May 27, 2010

Clark Rector Jr., Executive Vice President – Government Affairs
Dunn Anderson-Sweet, Federation Intern

• Senate Names Financial Reform Conferees
• Privacy Bill Criticized
• Update of Communications Act on Horizon?
• FCC Approves Verizon – Frontier Deal
• FCC Publishes Report on US Wireless Industry
• DC Imposes Sweet Drink Tax
• Google's AdMob Bid Approved
• The Hot News on the Hot News Doctrine

Senate Names Financial Reform Conferees

Senate conferees for the Financial Reform legislation have been named. They are Senator Chris Dodd, D-Conn, Senator Tim Johnson, D-S.D., Senator Jack Reed, D-R.I., Senator Charles Schumer, D-N.Y., Senator Blanche Lincoln, D-Ark., Senator Patrick Leahy, D-Vt., Senator Tom Harkin, D-Iowa, Senator Richard Shelby, R-Ala., Senator Michael Crapo, R-Idaho, Senator Bob Corker, R-Tenn., Senator Judd Gregg, R-N.H. and Senator Saxby Chambliss, R-Ga. House conferees are not expected to be named until after the Congressional Memorial Day recess.

The House version of the legislation contains troublesome language expanding the rulemaking authority of the Federal Trade Commission, while the Senate bill does not. AAF has sent an alert to members asking them to contact their Representatives in the U.S. House and urge them to support removing the language from the final bill sent to the President.
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Privacy Bill Criticized

The Consumers Union has expressed its displeasure with the draft privacy legislation proposed by House Energy and Commerce Communications Subcommittee Chairman Rick Boucher, D-Va. earlier this month. In a letter to the chairman, the Consumers Union opposed an opt-out model stating, "there are certain features of the proposal that cause us concern . . . first and foremost, the bill appears to exclusively rely on the notice and choice model, which has been shown to be particularly ineffective in protecting consumer privacy online".
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Update of Communications Act on Horizon?

Top Congressional Committee leaders announced that, 14 years after its last revision, they will attempt to make major changes to the Communications Act of 1934. House Energy and Commerce Communications Subcommittee Chairman, Rick Boucher, D-Va., has said, "The Internet is now the focal point of communications of all kind….The law needs to be modernized to keep pace with that." This announcement comes in response to the Federal Communications Commission's push to reclassify the Internet from a lightly regulated "information service" to a more highly regulated "communications service."
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FCC Approves Verizon – Frontier Deal

The FCC has approved a plan for Verizon to sell rural wireline assets in 14 states to Frontier Communications. The Commission put a number of restrictions on the deal in an attempt to provide security for consumers and smaller competitors. Each of the states that will be affected by the sale has placed its own conditions on the deal. For example, West Virginia is requiring Frontier to re-invest $279 million into the state over the next three years. The deal places Frontier Communications in the nation's top five local exchange carriers.
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FCC Publishes Report on US Wireless Industry

The FCC has finalized an investigation begun last August, with the conclusion that the U.S. wireless industry does not have "effective competition". This is the first time since 2002 that the Commission has cited a lack of effective competition in the wireless market. FCC Chairman Julius Genachowski said the finding does not mean the Commission will take any action. According to the report "The lack of [effective competition] could set the stage for U.S. regulators to impose policies and regulations to increase competition for consumers who are demanding more data plans on their mobile handsets to surf the internet and watch videos".
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DC Imposes Sweet Drink Tax

DC Lawmakers have passed legislation that will place sodas, sports drinks and other sweetened non-alcoholic beverages under the city's six percent sales tax. The revenue generated will be put toward physical education programs and increasing the quality of food served at city schools. Many DC retailers and beverage suppliers have expressed their displeasure with the new law.
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Google's AdMob Bid Approved

The Federal Trade Commission has suspended an investigation of Google's offer to purchase mobile ad network, AdMob after Apple's recent purchase of Quattro Wireless. The FTC released a statement stating, "The agency's concerns ultimately were overshadowed by recent developments in the market, most notably a move by Apple Computer Inc. to launch its own, competing mobile ad network".
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The Hot News on the Hot News Doctrine
By Kevin T. Shook

The consumer thirst for hot news is insatiable—and the Internet is a fire hose of sweet, sweet nectar. The traditional news media now spend much of their dollars publishing stories for free on the Internet. To their dismay, they compete for advertising dollars with a growing army of "news aggregators," who copy, organize and distribute news created by others. Along this battle field, a century old common law tort doctrine called "hot news misappropriation" has resurfaced. A case pending before the Second Circuit, Barclays Capital Inc. v. Theflyonthewall.com, will be an important battle in the war ahead.

