Barclays Capital Inc. v., Inc.

650 F.3d 876 (2011)

Quick Summary

Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and Morgan Stanley & Co. Inc. (plaintiffs) sued, Inc. (defendant) for distributing their stock recommendations without authorization. The dispute centered on whether these actions constituted ‘hot news’ misappropriation and if such a claim was preempted by federal copyright law.

The United States Court of Appeals for the Second Circuit concluded that the plaintiffs’ ‘hot news’ misappropriation claim was indeed preempted by copyright law because Fly’s aggregation and distribution of factual information did not amount to free-riding on the plaintiffs’ proprietary efforts.

Facts of the Case

Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and Morgan Stanley & Co. Inc. (plaintiffs) are large financial institutions that provide a variety of financial services, including securities brokerage.

They engage in extensive research on publicly traded companies and industries, summarizing their findings in reports that contain investment recommendations for securities. These recommendations are a key part of the Firms’ service, as they encourage brokerage clients to execute trades based on the advice, generating commission profits for the Firms., Inc. (Fly) (defendant) is a news aggregator service that provides subscribers with financial news, including the Firms’ trading recommendations, often before the Firms have released them to their own clients.

The Firms sued Fly claiming misappropriation of their recommendations, characterizing them as ‘hot news,’ and stating that Fly’s actions could damage their business model by reducing incentive to create such reports.

Procedural Posture and History

  1. Barclays Capital Inc. and other banks (plaintiffs) provided research and reporting services and claimed that (defendant) misappropriated their investment recommendations.
  2. The plaintiffs prevailed at trial, and the court entered an injunction against the defendant.
  3. The defendant appealed the decision, arguing that the federal Copyright Act preempted the banks’ misappropriation claim.

I.R.A.C. Format


Whether the federal Copyright Act preempts the banks’ misappropriation claim against for distributing their stock recommendations as ‘hot news.’

Rule of Law

Based on the Copyright Act’s preemption provision, which aims to prevent state laws from infringing on the exclusive rights granted by federal copyright law. The court applies this rule to determine whether the plaintiffs’ state law claims for ‘hot news’ misappropriation are equivalent to rights protected under copyright and thus preempted.

Reasoning and Analysis

The court examined whether the plaintiffs’ ‘hot news’ misappropriation claim was equivalent to rights within the general scope of copyright under federal law. The court determined that while the plaintiffs’ reports containing recommendations were protected by copyright law, the factual information of the recommendations themselves was not copyrightable.

However, since the reports as a whole fell within the subject matter of copyright, any state law claim seeking to protect this information was preempted by federal copyright law.

The court also found that Fly was not ‘free-riding’ on the plaintiffs’ efforts but was instead gathering, collating, and disseminating factual information with proper attribution, which does not constitute a ‘hot news’ misappropriation under New York law.


The court reversed the judgment of the district court, holding that the plaintiffs’ claim for ‘hot news’ misappropriation is preempted by federal copyright law.

Key Takeaways

  1. The ‘hot news’ misappropriation claim is limited to circumstances where there is actual free-riding on a plaintiff’s product that threatens the existence or quality of that product.
  2. The court concluded that distributing factual information with proper attribution does not constitute ‘hot news’ misappropriation under New York law when such distribution involves independent effort and is not free-riding.
  3. The case reaffirms the broad preemptive scope of federal copyright law over state laws that seek to protect equivalent rights within the general scope of copyright.

Relevant FAQs of this case

What factors determine whether information can be subject to a 'hot news' misappropriation claim?

‘Hot news’ misappropriation requires the plaintiff to show the information is time-sensitive, fact-based content that confers a competitive advantage, the defendant’s use of the information constitutes free-riding, and it threatens the plaintiff’s investment in gathering the information.

  • For example: A company exclusively acquires and publishes breaking news about a major corporate merger that required significant effort to obtain. If another entity redistributes this news without attribution and within the time frame where it holds its value, thus undermining the newsgathering company’s competitive position, it could be considered ‘hot news’ misappropriation.

How does copyright law distinguish between protectable creative expression and unprotectable facts?

Copyright law protects original works of authorship, including expression through words, images, and music but does not extend to mere facts or ideas. The protectable element is the form or manner in which facts are expressed or compiled in a recognizable and unique way as opposed to the facts themselves.

  • For example: An author writes a novel using historical events. The copyright protects the narrative, characters, and dialogue created by the author, not the historical facts depicted in the story.

Under what circumstances does federal preemption apply to state intellectual property laws?

Federal preemption applies when a state law conflicts with federal law or when the scope of the state law encroaches upon exclusive rights established by federal legislation, such as copyright, patents, or trademarks. The preemptive effect ensures consistent national standards for intellectual property protection.

  • For example: A state cannot enforce its own unique duration for copyright protection that extends beyond the lifespan set by federal statute. Doing so would conflict with federal objectives and impose disparate standards across states.


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