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Court Swats Wall Street, Lets 'Fly' Keep Buzzing

Monday, 20 Jun 2011 | 2:46 PM ET
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In a blow to Wall Street, a federal appeals court today ruled that a website could not be barred from immediately reporting on the stock recommendations of stock analysts.

Last year, a trial court issued an order requiring the website TheFlyOnTheWall.com to delay publishing its reporting of stock recommendations from three Wall Street firms—Barclays Capital , Merrill Lynch and Morgan Stanley. The trial court held that Fly was engaged in “misappropriation”—free riding on the research of the Wall Street firms.

The appeals court rejected that ruling. On the contrary, the court decided, Fly was reporting on new information that the firms did not gather but actually created—the recommendation to “buy” or “sell” or “hold” a stock.

The court’s analysis is dense with talk of complex legal precedents and an argument about whether or not federal copyright law pre-empts state law. But the decision can be understood rather easily.

Earlier decisions upheld the idea that gathering news created a legally recognizable intellectual property interest that could be protected from unfair competition. News organizations could be barred from republishing facts originally uncovered by the investigative work of their competitors—unless they credited the originator of the story or at least waited until the news was no longer breaking or hot.

Think of an investigation into, say, the firing of a prominent executive at Fannie Mae. If the Wall Street Journal discovers that this was due to an internal fight over the level of losses reported at the company, other networks and news organizations must either credit Wall Street Journal for the story or “re-report” it by confirming it for themselves. (Ethically, they should do both.) They cannot simply see the news reported in the Journal and then publish the same story using different words, claiming it as their own. This would be free-riding and count as unfair competition.

Now imagine, however, that in addition to uncovering the story of the internal fight, the Journal editorializes that this means that federal officials should launch an investigation into Fannie Mae’s management.

Can the Journal prevent other papers from reporting that an influential editorial board is calling for an investigation?

The answer is no.

In Fly, the appeals court held that the recommendations of the firms were more like editorials than news stories. And that the Fly was not appropriating their work as its own but honestly reporting on a fact about the world that the Wall Street firm’s had created rather than acquired—the fact of their rating.

“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 expenditure of labor, skill, and money, and which is (presumably) salable by a Firm for money, and selling it by ascribing the material to its creator Firm and author (not selling it as Fly's own), and (b) what appears to be unexceptional and easily recognized behavior by members of the traditional news media— to report on, say, winners of Tony Awards,” the Court says in its majority opinion.

(Hot news meta-disclosure: I read earlier news reports of this decision—including this one from Reuters—but not to "appropriate" anyone else's reporting. To write this story I read the full judicial opinion, which was posted on Scribd by DealBook.)

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