The Associated Press recently sued Meltwater alleging in its complaint that “[Meltwater] has built its business on the willful exploitation and copying of the AP’s and other publishers’ news articles for profit.” AP asserts copyright infringement claims as well as a common law hot news misappropriation claim under N.Y. law. AP notes that it has to expend significant resources to create its news content. It complains that Meltwater free-rides on its efforts by misappropriating AP’s news and information which Meltwater can then sell for minimal cost via the Internet. It characterizes Meltwater’s actions as a “parasitic” service whose free-riding could make it cost-prohibitive for AP to profitably compete; and, therefore, AP’s economic incentive to continue its business could be significantly threatened.
AP’s common law misappropriation claim has its origins in a remarkably similar suit AP brought against a competing news service almost a century ago. In INS v. AP the Supreme Court, in 1918, enjoined INS, a competing news service, from free-riding on the work product of AP. The misappropriation action was based on INS re-distributing information to its customers which AP had previously released into the public domain. INS was enjoined from using the information for a limited time period while it was hot news (i.e. while it had commercial value as news). The Supreme Court’s decision was based on two rationales: (1) preventing unacceptable conduct in the form of a commercial enterprise free-riding on the investment of time and money by a competitor; and (2) avoiding the resulting ruinous competition that could result from a commercial enterprise free-riding on the efforts of a competitor.
Although misappropriation has typically been an unsuccessful cause of action at the appellate level it has prevailed in some instances at the trial level. For example, in the recent case of Barclays Capital v. TheFlyonthewall.com an Internet news service aggregated and distributed information to subscribers. The information was gleaned, in part, from equity research reports created and distributed by major financial institutions. The U.S. District Court found that the recommendations in the equity reports were expensive to create, highly time sensitive and outside the domain of copyright law. Therefore, the District Court enjoined the news service from using the information for a limited period of time under a misappropriation theory. The Second Circuit, on appeal, reversed the District Court but held that misappropriation actions continue to exist under appropriate facts. Other judicial decisions have likewise concluded that misappropriation actions continue to be available.
Misappropriation actions should be eliminated by courts. Such actions are too often attempts to interfere with the Darwinian nature of the marketplace where technological change and other societal disrupters alter the business landscape. For example, the difficulties faced by traditional media – newspapers, television, publishing – are largely due to changes in technology rather than misappropriation based on free riding. The music industry attempted to use lawsuits to preserve the status quo. Nevertheless, despite such efforts music moved from physical media – CDs – to an online digital format which is downloaded to a computer, iPod, iPhone or other similar devices. Throughout history technologic change has always affected business enterprises. Sometimes existing industries were able to morph into different types of enterprises. Sometimes such industries have simply disappeared and were replaced by new industries that took advantage of new technology.
I am not suggesting a wild-west anything-goes marketplace. Existing legal restraints on competition provide a long-established framework for what marketplace behavior is and is not permissible. That framework which is based on unfair competition and intellectual property law (i.e. patent, copyright, trademark and trade secrets law) provides a well-developed (although not perfect) balance between permissible and impermissible conduct. Insertion of a common law misappropriation action upsets this balance which has evolved over a long period of time.
For a more detailed discussion of the common law misappropriation doctrine see Beckerman-Rodau, Ideas and the Public Domain: Revisiting INS v. AP in the Internet Age, 1 NYU Journal of Intellectual Property & Entertainment Law 1 (2011).