Case against Bloomberg a rare one under ‘hot news’ doctrine

This month began with a rare sighting: a claim for misappropriation under the “hot news” doctrine. It appeared in a lawsuit filed in a DC federal court by Capitol Forum, a subscription service that produces policy reports, against Bloomberg. According to the complaint, Capitol Forum’s reports provide time-sensitive analysis to subscribers about various policy matters, such as consumer protection and antitrust enforcement. The reports are researched and reflect significant investments of resources, Capitol Forum says, and subscribers rely on them to make business decisions.

Enter Bloomberg. “Within minutes” of releasing a report, the complaint says, “Bloomberg will surreptitiously obtain the report” from a Capitol Forum subscriber and “republish a summary of that report on its own…subscription service, usually including direct quotations.” Capitol Forum, which to an extent competes with Bloomberg for the same customer base, says the summaries amount to “free riding” and claims they have weakened the value of the reports and driven away subscribers.

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The lawsuit alleges two types of copyright infringement and tortious interference with contractual relationships. It also claims misappropriation under the “hot news” doctrine, for which Capitol Forum has asked the court to order Bloomberg not to use its reports, or to publish content derived from them, in violation of Capitol Forum’s rights.

“Hot news” is sufficiently rare that it deserves our full attention here. The US Supreme Court first recognized the claim in the 1918 case International News Service v. Associated Press. During World War I, INS employees on the east coast obtained AP dispatches before they were published and sent them to the west coast, where they were distributed on the INS wire—sometimes rewritten, sometimes not.

In its ruling, the Court observed that “news of current events may be regarded as common property,” but expressed concern about taking the benefits of someone else’s investments and efforts:

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That business consists in maintaining a prompt, sure, steady, and reliable service designed to place the daily events of the world at the breakfast table of the millions at a price that, while of trifling moment to each reader, is sufficient in the aggregate to afford compensation for the cost of gathering and distributing it, with the added profit so necessary as an incentive to effective action in the commercial world.

The AP had a quasi-property right in its dispatches, the Court went on, enforceable for a short time—at least until the AP and its member papers could reap the “commercial value” of their work. This meant the AP could prevent INS from taking its dispatches until the AP (and its members) reaped the value. To allow INS to continue what it was doing, the Court held, would “render publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return.”

The INS opinion itself is no longer good law; it was decided under federal common law, which was largely abandoned in 1938. But the doctrine lives on under state law. Generally, courts have been reluctant to use it as a basis of relief, and its requirements vary from one jurisdiction to the next (where it’s recognized at all).

Some jurisdictions require the plaintiff to prove that:

(1) s/he generates or gathers information at a cost;

(2) the information is time-sensitive;

(3) the defendant’s use of it constitutes free-riding;

(4) the defendant is in direct competition with the plaintiff in a product or service; and

(5) the ability of others to free ride on the plaintiff would so reduce the incentive to produce the product or service that its existence/quality would be greatly threatened.

Capitol Forum makes that case in its complaint. Teddy Downey, the organization’s CEO and executive editor, tells CJR, “We work hard to develop our sources and analyses, and Bloomberg is free-riding off that hard work.”

Other jurisdictions don’t follow the five-part test. Instead, they focus on whether the facts of a given case are similar to those of the INS case and involve “free-riding,” defined as “taking material that has been acquired…as the result of organization and the expenditure of labor, skill, and money, and which is salable…for money, and appropriating it and selling it as [one’s] own.”

In 2011, for example, the Second Circuit rejected a misappropriation claim filed by Barclays, Merrill Lynch, and Morgan Stanley against a financial news site called Theflyonthewall.com. It reported on stock recommendations from those firms, which argued that the recommendations were “hot news” and that Fly was free-riding on their work.

Although the trial court agreed and ordered Fly to delay its reporting for several hours after the firms released their recommendations, the Second Circuit reversed the decision. It held that Fly was not free-riding because it was reporting on factual information and attributing it to the source. Fly was not trying to pass off the recommendations as its own. As the court put it, “The firms are making the news; Fly … is breaking it.”

It’s worth noting that the “hot news” doctrine has not yet faced rigorous judicial scrutiny under the First Amendment. “That seems especially necessary now, when the Internet is increasingly allowing Americans to publicly gather, share, and comment on the news of the day,” according to the Electronic Frontier Foundation. “Misuse of the ‘hot news’ doctrine could stifle this extraordinary growth of free expression.”

That may be part of Bloomberg’s defense. John Micklethwait, Bloomberg’s editor-in-chief, tells CJR in a statement, “This case challenges routine newsgathering practices protected under the First Amendment, and Bloomberg will vigorously defend journalists’ right to gather and report the news.”

Whatever happens in the Capitol Forum-Bloomberg case, the “hot news” doctrine is likely to have increasingly significant implications in our era of big data. Tori Ekstrand, a media law professor at the University of North Carolina and the author of two books on the doctrine, tells CJR that it probably isn’t going away and that we’re moving from hot news to hot data.

“We instinctively and legally understand that there is some value in the work attached to collecting and reporting facts, particularly hot facts and…the kind of hot data that drives financial markets,” Ekstrand says. “The labor we reward here is not just in the individual’s or company’s labor as much as it is in the unfair business atmosphere that the reaping creates. A lot of people think the doctrine is a joke, but I see its principles at the very core of some of the struggles we’re having with platforms.”

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Jonathan Peters is CJR’s press freedom correspondent. He is a media law professor at the University of Georgia, with posts in the Grady College of Journalism and Mass Communication and the School of Law. Peters has blogged on free expression for the Harvard Law & Policy Review, and he has written for Esquire, The Atlantic, Sports Illustrated, Slate, The Nation, Wired, and PBS. Follow him on Twitter @jonathanwpeters.