* BofA, Barclays, Morgan Stanley wanted restrictions
* Misappropriation claim vs Theflyonthewall.com dismissed
* Banks reviewing decision
(Adds comment from lawyer for the banks, professor)
By Jonathan Stempel
NEW YORK, June 20 A federal appeals court
handed a major defeat to Wall Street banks by ruling that an
online news service did not misappropriate their stock research
by publishing headlines about analyst upgrades and downgrades.
Reversing a lower court ruling, the 2nd U.S. Circuit Court
of Appeals said Theflyonthewall.com Inc should not be punished
for systematically republishing "hot news" on its website.
Monday's unanimous ruling by a three-judge panel is a
defeat for Bank of America Corp's (BAC.N) Merrill Lynch unit,
Barclays Plc (BARC.L) and Morgan Stanley (MS.N).
These banks said Theflyonthewall.com was getting a "free
ride" on their research, costing them profits.
It is also a victory for investors who might otherwise have
to wait longer to learn of market-moving news.
"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
The judge added that there was not enough evidence to
suggest the activity interfered with the banks' ability to
profit from buying and selling securities.
It is unclear whether the banks will appeal the ruling.
"We are disappointed in the Court's decision, and we are
reviewing the decision to determine our next steps," said
Benjamin Marks, a partner at Weil Gotshal & Manges representing
the banks. He said the decision left intact a lower court
determination that Theflyonthewall.com had infringed the banks'
copyrights in equity research, and could not do so again.
Bank of America spokesman Bill Halldin, Barclays spokesman
Seth Martin and Morgan Stanley spokeswoman Sandra Hernandez
declined to comment.
"Enforcing a ban can result in onerous restrictions on what
most of us would regard as basic, fundamental communicative
rights," said Edward Wasserman, a journalism ethics professor
at Washington & Lee University in Lexington, Virginia.
"Someone can put them in an email, or someone can tweet
them," he added. "The technology has simply gotten away from us
and the reach of these recommendations cannot be confined."
Theflyonthewall.com had argued that it typically got its
information from public sources and traders, and had a First
Amendment right to publish before news went stale.
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.
"It makes clear that the theory that one can be liable for
misappropriating hot news is very narrow," said Eugene Volokh,
a professor at the UCLA School of Law. "Copyright law prevents
the copying of expression, but not the copying of fact."
Theflyonthewall.com called the ruling a "complete victory."
Its lawyer, Glenn Ostrager, said the case was challenging
because of the "enormous legal resources" expended by the
"Asserting hot news misappropriation is not the way to
protect research," said Shyam Balganesh, a law professor at the
University of Pennsylvania. "Wall Street needs to take
technological measures or alter its business model to prevent
competitors from using information without paying."
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.
Google Inc (GOOG.O) and Twitter Inc were among companies to
support Theflyonthewall.com's appeal. [ID:nN06203577]
Kathleen Sullivan, a Stanford University law professor who
argued before the 2nd Circuit on their behalf, did not
immediately return a call seeking a comment.
Monday's ruling followed a settlement last November by News
Corp's (NWSA.O) Dow Jones & Co and financial news service
Briefing.com in a similar case. A lawyer for Dow Jones did not
immediately return a call seeking comment.
Wasserman, the journalism ethics professor, said the ruling
is also important for other websites that "aggregate" news from
"I have tremendous concern about the larger implication of
how far you can prevent people who originate news, in this case
the banks, from profiting," he said. "I'm thinking about news
organizations that find their original content republished on
aggregation websites, and which can lose revenue they need."
Theflyonthewall.com has said it employs about 30 people,
and according to its website it charges $65 per month, or $624
annually, for its services. Thomson Reuters Corp (TRI.TO) is
among the companies that distribute its content.
The case is Theflyonthewall.com Inc v. Barclays Capital Inc
et al, 2nd U.S. Circuit Court of Appeals, No. 10-1372.
(Reporting by Jonathan Stempel; Editing by Dave Zimmerman,
Andre Grenon and Tim Dobbyn)