WINTER, Circuit Judge:
Motorola, Inc. and Sports Team Analysis and Tracking Systems ("STATS")
appeal from a permanent injunction entered by Judge Preska. The
injunction concerns a handheld pager sold by Motorola and marketed
under the name "SportsTrax," which displays updated
information of professional basketball games in progress. The
injunction prohibits appellants, absent authorization from the
National Basketball Association and NBA Properties, Inc. (collectively
the "NBA"), from transmitting scores or other data about
NBA games in progress via the pagers, STATS's site on America
On-Line's computer dial-up service, or "any equivalent means."
The crux of the dispute concerns the extent to which a state law
"hot-news" misappropriation claim based on International
News Service v. Associated Press, 248 U.S. 215, 63 L. Ed. 211,
39 S. Ct. 68 (1918) ("INS"), survives preemption by
the federal Copyright Act and whether the NBA's claim fits within
the surviving INS-type claims. We hold that a narrow "hot-news"
exception does survive preemption. However, we also hold [*4]
that appellants' transmission of "real-time" NBA game
scores and information tabulated from television and radio broadcasts
of games in progress does not constitute a misappropriation of
"hot news" that is the property of the NBA.
The NBA cross-appeals from the dismissal of its Lanham Act claim.
We hold that any misstatements by Motorola in advertising its
pager were not material and affirm.
The facts are largely undisputed. Motorola manufactures and
markets the SportsTrax paging device while STATS supplies the
game information that is transmitted to the pagers. The product
became available to the public in January 1996, at a retail price
of about $ 200. SportsTrax's pager has an inch-and-a-half by inch-and-a-half
screen and operates in four basic modes: "current,"
"statistics," "final scores" and "demonstration."
It is the "current" mode that gives rise to the present
dispute. n1 In that mode, SportsTrax displays
the following information on NBA games in progress: (i) the teams
playing; (ii) score changes; (iii) the team in possession of the
ball; (iv) whether the team is in the free-throw bonus; (v) the
quarter of the game; and (vi) time remaining in the quarter. [*5]
The information is updated every two to three minutes, with more
frequent updates near the end of the first half and the end of
the game. There is a lag of approximately two or three minutes
between events in the game itself and when the information appears
on the pager screen. [*6]
SportsTrax's operation relies on a "data feed" supplied
by STATS reporters who watch the games on television or listen
to them on the radio. The reporters key into a personal computer
changes in the score and other information such as successful
and missed shots, fouls, and clock updates. The information is
relayed by modem to STATS's host computer, which compiles, analyzes,
and formats the data for retransmission. The information is then
sent to a common carrier, which then sends it via satellite to
various local FM radio networks that in turn emit the signal received
by the individual SportsTrax pagers.
Although the NBA's complaint concerned only the SportsTrax device,
the NBA offered evidence at trial concerning STATS's America On-Line
("AOL") site. Starting in January, 1996, users who accessed
STATS's AOL site, typically via a modem attached to a home computer,
were provided with slightly more comprehensive and detailed real-time
game information than is displayed on a SportsTrax pager. On the
AOL site, game scores are updated every 15 seconds to a minute,
and the player and team statistics are updated each minute. The
district court's original decision and judgment, National [*7]
Basketball Ass'n v. Sports Team Analysis and Tracking Sys. Inc.,
931 F. Supp. 1124 (S.D.N.Y. 1996), did not address the AOL site,
because "NBA's complaint and the evidence proffered at trial
were devoted largely to SportsTrax." National Basketball
Ass'n v. Sports Team Analysis and Tracking Sys. Inc., 939 F. Supp.
1071, 1074 n.1 (S.D.N.Y. 1996). Upon motion by the NBA, however,
the district court amended its decision and judgment and enjoined
use of the real-time game information on STATS's AOL site. Id.
at 1075 n.1. Because the record on appeal, the briefs of the parties,
and oral argument primarily addressed the SportsTrax device, we
similarly focus on that product. However, we regard the legal
issues as identical with respect to both products, and our holding
applies equally to SportsTrax and STATS's AOL site.
