The United States Court of Appeals, Second Circuit held yesterday that news aggregator, TheFlyontheWall.com, was not liable under New York state law for misappropriating stock recommendations originally prepared by Barclays Capital, Inc.
Barclays Capital is an investment bank that provides investment advisory services to hedge funds, pension funds, private equity groups, and wealthy individual investors. Barclays prepares, based on its own proprietary research, recommendations on company values and their stock.
Barclays’ recommendations are then provided to investors, usually on a complimentary basis, as an incentive for investors to engage the investment bank’s services after they have read the recommendations. The fees generated by trades in the stock the investor chooses helps sustain the investment bank’s research services.
Bringing a claim under New York state tort law, Barclays argued that TheFlyontheWall.com threatened Barclays’ business model by obtaining Barclays’ recommendations and distributing them to TheFlyontheWall.com’s subscribers. This action would result, according to Barclays, in fewer investors using Barclays’ services.
The court determined, given that Barclays was the original author of the recommendations disseminated by TheFlyontheWall.com, Barclays’ claims were covered by the federal Copy Right Act. The court also determined that Barclays property rights could have been diminished by TheFlyontheWall.com’s acts, including distributing Barclays’ recommendation on TheFlyontheWall.com’s website.
However, what appears to have swayed the court in TheFlyontheWall.com’s favor, was that TheFlyontheWall.com broke original news in that they reported Barclays issued a recommendation versus reporting the recommendation as its own. Put another way, if TheFlyontheWall.com were disseminating its own recommendations on securities, and part of its content included copies of the recommendations created by Barclays, Barclays would have a stronger case for claiming misappropriation under New York law.
We should note that TheFlyontheWall.com did not offer any defense to Barclays claim of copyright infringement, a separate claim from the misappropriations claim. Also, this ruling may only hold for media companies doing business in New York, since the claim was brought under New York‘s tort law.
Does this foreclose opportunities for smaller media companies, especially minority start-ups, to report on financial or other types of news where a significant portion of the content may have been created by a third party? Probably not, as long as the media company is careful to announce as fact the release of the information, attribute the information to the correct source, and thus distinguish the information as breaking news on an event.