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Wednesday, June 22nd, 2011
A recent federal appellate court decision will impact the struggle between those who produce online content and those who aggregate or repackage that content. Unless and until Congress intervenes, the aggregators and repackagers are in a dominant position.
This case concerned a financial news aggregation service called TheFlyOnTheWall.com. Fly’s business is to obtain the just-released stock buy-sell recommendations issued by financial firms and to sell subscriptions to its summary of those recommendations. For example, Fly found a way of getting Merrill Lynch’s recommendations and included them in its subscription.
A financial firm spends a lot of money to produce stock analysis. It distributes that analysis to select firms and individuals hoping they will buy or sell stocks through that financial firm. If the firm discerns that you’re making your trades elsewhere, you may get dropped off the distribution list. Thus, such firms use stock buy-sell recommendations to earn commissions.
Fly disrupted that business model by republishing the firm’s recommendations as soon as they come out, which is when they are most valuable. The financial firms contended that Fly was stealing the value of their analysis.
This struggle is similar to others occurring online between creators and aggregators of information. For example, many newspapers complain about their online news articles being unfairly used by news aggregation websites. Newspaper websites prefer that you reach their articles by navigating down through their website so you will see more online ad impressions. Also, a snippet posted on a aggregator website might make reading the news article seem unnecessary.
The copyright law poses a problem for content creators. While it protects works such as stock analysis and news stories, it gives protection only to the particular way those stories are written. Copyright law does not protect the ideas and facts contained in those stories.
Generally speaking, you can reproduce facts and ideas expressed in someone else’s copyrighted article without permission and without being a copyright infringer, provided you reword the article. On top of that, copyright law prohibits state laws from giving copyright-like protection against reproduction of those ideas and facts. In legal-speak, this is “copyright preemption.”
Several decades ago, a narrow exception to copyright preemption began to develop – the “hot-news exception.” The idea is that some news has high value and a short shelf life, so the party that expends effort to gather and report that information should be protected from others who would quickly republish the ideas and facts in the original article.
Creators of online content have tried to fit within that exception so they can stop others from free riding off of their content. Those efforts generally have failed. The result in the Fly case appears to make such efforts futile.
Because, in the Fly case, the hot-news exception had been previously recognized by the same appellate court, the judges didn’t have power to eliminate the exception. Yet, the court said it was conceptually nearly impossible to square the exception with the clear rule in copyright law that facts and ideas can be reproduced (if they are paraphrased) without permission and with impunity. Consequently, the court construed the hot-news exception so narrowly that it will be nearly impossible to meet.
As long as this decision stands, content creators will have to find other means to protect the value of their content. They can try various technological devices, such as pay walls and online subscription contracts. But the aggregators always find counter-measures.
Congress could give online content creators some protection for the value of their reporting, but that probably won’t happen. Congress doesn’t tend to address intellectual property issues unless a consensus is reached by all stakeholders.
There are economically powerful forces in the aggregator camp. Those forces argue that the First Amendment to our Constitution and long-standing copyright law protect their actions. Thus, creators will have to find a way to adapt in our electronically free-flowing society.
By John B. Farmer
Published in the Richmond Times-Dispatch
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