The NBA's complaint asserted six claims for relief: (i) state
law unfair competition by misappropriation; (ii) false advertising
under Section 43(a) of the Lanham Act, 15 U.S.C. @ 1125(a); (iii)
false representation of origin under Section 43(a) of the Lanham
Act; (iv) state and common law unfair competition by false advertising
and false designation of origin; [*8] (v) federal copyright infringement;
and (vi) unlawful interception of communications under the Communications
Act of 1934, 47 U.S.C. @ 605. Motorola counterclaimed, alleging
that the NBA unlawfully interfered with Motorola's contractual
relations with four individual NBA teams that had agreed to sponsor
and advertise SportsTrax.
The district court dismissed all of the NBA's claims except the
first -- misappropriation under New York law. The court also dismissed
Motorola's counterclaim. Finding Motorola and STATS liable for
misappropriation, Judge Preska entered the permanent injunction,
n2 reserved the calculation of damages for subsequent
proceedings, and stayed execution of the injunction pending appeal.
Motorola and STATS appeal from the injunction, while NBA cross-appeals
from the district court's dismissal of its Lanham Act false-advertising
claim. The issues before us, therefore, are the state law misappropriation
and Lanham Act claims.[*9]
A. Summary of Ruling
Because our disposition of the state law misappropriation claim
rests in large part on preemption by the Copyright Act, our discussion
necessarily goes beyond the elements of a misappropriation claim
under New York law, and a summary of our ruling here will perhaps
render that discussion -- or at least the need for it -- more
understandable.
The issues before us are ones that have arisen in various forms
over the course of this century as technology has steadily increased
the speed and quantity of information transmission. Today, individuals
at home, at work, or elsewhere, can use a computer, pager, or
other device to obtain highly selective kinds of information virtually
at will. International News Service v. Associated Press, 248 U.S.
215, 63 L. Ed. 211, 39 S. Ct. 68 (1918) ("INS") was
one of the first cases to address the issues raised by these technological
advances, although the technology involved in that case was primitive
by contemporary standards. INS involved two wire services, the
Associated Press ("AP") and International News Service
("INS"), that transmitted newsstories by wire to member
newspapers. Id. [*10] INS would lift factual stories from AP bulletins
and send them by wire to INS papers. Id. at 231. INS would also
take factual stories from east coast AP papers and wire them to
INS papers on the west coast that had yet to publish because of
time differentials. Id. at 238. The Supreme Court held that INS's
conduct was a common-law misappropriation of AP's property. Id.
at 242.
With the advance of technology, radio stations began "live"
broadcasts of events such as baseball games and operas, and various
entrepreneurs began to use the transmissions of others in one
way or another for their own profit. In response, New York courts
created a body of misappropriation law, loosely based on INS,
that sought to apply ethical standards to the use by one party
of another's transmissions of events.
Federal copyright law played little active role in this area until
1976. Before then, it appears to have been the general understanding
-- there being no caselaw of consequence -- that live events such
as baseball games were not copyrightable. Moreover, doubt existed
even as to whether a recorded broadcast or videotape of such an
event was copyrightable. In 1976, however, Congress [*11] passed
legislation expressly affording copyright protection to simultaneously-recorded
broadcasts of live performances such as sports events. See 17
U.S.C. @ 101. Such protection was not extended to the underlying
events.
The 1976 amendments also contained provisions preempting state
law claims that enforced rights "equivalent" to exclusive
copyright protections when the work to which the state claim was
being applied fell within the area of copyright protection. See
17 U.S.C. @ 301. Based on legislative history of the 1976 amendments,
it is generally agreed that a "hot-news" INS-like claim
survives preemption. H.R. No. 94-1476 at 132 (1976), reprinted
in 1976 U.S.C.C.A.N. 5659, 5748. However, much of New York misappropriation
law after INS goes well beyond "hot-news" claims and
is preempted.
We hold that the surviving "hot-news" INS-like claim
is limited to cases where: (i) a plaintiff generates or gathers
information at a cost; (ii) the information is time-sensitive;
(iii) a defendant's use of the information constitutes free-riding
on the plaintiff's efforts; (iv) the defendant is in direct competition
with a product or service offered by the plaintiffs; [*12] and
(v) the ability of other parties to free-ride on the efforts of
the plaintiff or others would so reduce the incentive to produce
the product or service that its existence or quality would be
substantially threatened. We conclude that SportsTrax does not
meet that test.
