Recently, the United States Court of Appeals for the Second Circuit held in Barclays Capital v. Theflyonthewall.com (“Flyonthewall“) that while federal copyright law preempted the “hot news” doctrine in that particular case, Defendant Theflyonthewall could be held liable for infringing the copyright to Barclay’s and other Plaintiff banks buy/sell recommendations, notwithstanding First Amendment concerns. The Second Circuit should have gone father by abolishing the doctrine as preempted by the Copyright Act.
The “hot news” originated in International News Service v. Associated Press, a U.S. Supreme Court case decided in 1918. International News involved alleged free riding by International News Service (“INS”) on the Associated Press (“AP”). INS would obtain news from AP, sometimes illegally from a reporter like one on the left, on the East Coast. INS would then distribute the news on the West Coast. The Court held that such news was protected even in the absence of copying or a contractual obligation by INS to AP.
Similarly, in Flyonethewall, the Plaintiff banks had released by/sell recommendations concerning stock. Think of these recommendations as a wine rating you would see on Wine Spectator. Theflyonthewall not only divulges the banks recommendations before they got to their intended audience, but also copied some of the content verbatim on its site. As a result, Theflyonthewall was rightly found liable for copyright infringement. But the Second Circuit reversed the “hot news” claim as preempted in this particular case by the Copyright Act. Notably, the Court did not repudiate the doctrine all together as preempted completely by the Copyright Act. It should have.
The problem with the “hot news” doctrine is that there are no rational bounds on where it can be stopped. In the case where one newspaper copies text from another, you have a copyright violation. Where a reporter has a confidentiality contract with a newspaper but divulges news to another competitor, there may be a tortious interference claim. Or if one newspaper uses illegal means to get information from another, as in International News, an unfair competition claim exists. But “hot news” theory can be expanded to all sorts of ideas and information that are not otherwise obtained illegally or protected by copyright, patent, or contract. It in essence is relies then on a “sweat of the brow” theory. Without such bounds, the “hot news” doctrine expands intellectual property rights beyond the bounds Congress intended, revealing itself to be, in the end, full of hot air.
I hate when people smack their mouths when they chew gum. But I wouldn’t want the Bloomberg administration to pass a law banning it in New York City. The city has better things to do with my tax dollars, such as improving public schools. And yet this is the path the administration seems to be on, as Mr. Moynihan points out in Bloomberg’s Nanny State Targets Street Food.
The Nanny State article shows why regulation can be very dangerous: entrenched competitors, in the form of brick and mortar restaurants, want to use the state to make it more difficult for trucks selling street food to do business. The city encroaches on individual liberty for a private purpose. This should not be the province of city government, or any government, for that matter.
Of course, regulation has another negative consequence: it limits liberty. Smokers were easier targets than the street vendors for the city. That’s why Bloomberg first targeted smokers with his smoking ban in not only bars, but in parks, too. While I am not myself a smoker, I think this was going too far, too. With bars, the argument is that you are in a closed space and so smokers shouldn’t be able to impose their externality on non-smokers. I get it. That is not the case with the park. And yet, unlike with the park, most people go to bars to drink booze and more often than not get drunk. Their purpose is not health. Quite the contrary. Secondary smoke is part of the package. Bars should be free to choose whether or not they outlaw smoking. That will leave the right to choose where it should be — with consumers.
In the case of New York City parks, smokers should have the right to use them, too. I am exposed to all sorts of pollution by choosing to live in New York City. Smelling some smoke in a park is not the worst of them. I hate when people smack their mouths when chewing gum, and when they blow loud bubbles, on the streets and subways. If I were mayor, I would pass a law banning those things, in addition to: sagging pants, tank tops on men, yelling in public, too much perfume (or cologne), too much popcorn eating, too many Yankee hats, live music on weekdays, impromptu music in parks, among others. At some point, such heavy handed regulation by the city will make Gotham the place where freedom and fun come to die.
Recently, the Washington Lawyer ran a great piece called Net Neutrality: Who Should Be Minding Online Traffic? The article goes back and forth between the extremes of: (1) heavy handed Orwellian like regulation of the Internet by the Federal Communications Commission (“FCC”), and (2) self-regulation and content discrimination by greedy Internet Service Providers (“ISP”). This seems to be a false dichotomy. Even in the absence of heavy handed FCC regulation, which can crush innovation, the Sherman Act (“Act”) is an available tool to punish unlawful Internet hogging or collusion by ISPs.
The Internet is a public good. It was created by the government. Before, it was called ARPANET. It was a tool of the military. As a result, the Internet is akin to a public park. At the same time, there are now Internet Service Providers (“ISP”) who provide Internet users with differentiated access to this public good. Think of the ISPs as competing private tour guides in Central Park. Some tours will be faster but more pricey than other slower tours.
The net neutrality debate wrongly omits how the Sherman Act can help police the ISP market without the need for heavy handed regulation by the FCC. To the extent an ISP has market power and tries to keep competing companies out of the market, the essential facilities doctrine would likely apply. To the extent that there is an oligopoly of price fixing ISPs, then there will be claims under Section 1 of the Act. If an ISP tries to obtain too much market power through a merger, the government can oppose it. The problem with too much regulation by the FCC is that it discourages technological innovation by ISPs who compete for customers by providing better service at a lower price. If the FCC requires such companies to take a one size fits all approach to every customer, competitive innovation will likely suffer. So, too, will consumers seeking faster rides through the Central Park that is the Internet.