Sending Stock Pick Summary Not Copyright Infringement

Sending a summary of stock recommendations via the Internet is neither copyright infringement nor can the information be protected as “hot news,” a federal appellate court found.

Several brokerage firms, which send out or telephone stock recommendations to clients early in the morning, sued Theflyonthewall.com (Fly) for emailing and posting on its website a summary of those recommendations before the stock market opened, claiming that the action violated their copyrights and should be protected as “hot news.”  The trial court found the stock tips were “hot news” and entered an injunction against Fly.

The brokerage firms claimed they spend considerable time and money in developing the stock recommendations to generate revenue when their clients buy or sell stock based on those recommendations.  The firms argued that because Fly emailed a summary of the stock tip, Fly broke the firms’ business model, thereby costing them commissions.

In reversing the trial court, the appellate court noted that “a Firm’s ability to make news—by issuing a Recommendation that is likely to affect the market price of a security—does not give rise to a right for it to control who breaks that news and how.”

The appellate court said there was no “hot news” exception for the stock tips.  The court found that the firms were making news when they recommended a stock and that Fly was merely reporting the news.  “The Firms are making the news; Fly, despite the Firms’ understandable desire to protect their business model, is breaking it.”

Furthermore, the appellate court said the Fly is not selling the recommendation as its own, which the court said would be of little value.  “Indeed, for Fly to sell, for example, a Morgan Stanley Recommendation ‘as its own, . . . would be of little value to either Fly or its customers.  If, for example, Morgan Stanley were to issue a Recommendation of Boeing common stock changing it from a ‘hold’ to a ‘sell’, it hardly seems likely that Fly would profit significantly from disseminating an item reporting that ‘Fly has changed its rating of Boeing from a hold to a sell.’  It is not the identity of Fly and its reputation as a financial analyst that carried the authority and weight sufficient to affect the market.  It is Fly’s accurate attribution of the Recommendation to the creator that gives this news its value.”

Barclays Capital Inc., Merrill Lynch, Pierce, Fenner Smith Inc., and Morgan Stanley & Co., Inc. v. Theflyonthewall.com, Inc., 2nd Cir. No.10-1372 CV, issued June 20, 2011.