“Hot News” Has Gone Cold

| June 29, 2011

Anyone distributing news online can rest easier tonight. The Second Circuit held last week that Flyonthewall.com (“Fly”) is not guilty of “hot news” misappropriation for reporting leaked stock recommendations—finding the claim preempted by the Copyright Act. Barclays Capital Inc. v. Theflyonthewall.com Inc., No. 10-1372-cv (2nd Cir. June 20, 2011).

The Court based its decision on a lack of “free-riding,” which was missing in large part because Fly attributed the recommendations to their sources and expended a substantial amount of its own resources in gathering and reporting the fact-based financial recommendations.

The Second Circuit appears to “get it”–that “hot news” has very little place in today’s digital age, setting precedent that makes it exponentially more difficult to bring such a claim in the future. This is a step in the right direction. Anyone nowadays can re-distribute news and information in nanoseconds with an Internet connection or cell phone. The realities of the Internet turn “hot news” cold within seconds of publication–twitter explodes with tweets, bloggers take to their keyboards, and content is shared with millions via countless social media platforms.

Practical Implications:
What situations may still constitute “hot news” misappropriation? Trade secrets of direct competitors come to mind. Assuming preemption can be overcome (discussed below), two additional factors become crucial–(1) direct competition and (2)  free-riding that “would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.” While the Second Circuit did not base it’s decision on these factors, it did discuss their application in a strict and narrow sense, showing that if another “hot news” case came before it, meeting these factors would be a difficult task.  The Second Circuit’s explanations are likely to be persuasive analysis for any court hearing a “hot news” case.

Trade secrets are typically most valuable to direct competitors and if revealed are most likely to threaten the existence or quality of the product or service. Breaking such news without attribution to it’s source (free-riding, for “preemption” purposes) has a chance of overcoming preemption and creating liability for “hot news” misappropriation.

For the majority of people distributing news online. Most can rest easier, knowing that breaking news is not likely to result in “hot news” misappropriation liability. Attributing the news to it’s source makes “free-riding” less likely; many individuals/entities distributing news online are not in direct competition with the source of the news; and the likelihood of breaking news that would substantially threaten its existence or quality is slim.

But be aware–even if a “hot news” claim fails, a copyright infringement claim may be possible.

The Decision:
The decision came on appeal from the District Court ruling, which found “hot news” misappropriation and barred Fly from reporting stock recommendations of Barclays Capital, Merrill Lynch, and Morgan Stanley (the “Firms”) until 10 a.m. E.S.T for those issued when the market is closed and wait two hours before publishing recommendations issued while the market is open.

Much of the discussion on appeal centered on the interpretation of prior cases—namely NBA v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997) and Int’l News Serv. v. Associated Press, 248 U.S. 215 (1918), with the latter representing the origin of the “hot news” doctrine, and the former a well known Second Circuit “hot news” precedent.

In NBA, the court set out three multi-factor tests, which the Second Circuit in Fly found to be inconsistent. The Second Circuit determined that the District Court applied the wrong test from NBA and noted that while the “law” from NBA regarding “hot news” misappropriation is binding upon it, the various “explanations” for the tests in NBA are not determinative–finding much to be merely dicta. In determining whether a “hot news” claim survives preemption from copyright law, the Second Circuit (quoting NBA) said the proper test is:

(i) the time-sensitive value of factual information,
(ii) the free-riding by a defendant, and
(iii) the threat to the very existence of the product or service provided by the plaintiff.

To survive preemption, all three factors must be met. Focusing on the second factor, the Second Circuit found the Firms claim failed because Fly was not engaged in “free-riding.”

In NBA, the court said: “An indispensable element of a [non-preempted] INS ‘hot-news’ claim is free-riding by a defendant on a plaintiff’s product, enabling the defendant to produce a directly competitive product for less money because it has lower costs.” NBA, 105 F.3d at 854. Fly, however, dedicated substantial resources to collecting the data, using its own network and roughly half of its employees to assemble and transmit the data—which the court deemed similar to the SportsTrax service (held to not be a free-riding product) in NBA because both were bearing their own costs in collecting the factual information.

In her Concurrence, Judge Raggi said by distinguishing between those who make the news and those who break it, we “foreclose the possibility of a ‘hot news’ claim by a party who disseminates news it happens to create.” The Court responded by noting that issue was not before it, and would not speculate whether or not such a claim would be foreclosed.

Further, INS defined “hot news” to be, in part, “taking material . . . salable by complainant for money, and . . . appropriating it and selling it as [the defendant’s] own . . . .” INS, 248 U.S. at 239. Fly was distributing factual financial information and attributing that information to its source—it was not selling the recommendations “as its own” as contemplated by INS.

With “free-riding” lacking, the extra elements necessary to overcome preemption by copyright were absent. The Second Circuit reversed the District Court’s finding of “hot news” misappropriation, saying “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.” Barclays, No. 10-1372-cv at 71.

.XXX gTLD News Bulletin

| April 13, 2011

On March 18, 2011, ICANN approved ICM Registry’s .XXX top-level domain (TLD).  To hedge against an obvious public relations nightmare (think http://www.[yourbrand].xxx) and future infringement, you can take preventative action through ICM Registry’s Sunrise Period.

