## Facts

- Several financial firms produced and distributed equity research reports containing time-sensitive buy/hold/sell recommendations, typically released to clients before market open.
- The firms’ business model depended in part on short-lived exclusivity of these recommendations to induce commission-generating trades.
- Theflyonthewall.com, an online subscription news service, obtained the firms’ recommendations from third-party sources and quickly disseminated short items reporting the recommendations, often before the firms distributed them to their own clients.
- After a bench trial, the district court found multiple instances of copyright infringement of research reports and also held Fly liable under New York “hot news” misappropriation for disseminating the firms’ recommendations.
- The district court entered an injunction restricting the timing and manner of Fly’s republication of the recommendations.
- Fly appealed the hot-news ruling and injunction, arguing the state-law claim was preempted by the Copyright Act.

## Issues

1. Whether the New York “hot news” misappropriation claim fell within the Copyright Act’s subject matter and the “general scope” of exclusive rights, making it preempted under 17 U.S.C. § 301.
2. Whether Fly’s conduct fit within the narrow, non-preempted “INS-type” hot-news claim recognized in the Second Circuit under NBA v. Motorola.

## Decision

- The Second Circuit reversed the judgment as to the hot-news misappropriation claim and the related injunction.
- The court held the hot-news claim was preempted by federal copyright law because it targeted conduct equivalent to copyright’s reproduction and distribution rights as applied to works within the Act’s subject matter.
- The court concluded the firms failed to establish the narrow INS/NBA exception to preemption.

## Legal Principles

- Under 17 U.S.C. § 301, a state-law claim is preempted when (1) it concerns works within the Copyright Act’s subject matter and (2) it asserts rights equivalent to the exclusive rights in 17 U.S.C. § 106.
- An INS/NBA-type hot-news claim survives preemption only in a narrow category of cases involving, among other elements: costly generation of time-sensitive information, free-riding, direct competition, and a threatened impairment of the plaintiff’s incentive to produce the product or service.
- Reporting time-sensitive factual information derived from copyrighted works, without appropriating protected expression, generally falls within copyright’s preemptive scope when the state claim effectively seeks control over copying or dissemination.
- Attribution to the original source and independent effort to gather and publish information weigh against characterizing the defendant’s conduct as INS-type free-riding.

## Conclusion

The Second Circuit held that the firms’ attempt to use New York hot-news misappropriation to restrict rapid publication of their stock recommendations was preempted by the Copyright Act, limiting hot-news liability to the narrow INS/NBA category and vacating the state-law-based injunction.


Barclays Cap. Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876 (2d Cir. 2011)