2d Cir. broadens copyright preemption as to state law “misappropriation of hot news” claims

Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372 (2d Cir. June 20, 2011), involved allegations that the uncovering and dissemination of financial firms’ daily securities trading recommendations constituted copyright infringement and the New York common law tort of misappropriation of “hot news.” Such a misappropriation claim was first accepted in the days of federal common law in Int’l News Serv. v. Associated Press, 248 U.S. 215 (1918) (“INS”), but really hasn’t gotten much traction since.

The defendant conceded copyright infringement. The only question on appeal was whether the misappropriation claim was preempted.

The panel majority’s decision turned on whether a five-part test set forth in a prior “hot news” case, NBA v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), was dictum. In NBA, the Second Circuit held that the NBA’s misappropriation claim was preempted, but suggested that an INS-type misappropriation claim could survive preemption if it required an “extra element” beyond those required for copyright infringement. The NBA court posited a five-part test that it believed would characterize a non-preempted claim possessing such an extra element.

The panel majority characterized the NBA court’s five-part test as dictum. Instead, the panel majority compared the misappropriation claim itself to that involved in NBA and determined that they were alike in that (1) the plaintiffs in both cases “created” the news (as opposed to simply reporting it) and (2) defendants in both cases gave proper attribution to the respective plaintiffs for the news. The court contrasted this with the facts in the INS case, where the plaintiff was a news reporting service, not the “creator” of the news itself, and the defendant had taken credit for the report it obtained from the plaintiff. Since the plaintiffs’ claims in NBA and Barclays were alike in these respects (and unlike INS), the panel majority held that, like the claim in NBA, the plaintiffs’ misappropriation claims were similarly preempted.

The concurring judge would not have rejected the NBA court’s five-part test as dictum, but instead would have found preemption due to the failure of the plaintiffs to demonstrate one of the five parts of the NBA test (direct competition between the parties).