Rodney A. Smolla, President, Furman University
September 28, 2012

Imagine that a publicly traded company conducts an “Earnings Call,” limiting those on the call to selected participants. The company itself records the call, but forbids those who phone in as participants from recording it for republication or broadcast. The company copyrights the recorded call.

Despite all these precautions, however, someone makes an unauthorized recording of the call, and sells that copy to a business and information provider, which makes the recording available to its paid subscribers. In a copyright infringement action brought by the company against the provider of the purloined recording, who ought to win?

The answer, according to the U.S. District Court for the Southern District of New York, is the financial service. In Swatch Group Management Services Ltd. v. Bloomberg L.P.1, the Swiss watchmaker Swatch Group, producer of the popular Swatch brand of watches and watch components, sued the Bloomberg financial service for trafficking in its Earnings Call, which Swatch had told participants they could not record, and had copyrighted.

Bloomberg’s defense was “fair use.” The court applied the four statutory fair use factors set forth in Section 107 of the Copyright Act of 1976, analyzing: “(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.”

Bloomberg started with some obvious strikes against it. It didn’t look especially good that it was charging customers for access to an unauthorized phone recording, and Bloomberg’s exploitation of the call was plainly “commercial,” pure and simple. Moreover, it had lifted the entire phone call, not just a portion of it, thereby copying (and presumptively infringing) the entire underlying work. Finally, there was not much, if anything at all, that one could plausibly label “transformational” in the rebroadcast of the Earnings Call – Bloomberg just reproduced the entire Earnings Call recording, lock, stock, and barrel.

Even so, the court ruled for Bloomberg, applying something akin to the adage of seasoned referees (not the NFL substitute types), “no harm, no foul.”

While Bloomberg’s actions in acquiring the Earnings Call recording might have appeared less than honorable to some, the court noted that newsgathering organizations often engage in such behavior, observing that “news-gathering organizations frequently publish information obtained clandestinely and in breach of conditions of confidentiality.”2 Citing the Pentagon Papers case, the court added that “[t]he robust quality of the First Amendment would be compromised if the news media were confined to authorized sources for its reporting.” 3 So too, the court noted, “the presence or absence of a profit-making motive is not dispositive” in fair use analysis.4

The factor that drove the court’s analysis was not so much the fairness of Bloomberg’s alleged fair use, as the thinness of Swatch’s underlying copyright interest, coupled with the difficulty of conjuring any serious case that Bloomberg’s actions actually did Swatch any harm. Swatch, the court pointed out, could not assert, and did not assert, any copyright in the questions asked by the outside financial and securities analysts who participated in the call.5 Thus Swatch could only claim copyright in what its own executives said on the call. Most of what the Swatch executives said, however, was not copyrightable. The executives were principally reporting facts about Swatch and its financial condition. Applying the Feist rule, the court reasoned that facts cannot be copyrighted,6 leaving Swatch’s claim hollow at best. In this posture, Swatch’s copyright claim, while technically viable, was “thin,” amounting to little more than a nominal formality.

Perhaps more importantly, Swatch had put the substance of the call into the commercial marketplace, of its own volition. It was hard, if not impossible, to understand how the additional dissemination of that information to a wider audience of investors by Bloomberg did Swatch any harm. It was not, after all, as if Swatch had charged for the original call. One might analogize the situation to a press release sent initially by a company to certain favored publications, which then leaks to other news outlets.

The Swatch case is thus a good example of how the underlying common-sense substance of a fair use claim may trump the formal litany of statutory factors. While Swatch may have had Bloomberg outnumbered in the fair use factor count, the strength of Swatch’s underlying copyright interest proved too thin to bear weight.