B. Copyrights in Events or Broadcasts of Events
The NBA asserted copyright infringement claims with regard both
to the underlying games and to their broadcasts. The district
court dismissed these claims, and the NBA does not appeal from
their dismissal. Nevertheless, discussion of the infringement
claims is necessary to provide the framework for analyzing the
viability of the NBA's state law misappropriation claim in light
of the Copyright Act's preemptive effect.
1. Infringement of a Copyright in the Underlying Games
In our view, the underlying basketball games do not fall within
the subject matter of federal copyright protection because they
do not constitute "original works of authorship" under
17 U.S.C. @ 102(a). Section 102(a) lists eight categories of "works
of authorship" covered by the act, including such categories
as "literary works," "musical works," and
"dramatic works." n3 The [*13] list
does not include athletic events, and, although the list is concededly
non-exclusive, such events are neither similar nor analogous to
any of the listed categories.
Sports events are not "authored" in any common sense
of the word. [*14] There is, of course, at least at the professional
level, considerable preparation for a game. However, the preparation
is as much an expression of hope or faith as a determination of
what will actually happen. Unlike movies, plays, television programs,
or operas, athletic events are competitive and have no underlying
script. Preparation may even cause mistakes to succeed, like the
broken play in football that gains yardage because the opposition
could not expect it. Athletic events may also result in wholly
unanticipated occurrences, the most notable recent event being
in a championship baseball game in which interference with a fly
ball caused an umpire to signal erroneously a home run.
What "authorship" there is in a sports event, moreover,
must be open to copying by competitors if fans are to be attracted.
If the inventor of the T-formation in football had been able to
copyright it, the sport might have come to an end instead of prospering.
Even where athletic preparation most resembles authorship -- figure
skating, gymnastics, and, some would uncharitably say, professional
wrestling -- a performer who conceives and executes a particularly
graceful and difficult -or, in the case [*15] of wrestling, seemingly
painful -- acrobatic feat cannot copyright it without impairing
the underlying competition in the future. A claim of being the
only athlete to perform a feat doesn't mean much if no one else
is allowed to try.
For many of these reasons, Nimmer on Copyright concludes that
the "far more reasonable" position is that athletic
events are not copyrightable. 1 M. Nimmer & D. Nimmer, Nimmer
on Copyright @ 2.09[F] at 2-170.1 (1996). Nimmer notes that, among
other problems, the number of joint copyright owners would arguably
include the league, the teams, the athletes, umpires, stadium
workers and even fans, who all contribute to the "work."
Concededly, caselaw is scarce on the issue of whether organized
events themselves are copyrightable, but what there is indicates
that they are not.
Click here to see material excised from
the opinion.
We believe that the lack of caselaw is attributable to a general
understanding that athletic events were, and are, uncopyrightable.
Indeed, prior to 1976, there was even doubt that broadcasts describing
or depicting such events, which have a far stronger case for copyrightability
than the events themselves, were entitled to copyright protection.
Indeed, as described in the next subsection of this opinion, Congress
found it necessary to extend such protection to recorded broadcasts
of live events. The fact that Congress did not extend such protection
to the events themselves confirms our view that the district court
correctly held that appellants were not [*17] infringing a copyright
in the NBA games.
2. Infringement of a Copyright in the Broadcasts of NBA Games
As noted, recorded broadcasts of NBA games -- as opposed to the
games themselves -- are now entitled to copyright protection.
The Copyright Act was amended in 1976 specifically to insure that
simultaneously-recorded transmissions of live performances and
sporting events would meet the Act's requirement that the original
work of authorship be "fixed in any tangible medium of expression."
17 U.S.C. @ 102(a).
Click here to see material excised from
the opinion.
Although the broadcasts are protected under copyright law, the
district court correctly held that Motorola and STATS did not
infringe NBA's copyright because they reproduced only facts from
the broadcasts, not the expression or description of the game
that constitutes the broadcast. The "fact/expression dichotomy"
is a bedrock principle of copyright law that "limits severely
the scope of protection in fact-based works." Feist Publications,
Inc. v. Rural Tel. Service [*19] Co., 499 U.S. 340, 350, 113 L.
Ed. 2d 358, 111 S. Ct. 1282 (1991). "'No author may copyright
facts or ideas. The copyright is limited to those aspects of the
work -- termed 'expression' -- that display the stamp of the author's
originality.'" Id. (quoting Harper & Row, Inc. v. Nation
Enter., 471 U.S. 539, 547-48, 85 L. Ed. 2d 588, 105 S. Ct. 2218
(1985)).
