Banks Lose Bid to Limit ‘Hot News’ Republication of Analysts’ Research

By | June 20, 2011

A federal appeals court handed a major defeat to Wall Street banks in ruling that a financial news service did not misappropriate their analyst research for its website.

Reversing a lower court ruling, the 2nd U.S. Circuit Court of Appeals said Theflyonthewall.com Inc could not be held responsible for the alleged republication of “hot news” and headlines for its namesake site.

Monday’s unanimous ruling by a three-judge panel is a defeat for Bank of America Corp.’s Merrill Lynch unit, Barclays Plc and Morgan Stanley.

They argued that Theflyonthewall.com was getting a “free ride” by systematically misappropriating research, including upgrades and downgrades on stocks, costing them profits.

Theflyonthewall.com countered that it had a First Amendment right to publish before news goes stale, and that it typically got its information from public sources or from talking with traders and others in the marketplace.

In its ruling, the appeals court ordered the dismissal of the banks’ misappropriation claim under New York state law, which it said was “preempted” by federal copyright law.

“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,” Judge Robert Sack wrote for the appeals court panel.

Bank of America spokesman Bill Halldin, Barclays spokesman Seth Martin and Morgan Stanley spokeswoman Sandra Hernandez declined to comment. Bruce Rich, a lawyer for the banks, did not immediately return requests for a comment.

Theflyonthewall.com called the ruling a “complete victory,” and said it will continue publishing news feeds. Its lawyer Glenn Ostrager called the case particularly challenging because of the “enormous legal resources” expended by the banks.

GOOGLE, TWITTER WEIGHED IN

In March 2010, U.S. District Judge Denise Cote had ordered Theflyonthewall.com to wait until 10 a.m. ET to report research issued before the U.S. stock market opens, and at least two hours for research issued later.

The Summit, New Jersey-based company said these limits cost it subscribers and threatened its survival. The 2nd Circuit put that injunction on hold during the appeal.

In his ruling, Sack said there was not enough evidence to suggest that Theflyonthewall.com’s activities significantly interfered with the banks’ ability to make money.

“It is difficult on this record for us to characterize Fly’s publication of recommendations as an unauthorized interference with the normal operation of firms’ legitimate business precisely at the point where the profit is to be reaped,” he said.

Google Inc. and Twitter Inc. were among companies to support Theflyonthewall.com’s appeal. Kathleen Sullivan, a lawyer who argued on their behalf before the 2nd Circuit, did not immediately return a call seeking a comment.

Monday’s ruling followed a settlement last November by News Corp.’s Dow Jones & Co. and financial news service Briefing.com in a similar case.

The case is Theflyonthewall.com Inc v. Barclays Capital Inc. et al, U.S. Second Circuit Court of Appeals, No. 10-1372.

(Reporting by Jonathan Stempel; Editing by Lisa Von Ahn, Dave Zimmerman)

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