Express advance challenges long-established lawful doctrines as well as business models.
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For the history century, the imperial power of the law seemed unstoppable, as legislation and litigation reached into every area of life. But now the law has met its match. Technology raises issues so quickly and unpredictably that judges are reduced to King Canutes, trying to stop the flow of ocean tides with their bare hands.
Believe two similar cases based on fast changes in technology occurring a century apart. Both dealt with "hot news," a legal doctrine that determines who owns news for how long. Long dormant, the issue has heated up as services such as Google and aggregators such as Huffington Post drew large audiences through summaries of original reporting by news organizations.
These cases were hard calls for judges in 1918 and again in the case decided last week. Here are the facts in the earlier case, International News Service v. Associated Press:
The International News Service was founded by William Randolph Hearst as an alternative to the Associated Press. Like his newspapers, INS opposed America's entry into World War I. British military censors tired of its exaggerated reporting (one headline read, "Zeppelins Set London Ablaze!") and banned Hearst's newswire from using the undersea cable that linked to telegraphs in the U.S. that delivered reports to newspapers.
Hearst's newswire responded by copying AP stories, sometimes obtained by bribing AP employees, and sending the reports to its member newspapers as its own. "The distribution of news matter throughout the country is principally from east to west," Supreme Court Justice Mahlon Pitney observed, "and, since in speed the telegraph and telephone easily outstrip the rotation of the earth, it is a simple matter for defendant to take complainant's news from bulletins or early editions of complainant's members in the eastern cities and, at the mere cost of telegraphic transmission, cause it to be published in western papers issued at least as early as those served by complainant."
The news itself, as opposed to the words in which it is written, is not subject to copyright. But the court found that INS had misappropriated a "quasi-property right" by "endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant's members . . . appropriating to itself the harvest."
Last week's case, Barclays Capital v. Theflyonthewall.com, turned out differently. The website uses the Internet to redistribute information the way Hearst's newswire used the telegraph. The plaintiffs in the case, which include Merrill Lynch and Morgan Stanley, invest in research about companies and markets and then share their market-moving trading recommendations with their biggest trading customers. They make the recommendations public only later, after funding the research through trading commissions.
Theflyonthewall.com undermined this system by reporting these recommendations quickly after their distribution to big investors; it's hard to keep secrets these days. A trial judge had sided with the banks and ordered the site to wait until 30 minutes after the opening of the stock exchange to republish the banks' buy-sell-hold recommendations, giving the banks' customers time to trade.
But the Second U.S. Circuit Court of Appeals ruled last week that the website could continue its work. Unlike in the Hearst newswire case, Theflyonthewall.com is not free riding when it collects and distributes news about banks' research. "The firms are making the news," Judge Robert Sack wrote. "Fly, despite the firms' understandable desire to protect their business model, is breaking it."
Judge Sack knows the news industry well after representing Dow Jones and other media companies when he was in private practice. He is philosophical about the power of judges to stem the tide of technology, even when there's unfairness. "The adoption of new technology that injures or destroys present business models is commonplace," he writes.
There can't be laws against using technology to spread news. Justice Louis Brandeis wrote as much in his 1918 dissent in International News Service. "With the increasing difficulty of society, the public interest tends to become omnipresent, and the problems presented by new demands for justice cease to be simple. Then the creation or recognition by courts of a new private right may work serious injury to the general public unless the boundaries of the right are definitely established and widely guarded."
But just because the law can't control how news spreads does not make technology a pure good. Google and Twitter filed a brief in Theflyonthewall, warning: "Hot news becomes cold in a nanosecond in the modern world." They don't want restriction on their business practices. But as in the cases of the not-so-innocent Hearst newswire and Theflyonthewall.com, Internet aggregators profit from the work of others as they undermine their business models.
Judges are right to stand aside to let the tide of technology flow freely. It's only through more innovation, unfettered by new legal constraints, that technology will deliver new ways to fund original reporting, whether by journalists or equity analysts.
