Theflyonthewall Case Pits Free Riding Versus Free Speech


New York, NY – On Wednesday, May 19, 2010 a federal appeals court in New York temporarily overturned an injunction requiring that internet newswire,, delay its publishing of Wall Street analysts’ upgrades and downgrades by at least two hours.  This ruling was clearly a defeat for Barclays, Plc, the Bank of America Merrill Lynch, and Morgan Stanley, who brought the original lawsuit against  However, the real issue at stake is whether the “free riding” concern highlighted by the investment banks is sufficient to trump the “free speech” issues associated with the case.

The Original Ruling

On March 18, 2010, Judge Denise Cote of the United States District Court for the Southern District of New York issued a permanent injunction requiring that Summit New Jersey-based financial newswire, (TFOTW) delay its reporting of stock recommendations produced by analysts at Barclays Capital, Merrill Lynch, and Morgan Stanley by at least two hours after these recommendations are released by the firms to their clients.

This original injunction was based on Judge Cote’s finding, after a bench trial, that TFOTW engaged in “hot news” misappropriation of these firms’ research recommendations.  The legal concept of a “hot news” misappropriation is based on the determination that the firm in question is engaged in “free riding activity that is directly competitive with the Firms’ production of time-sensitive information, thereby substantially threatening their incentive to continue in the business.”

Consequently, Judge Cote decided that TFOTW’s instantaneous publishing of Wall Street analyst upgrades and downgrades on their newswire would damage these investment banks’ ability to obtain compensation from their clients for these time sensitive recommendations – a development that would threaten the investment banks’ willingness to continue to make the substantial investments necessary a provide these “socially valuable” recommendations in the first place.

Stay by Appeals Court

On Wednesday, May 19, 2010 a panel of the U.S. Second Circuit Court of Appeals issued a stay of the trial court’s original order to delay the publishing of analyst upgrades and downgrades for at least two hours after official release ( Inc v. Barclays Capital Inc et al, U.S. Second Circuit Court of Appeals, No. 10-1372).

In addition, the court of appeals agreed to an expedited appeal, saying it will hear arguments at the earliest available date after July 26, when briefs are due.

The Bigger Issues At Stake

It is clear that there are a few important issues at stake in this case.  First, the investment banks are looking to protect themselves from firms like TheFlyOnTheWall that have benefited from a “free ride” on the investment they have made in producing and distributing valuable research. 

Most investment research firms can probably agree that the growth of firms like TheFlyOnTheWall has made it almost impossible to control the distribution of their research – a development that has made it increasingly difficult to get investors to pay for this research particularly when their recommendations are made available either for free, or for very low cost on numerous aggregators.   

However, news providers must also be wondering if this case runs afoul of their First Amendment protections.  If TheFlyOnTheWall obtained these research recommendations in a lawful manner, then case law suggests that the First Amendment should also protect its ability to publish this information if it is of public concern.

According to the court record, TheFlyOnTheWall gets its analyst recommendations by checking a variety of other traditional news sources and internet-based financial wires, including Bloomberg Market News, Dow Jones, Thomson Reuters, TTN, StreetAccount and  In addition, they check chat rooms, receive blast IMs, and proactively e-mail or call traders at hedge funds, mutual funds, and other contacts on Wall Street.  All of these efforts could be considered legitimate newsgathering.

Some Legal Issues to Consider

The first issue that is likely to receive considerable attention in the appeal is the fact that misappropriation of hot news only applies to firms that are judged to be competitors.  Thus, the question that needs to be answered, “Is TheFlyOnTheWall a competitor of a research provider like the investment banks in question, or is it a news provider that competes more directly with Bloomberg or Thomson Reuters?” 

Judge Cote felt that TFOTW and the investment banks were competitors in “the market for disseminating equity research recommendations.” If the appeals court decides this is the wrong way to define the market, and TFOTW doesn’t compete with the investment banks, then the misappropriation of hot news does not apply.

 Another issue which could arise is one of equity.  If TFOTW is deemed to be a competitor of the investment banks, then all other news services that also publish analyst recommendations as soon as they can collect them must also be seen as competitors.  Consequently, Bloomberg, Thomson Reuters, Dow Jones, StreetAccount, and other financial news sources should also be made to live by the same injunction given to TFOTW.  However, does this mean that Barclays, Bank of America Merrill Lynch, and Morgan Stanley also need to bring suits against these firms as well?

It is also interesting to note that in issuing its temporary stay of the injunction against TFOTW while the appeal is pending, some legal experts suggest that the court of appeals had to believe that the basis of TFOTW’s appeal has some merit, in other words, they feel that some or all of the trial court’s original decision was wrong.

Integrity’s View

Regardless of what the appeals court decides, TheFlyOnTheWall case could have a tremendous impact on investment research providers, newswires, and information aggregators.  Certainly, the research industry will cheer on the investment banks in their lawsuit as they all try to come to grips with the difficulty of controlling the distribution of their content in a digital world.  However, the news providers will side with TheFlyOnTheWall as they try to protect their First Amendment rights to publish lawfully gathered information of public concern.  It looks like this summer will be a hot one after all.

For an insightful analysis of the legal issues associated with the Barclays –v- FlyOnTheWall case, refer to an article by the Citizen Media Law Project, located at 


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