Swatting the Fly


New York – A judge issued an injunction yesterday against Theflyonthewall.com, an online financial news service, that prevents the service from posting real-time online updates on stock upgrades and downgrades issued by Barclays Plc, Merrill Lynch, and Morgan Stanley. The banks argued that Theflyonthewall.com wrongfully obtains and sells reports on changes to the banks’ stock evaluations.

Bloomberg News reports that US District Court judge Denise Cote wrote: “This time frame preserves incentives for the firms to create and disseminate research reports to their investor clients, while still recognizing the inevitable, fast-moving and widespread informal communication of recommendations on Wall Street.” According to Bloomberg, theflyonthewall.com won’t violate the injunction if it refers to the banks’ recommendations “in the context of independent analytical reporting” of a significant market movement on the same day. Cote wrote: “It would be unjust to restrain Fly from publishing the firms’ recommendations if the firms were to acquiesce in the unauthorized publication of their recommendations by others, be they small Internet news services or global news empires.” As such, TheFlyOnTheWall can apply for a reevaluation of the court order if it can demonstrate that the banks have not tried to protect their research results.

Barron’s blogger Tiernan Ray raises some interesting questions about this decision and its implications for journalists:

The ruling explicitly states that the injunction should not prevent reporters from referring to upgrades and downgrades of stocks “after 9:30 am […] in the context of independent analytical reporting on a significant market movement in a security that has already occurred that same day.”

So, does that mean that before 9:30 am, Eastern, I and others should refrain from even referencing analysts’ equity research reports regarding stocks?

It’s not clear.

ZeroHedge, which hosts TheFlyOnTheWall on its servers, issued a scathing denunciation of the decision, calling it an infringement of First-Amendment rights. For its part, TheFlyOnTheWall plans to appeal the decision to the Second Circuit Court of Appeals.

While some of these issues fall into a gray area between journalism and plagiarism, it seems to us that a distinction does exist between the two, and a simplistic reduction of the decision to a First Amendment restriction is not quite accurate. Sites that feed parasitically off research reports without adding any value of their own, and without compensating the creators of research, are not exactly the First Amendment heroes that ZeroHedge would have us believe.


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