" generated by the banks, and granted an injunction forbidding Fly from redistributing the banks' research and recommendations until it had sufficiently cooled, i.e. for a couple of hours.

Fly has been losing business ever since because the not-so-hot information is far less valuable to Fly's subscribers. On Wednesday a panel of the Second Circuit stayed the trial court's order and granted an expedited appeal of the trial court's decision.

Two of the trickiest issues in the case relate to competition (not to mention the free speech issues, which have been raised in this appeal and should be addressed by the Second Circuit). One, the tort of misappropriation of hot news only applies to competitors. Was Fly really a competitor of the banks, or did it compete with other news services, such as Bloomberg? The trial court defined the relevant market as "the market for disseminating equity research Recommendations." If that was the wrong way to characterize the market, and Fly didn't compete with the banks, the trial court was wrong.

Beyond that, however, is the second competition issue: even if Fly competed with the banks, how is the harm it's doing any different than the harm inflicted by all the other news services that similarly redistribute the banks' research and recommendations as soon as they can get their hands on it? For equity's sake, don't all such redistributors of the banks' hot news need to be bound by the same injunction, or none? But if a content producer must go after all redistributors or none, doesn't that create an untenable duty to police? (An article at the National Law Journal argues it does.)

In the Internet era, which makes copying and redistributing others' original content so easy, and has seen the rise of news aggregators and other forms of appropriation of news items, the tort of misappropriation of hot news is experiencing a resurgence. Late last month Dow Jones filed a misappropriation of hot news claim against That renewed relevance makes the appellate court's review of the Fly decision very helpful. Will the Court reaffirm the existing standard, and just show how the trial court (in)correctly applied it, clarifying the scope of the tort in today's world as Fly asks it to do? Or will the Court more fundamentally reexamine the whole concept of the tort? I can't imagine it would do something so extreme; however, the tort did evolve in a completely different era.

One of the intriguing aspects of the Court's action was its stay of the injunction against Fly while the appeal is pending. As the Barclays side noted in its opposing argument, granting the stay was only appropriate if Fly met several conditions, including likelihood of success on the merits. In granting the stay, the Second Circuit signaled it thinks at least some part of the trial court's decision is wrong. What part or parts?

Stay tuned.

And in the Business of Law...

How bad is the legal job market for young attorneys? Worse than ever, but still better than many industries. Of 41,000 law school graduates from the class of 2009, 88.3% have jobs as of last February. However, that percentage is significantly inflated by temporary positions, part time positions, and a spike in entrepreneurship -- people opening solo practices. When those temporary jobs evaporate and some of the solo firms fail, the job market will look bleaker still. I can only imagine that the class of 2010's numbers will be worse. As Above the Law notes, the effect of the job inflation -- many of the temporary jobs are created by law schools for their own graduates -- is to mislead potential new students about the value of a law school education. Accurate employment numbers are only fair, given the enormous debt students must take on to get the degree.

Originally published