We agree with the district court that the "defendants provide
purely factual information which any patron of an NBA game could
acquire from the arena without any involvement from the director,
cameramen, or others who contribute to the originality of a broadcast."
939 F. Supp. at 1094. Because the SportsTrax device and AOL site
reproduce only factual information culled from the broadcasts
and none of the copyrightable expression of the games, appellants
did not infringe the copyright of the broadcasts.
C. The State-Law Misappropriation Claim
The district court's injunction was based on its conclusion that,
under New York law, defendants had unlawfully misappropriated
the NBA's property rights in its games. The district court reached
this conclusion by holding: (i) that the NBA's misappropriation
claim relating to the underlying games was not preempted by Section
301 of the [*20] Copyright Act; and (ii) that, under New York
common law, defendants had engaged in unlawful misappropriation.
Id. at 1094-1107. We disagree.
1. Preemption Under the Copyright Act
a) Summary
When Congress amended the Copyright Act in 1976, it provided for
the preemption of state law claims that are interrelated with
copyright claims in certain ways. Under 17 U.S.C. @ 301, a state
law claim is preempted when: (i) the state law claim seeks to
vindicate "legal or equitable rights that are equivalent"
to one of the bundle of exclusive rights already protected by
copyright law under 17 U.S.C. @ 106 -- styled the "general
scope requirement"; and (ii) the particular work to which
the state law claim is being applied falls within the type of
works protected by the Copyright Act under Sections 102 and 103
-- styled the "subject matter requirement." n4
[*21]
The district court concluded that the NBA's misappropriation claim
was not preempted because, with respect to the underlying games,
as opposed to the broadcasts, the subject matter requirement was
not met. 939 F. Supp. at 1097. The court dubbed as "partial
preemption" its separate analysis of misappropriation claims
relating to the underlying games and misappropriation claims relating
to broadcasts of those games. Id. at 1098, n.24. The district
court then relied on a series of older New York misappropriation
cases involving radio broadcasts that considerably broadened INS.
We hold that where the challenged copying or misappropriation
relates in part to the copyrighted broadcasts of the games, the
subject matter requirement is met as to both the broadcasts and
the games. We therefore reject the partial preemption doctrine
and its anomalous consequence that "it is possible for a
plaintiff to assert claims both for infringement of its copyright
in a broadcast and misappropriation of its rights in the underlying
event." Id. We do find that a properly-narrowed INS "hot-news"
misappropriation claim survives preemption because it fails the
general scope requirement, but [*22] that the broader theory of
the radio broadcast cases relied upon by the district court were
preempted when Congress extended copyright protection to simultaneously-recorded
broadcasts.
b) "Partial Preemption" and the Subject Matter Requirement
The subject matter requirement is met when the work of authorship
being copied or misappropriated "falls within the ambit of
copyright protection." Harper & Row, Inc. v. Nation Enter.,
723 F.2d 195, 200 (1983), rev'd on other grounds, 471 U.S. 539,
85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985). We believe that the
subject matter requirement is met in the instant matter and that
the concept of "partial preemption" is not consistent
with Section 301 of the Copyright Act. Although game broadcasts
are copyrightable while the underlying games are not, the Copyright
Act should not be read to distinguish between the two when analyzing
the preemption of a misappropriation claim based on copying or
taking from the copyrightable work. We believe that:
Baltimore Orioles, 805 F.2d at 675 (citation omitted).
Click here to see material excised from
the opinion.
Adoption of a partial preemption doctrine -- preemption of claims
based on misappropriation of broadcasts but no preemption of claims
based on misappropriation of underlying facts -- would expand
significantly the reach of state law claims and render the preemption
intended by Congress [*25] unworkable. It is often difficult or
impossible to separate the fixed copyrightable work from the underlying
uncopyrightable events or facts. Moreover, Congress, in extending
copyright protection only to the broadcasts and not to the underlying
events, intended that the latter be in the public domain. Partial
preemption turns that intent on its head by allowing state law
to vest exclusive rights in material that Congress intended to
be in the public domain and to make unlawful conduct that Congress
intended to allow. This concern was recently expressed in ProCD,
Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), a case in which
the defendants reproduced non-copyrightable facts (telephone listings)
from plaintiffs' copyrighted software. In discussing preemption
under Section 301(a), Judge Easterbrook held that the subject
matter requirement was met and noted:
ProCD, 86 F.3d at 1453 (citation omitted). We agree with Judge
Easterbrook and reject the separate analysis of the underlying
games and broadcasts of those games for purposes of preemption.