Sunrise B (applicable to those with registered trademarks) gives intellectual property owners a window to submit their trademarked terms and, if approved, create an indefinite reservation or blocking of the term. A one-time fee is planned to cover the submission, processing and validation of the relevant right.

When does the Sunrise Period start? ICM anticipates the Sunrise Period will begin 60-90 days from the date the contract is signed between ICM and ICANN, and is scheduled to last no longer than 30 days. This means that the Sunrise Period could begin as early as the second quarter of 2011. To view more information about the Sunrise Period, visit icmregistry.com/about/sunrise.php and icmregistry.com/Sunrise/ICM.html.

What can be done NOW? ICM Registry is currently accepting defensive registration “wish lists” from intellectual property owners. Submitting your wish list of domain names is fairly simple, and can be done by registering at domains.icmregistry.com/reserve.html. However, actual Sunrise applications will need to be submitted through an ICANN accredited registrar when Sunrise B opens.

Sequel encourages you to take advantage of “wish lists” and Sunrise Period B. If you require assistance in either process, please do not hesitate to contact us.

Keyword-triggering Ads Infringing?

| April 4, 2011

Could purchasing a trademark as a keyword cost you nearly $300,000? (See below)

The basics of keyword-triggered ads

Businesses can purchase keyword-triggered advertisements through online ad networks, such as Google, well known for its AdSense program. Through AdSense, purchasing a keyword results in your ad being shown when a user searches for that keyword. The ad may appear in Google’s search results, usually set apart from the “organic” (unpaid, generated by complex algorithms) results and/or on third-party web sites that allow Google to the place ads in return for a commission when someone clicks an ad.

What is the big deal? Potential infringement!

There is still substantial uncertainty over the legality of this practice. Courts are not in complete consensus as to whether purchasing another’s trademark as a keyword is likely to cause consumer confusion (the standard for trademark infringement). Cases brought against those purchasing trademarks as keywords show that courts are willing to find a likelihood of confusion (and infringement). But as explained below, the ad networks selling trademarked keywords have generally prevailed in court.

Many ad networks allow trademark term purchase

Google considers trademarks fair game, even allowing resellers, review sites, and sellers of compatible/complementary/replacement products to include trademarks in ad text. While Google has yet to lose a case brought against it on selling keywords, it’s recent victory in Rosetta Stone Ltd. v. Google Inc. is being appealed to the Fourth Circuit, along with filings from over 30 amici.

Is this likely to confuse you? An example.

Are consumers likely to be confused as to source, sponsorship, affiliation or endorsement when coming across trademark-keyword triggered ads? While likelihood of confusion may be a fact specific inquiry, a sample test is demonstrated below.

When searching Google for “huggies” (diapers) you may expect to get search results for “huggies” in particular. If another company turns up as a sponsored result, would you question whether it is related to, sponsored by or affiliated with HUGGIES?

Click the image below to view the Google search for “huggies” (including annotations).
In the example, 2011 Cute Kid Contest is a sponsored result—does this leave you wondering if Huggies has some relationship to the Cute Kid Contest? Maybe Huggies runs or sponsors the contest? This example gives you an idea of how to test confusion on an individual level. However, the test for infringement only requires a “likelihood” of confusion among consumers in general–actual confusion is not necessarily required. On the other hand, even “actual” confusion by a small group does not automatically result in infringement.
Case law

In Hearts on Fire Company LLC v. Blue Nile Inc., the defendant was accused of using plaintiff’s “Hearts on Fire” mark to trigger its sponsored ad. The defendant (a diamond retailer) and plaintiff (a diamond wholesaler) sold similar products, but the defendant was not an authorized dealer of plaintiff’s “Hearts on Fire” diamonds. The court denied the defendant’s motion to dismiss, noting that the two companies were not plain or obvious competitors—which may have made confusion less likely.

The court analogized buying keywords to placing generic products next to brand name products on store shelves, where consumers are given choices among competing products, but are not confused. However, the court was careful to note that online advertisers may attempt to blur the “competitor” distinction in order to capitalize on consumer confusion.

It was also enough that the trademark was being used as a keyword, even though the resulting advertisement did not include the trademark in the text.

Binder and Binder recently received a whopping $292,000 judgment in its favor against the Disability Group, who was using “Binder & Binder” to trigger its own ads in Google’s AdWords program. The court found that the Disability Group’s entire advertising campaign and intentional selection of the “Binder & Binder” mark supported willful infringement and awarded enhanced damages to reach the $292,000 figure.

Finally, in Rosetta Stone (mentioned above), unredacted court documents show that in 2004 Google was aware that use of trademarks in sponsored link text resulted in a high degree of consumer confusion, even confusing Google’s own trademark counsel. Whether such revelations are still relevant with the evolution of the Internet and search engines since 2004 is a matter of debate, but they should not be ignored.

What can you do?

As a keyword purchaser:

  • Proceed with caution
  • Hearts on Fire and Binder and Binder show that there is real risk in purchasing trademarks as keywords

As a trademark owner:

  • Monitor ad networks and search engines to see who may be using your mark as an ad triggering mechanism and/or in the text of an ad
  • Some case law, e.g., Hearts on Fire and Binder and Binder, may provide support for an infringement claim
  • Carefully watch the appeal to the Fourth Circuit in Rosetta Stone, especially considering the revelation of the unredacted documents on likelihood of confusion