* Company must wait until 10 a.m. to release most research
* "Systematic misappropriation" found -- judge
* Theflyonthewall.com plans to appeal
(Adds details from ruling, third paragraph)
By Jonathan Stempel and Grant McCool
NEW YORK, March 18 A Manhattan federal judge on
Thursday barred the financial news service Theflyonthewall.com
from issuing immediate news about analyst research from several
Wall Street banks, often before recommendations are shared with
Ruling in favor of Bank of America Corp's (BAC.N) Merrill
Lynch unit, Barclays Plc (BARC.L) and Morgan Stanley (MS.N),
U.S. District Judge Denise Cote said Theflyonthewall.com
engaged in "systematic misappropriation," essentially getting a
"free ride" from its quick publication of upgrades and
downgrades that can move stocks higher and lower.
Cote issued a permanent injunction requiring the Summit,
New Jersey-based company to wait until 10 a.m. to report
research from the three banks that was issued before the market
opens, and at least two hours for research issued thereafter.
The bulk of research is typically issued before the open.
While the banks had sought longer delays, Cote said: "This
time frame preserves incentives for the firms to create and
disseminate research reports to their investor clients, while
still recognizing the inevitable, fast-moving, and widespread
informal communication of recommendation on Wall Street."
Cote added she could not excuse Theflyonthewall.com's
activities simply because recommendations are also reported by
many rivals, or are otherwise leaked or rumored.
"The legally salient fact ... is that Fly is exploiting its
self-described 'hefty relationships with people in the know,'"
The judge said Theflyonthewall.com may apply in one year to
lift the injunction if the banks do not take reasonable steps
to halt the unauthorized distribution of research.
According to the opinion, Theflyonthewall.com said the
lawsuit has forced it to ritualistically engage in "confirming"
the substance of research with two or three sources before
publishing -- still, typically, before the market opens.
The company has about 30 employees. It charges $50 a month,
or $480 annually, for its services, its website shows.
Glenn Ostrager, a lawyer representing Theflyonthewall.com,
said the ruling is "at variance with existing law." He said his
client will appeal to the Second Circuit Court of Appeals, and
expects the financial press to "vigorously support" an appeal.
Like many rivals, Theflyonthewall.com typically posts
headlines from research reports and press releases, and longer
summaries when available.
It was not immediately clear how the 89-page ruling might
affect the ability of real-time financial news providers such
as Thomson Reuters (TRI.TO) (TRI.N), Bloomberg LP and News
Corp's (NWSA.O) Dow Jones Newswires to tell clients of
potentially market-moving research.
Thomson Reuters spokeswoman Erin Kurtz and Bloomberg
spokeswoman Judith Czelusniak declined to comment. A Dow Jones
representative had no immediate comment.
The banks welcomed the ruling. Merrill spokesman Bill
Halldin called it a "milestone in regaining control over the
distribution of our proprietary research and preserving the
value of our investment ideas for our clients."
Barclays spokesman Mark Lane and Morgan Stanley spokeswoman
Carissa Ramirez said the ruling shows the importance of
protecting intellectual property.
Lehman Brothers Holdings Inc LEHMQ.PK had been one of the
plaintiffs when the lawsuit was filed in 2006. Barclays took
its place when it bought much of that bank's operations.
The judge noted that Merrill Lynch and Morgan Stanley have
already taken steps to limit or delay the media's ability to
obtain analyst research. Other banks have acted similarly.
In her opinion, Cote said the value of analyst research
derives not just from its quality, but also from its
"exclusivity and timeliness."
She said Theflyonthewall.com "free-rides" on banks'
research efforts because it make no effort to produce the
recommendations or contribute to the underlying analyses.
The judge also said such "illegal conduct" cannot be
excused because rivals might also engage in unlawful behavior.
"While it may be true that Fly is a news aggregator and is
in direct competition with other financial news aggregators,
both large and small, each of these news aggregators is in
direct competition with the firms when they report the firms'
recommendations in a timely and systematic manner such that the
firms are deprived of the opportunity to communicate them
first-hand to their clients," she wrote.
While noting the 2003 global research analyst settlement,
the availability of discount electronic trading platforms, and
the financial crisis might have hurt the banks, resulting in
reduced staff, Cote said "these other events aside, the
misappropriation of their recommendations by Fly and others has
also had a profound effect on their business model."
She also advanced a public policy argument for her ruling.
"A balance must be struck between establishing rewards to
stimulate socially useful efforts on the one hand, and
permitting maximum access to the fruits of those efforts to
facilitate still further innovation and progress," she wrote.
The case is Barclays Capital et al v Theflyonthewall.com,
U.S. District Court, Southern District of New York, No.
(Reporting by Jonathan Stempel and Grant McCool; editing by
Leslie Gevirtz, Richard Chang, Andre Grenon and Carol