What Is The Hot News Doctrine?

Traditional copyright law offers very little assistance to media sources who want to prevent bloggers and other aggregators from hijacking their hard-earned scoop and taking their advertisers along with them. This is because facts are not entitled to copyright protection. A journalist might uncover facts through an investigation, but that does not make the journalist the owner of those facts. The journalist only owns her story—her specific expression and arrangement of facts.

But what happens when the facts are the whole story? The score of the basketball game. A company's stock price. Aggregators across the Internet are compiling this kind of pure factual information and republishing it as their own. Some aggregators are wildly popular and garner significant advertising dollars. For protection against the pilfering of factual information, some are dusting off the "hot news misappropriation" doctrine.

This "hot news doctrine" dates back to a 1918 U.S. Supreme Court case, titled International News Service v. Associated Press. According to that case, while the general public was entitled to repeat the news, competing news services did not enjoy the same right. The doctrine has been adopted in a number of states and generally imposes liability where: (1) the plaintiff generates or gathers information at a cost, (2) the information is time-sensitive, (3) the defendant's use of the information constitutes "free riding" on the efforts of the plaintiff, (4) the defendant is in direct competition with a product or service offered by the plaintiff, and (5) the ability of other parties to free-ride on the plaintiff's efforts would reduce the incentive to produce the information product or service. National Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997) ("NBA").

The Current Battleground: Theflyonthewall.com

The doctrine most recently made a splash in New York district court. Barclays Capital Inc. v. Theflyonthewall.com. The plaintiffs distributed stock analysis to their clients for a fee. The value of the information was based upon the plaintiffs' ability to get the information to its clients before it reached the general public. Meanwhile, the defendant, Theflyonthewall.com, devoted its efforts to obtaining and aggregating this information and getting it to the general public as quickly as possible. The plaintiffs sued, asserted a claim under the hot news doctrine.

The district court found that Theflyonthewall.com was liable under the hot news doctrine. The court issued a unique injunction, preventing the defendant from disseminating plaintiffs' analyses until 10 a.m. or half an hour after the market opens (whichever is later). The court reasoned that "free-riding exists where a defendant invests little in order to profit from information generated or collected by the plaintiff at great cost. . . ."

But it was not all good news for the plaintiffs. The district court found that Theflyonthewall.com had many competitors who were also reporting the same information and it would be unfair to restrain only Theflyonthewall.com. Thus, the court found that Theflyonthewall.com could have the injunction modified if the plaintiffs did not take "reasonable steps to restrain the . . . misappropriation" including for example, "the initiation of litigation against any parties with whom negotiation proves unsuccessful." So, the court seemed to impose a duty on the plaintiffs to sue everyone who was doing the same thing, or risk losing.

Just days ago, the Second Circuit Court of Appeals agreed to stay the district court's injunction without explanation. The parties have not yet submitted their appeal briefs in that case and the oral arguments lie ahead. However, the fact that the Second Circuit at least temporarily disposed of the injunction suggests that they may have some concerns over the district court's decision. Maybe the Second Circuit is concerned with violating First Amendment rights and, thus, disagrees with the application of the hot news doctrine altogether. Or maybe it doesn't like the district court's invitation/requirement to file a boat-load more lawsuits raising similar claims.

Whatever the Second Circuit decides, lawyers and legislators will be watching. The FTC recently issued a "discussion draft" of potential policy recommendations "to support the reinvention of journalism." The draft included discussion of the merits of a federal hot news statute. The media and advertising industry should keep an eye out too. Advertising dollars will follow the consumer, but the law related to hot news may play an important role where the consumer ultimately goes.

Barclays Capital Inc. v. Theflyonthewall.com, Inc., 10-1372-cv (2d Cir. May 19, 2010).
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AAF Government Report will not publish June 4 or June 11 due to the Congressional recess and AAF National Conference. The next issue will be June 18.

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