Prof. Rodney A. Smolla, Duke University School of Law
April 24, 2014

In September 2012, I reported on a fascinating copyright infringement lawsuit arising from undercover, surreptitious, and deceitful newsgathering by the Bloomberg financial service, which had violated the rules of engagement in an earnings call by the Swatch Group, and sold the intelligence it had gathered to Bloomberg’s subscribers.  As reported back in 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., 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.”

Fast forward to 2014.  We now have a decision from the U.S. Court of Appeals for the Second Circuit in the case.  This is a circuit centered in what is both one of financial centers of the universe and one of the newsgathering centers of the universe.  The Second Circuit, unlike the Ninth Circuit (the U.S. Court of Appeals for the Hollywood Circuit), is not as predictably solicitous of the intellectual property rights of the creators of intellectual property as its Left Coast counterpart, but certainly not tone-deaf to those interests.

Any bets?  Place them now, and don’t let your eyes peek forward.


Okay, and the answer is:

On appeal, the Second Circuit affirmed the district court, siding with Bloomberg.1

This was an open-and-shut infringement of Swatch’s copyright in its phone call.  Moreover, it was an open-and-shut violation of the terms upon which Bloomberg participated in the call.  How many concerts or art exhibitions have you been to in which it is made clear from the get-go that no audio or video recording or photography of any kind is permitted?

Even so, the Second Circuit, like the District Court, found that Bloomberg’s newsgathering and reporting, however ethically sketchy, were protected by both principles of copyright law and the First Amendment.

The Second Circuit rejected an attempt by Swatch to drive a wedge between Bloomberg’s “news reporting” functions and its functions as a paid provider of “financial data.”  Swatch’s theory appeared to be that however highly society might value financial reports by bona fide news organizations reporting financial news, no similar respect was owed to entities that traffic, for profit, in “data” that is copyrighted and owned by others, lifted without permission.  The Second Circuit did not buy it:

To begin with, whether one describes Bloomberg’s activities as “news reporting,” “data delivery,” or any other turn of phrase, there can be no doubt that Bloomberg’s purpose in obtaining and disseminating the recording at issue was to make important financial information about Swatch Group available to American investors and analysts.  That kind of information is of critical importance to American securities markets.  Indeed, as Bloomberg points out, the Securities and Exchange Commission (“SEC”) has mandated that when American companies disclose this kind of material nonpublic information, they must make it available to the public immediately.

The Second Circuit next turned to the core underlying equities (pun intended) regarding reports on the earnings calls of publicly traded corporations.  While it might make sense to enforce the copyright interests of companies with regard to information that involves some independent analysis and judgment regarding market conditions, Swatch was merely reporting, as a primary source, on its own financial condition.  Bloomberg was not pilfering some other media outlet’s news analysis.  Rather, it was rebroadcasting the “news” that Swatch itself was conveying, as the newsmaker.

In a statement that said as much about the First Amendment as copyright law, the Second Circuit sided with those who break the rules to get a scoop by eavesdropping on calls intended only for a privileged few authorized users, at least when the information conveyed within the inner circle would ultimately impact on public markets generally.   As the Second Circuit saw it, Bloomberg’s overriding purpose was not to scoop Swatch, “but rather simply to deliver newsworthy financial information to American investors and analysts.”  In turn, “[t]hat kind of activity, whose protection lies at the core of the First Amendment, would be crippled if the news media and similar organizations were limited to authorized sources of information.”  Tellingly the court cited, as support for this observation, perhaps the most famous “illegal scoop” in American history, the publication of the Pentagon Papers.2