c) The General Scope Requirement
Under the general scope requirement, Section 301 "preempts
only those state law rights that 'may be abridged by an act which,
in and of itself, would infringe one of the exclusive rights'
provided by federal copyright law." Computer Assoc. Int'l,
Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992) (quoting
Harper & Row, 723 F.2d at 200). [*27] However, certain forms
of commercial misappropriation otherwise within the general scope
requirement will survive preemption if an "extra-element"
test is met. As stated in Altai:
Id. (quoting 1 Nimmer on Copyright @ 1.01[B] at 1-15).
ProCD was in part an application of the extra-element test. Having
held the misappropriation claims to be preempted, Judge Easterbrook
went on to hold that the plaintiffs could bring a state law contract
claim. The court held that the defendants were bound by the software's
shrink-wrap licenses as a matter of contract law and that the
private contract rights were not preempted because they were not
equivalent to the exclusive rights granted by copyright law. In
other words, the contract right claims were not preempted because
the general scope requirement was not met. ProCD, 86 F.3d at 1455.
We turn, therefore, to the question [*28] of the extent to which
a "hot-news" misappropriation claim based on INS involves
extra elements and is not the equivalent of exclusive rights under
a copyright. Courts are generally agreed that some form of such
a claim survives preemption. Financial Information, Inc. v. Moody's
Investors Service, Inc., 808 F.2d 204, 208 (2d Cir. 1986), cert.
denied, 484 U.S. 820, 98 L. Ed. 2d 42, 108 S. Ct. 79 (1987) ("FII").
This conclusion is based in part on the legislative history of
the 1976 amendments.
Click here to see material excised from
the opinion.
The crucial question, therefore, is the breadth of the "hot-news"
claim that survives preemption.
In INS, the plaintiff AP and defendant INS were "wire services"
that sold news items to client newspapers. AP brought suit to
prevent INS from selling facts and information lifted from AP
[*30] sources to INS-affiliated newspapers. One method by which
INS was able to use AP's news was to lift facts from AP news bulletins.
INS, 248 U.S. at 231. Another method was to sell facts taken from
just-published east coast AP newspapers to west coast INS newspapers
whose editions had yet to appear. Id. at 238. The Supreme Court
held (prior to Erie R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed.
1188, 58 S. Ct. 817 (1938)), that INS's use of AP's information
was unlawful under federal common law. It characterized INS's
conduct as amounting to an unauthorized interference with the
normal operation of complainant's legitimate business precisely
at the point where the profit is to be reaped, in order to divert
a material portion of the profit from those who have earned it
to those who have not; with special advantage to defendant in
the competition because of the fact that it is not burdened with
any part of the expense of gathering the news. INS, 248 U.S. at
240.
The theory of the New York misappropriation cases relied upon
by the district court is considerably broader than that of INS.
For example, the district court quoted at length from Metropolitan
Opera Ass'n v. Wagner-Nichols [*31] Recorder Corp., 199 Misc.
786, 101 N.Y.S.2d 483 (N.Y. Sup. Ct. 1950), aff'd, 279 A.D. 632,
107 N.Y.S.2d 795 (1st Dep't 1951). Metropolitan Opera described
New York misappropriation law as standing for the "broader
principle that property rights of commercial value are to be and
will be protected from any form of commercial immorality";
that misappropriation law developed "to deal with business
malpractices offensive to the ethics of [ ] society"; and
that the doctrine is "broad and flexible." 939 F. Supp.
at 1098-1110 (quoting Metropolitan Opera, 101 N.Y.S.2d at 492,
488-89).
However, we believe that Metropolitan Opera's broad misappropriation
doctrine based on amorphous concepts such as "commercial
immorality" or society's "ethics" is preempted.
Such concepts are virtually synonymous for wrongful copying and
are in no meaningful fashion distinguishable from infringement
of a copyright. The broad misappropriation doctrine relied upon
by the district court is, therefore, the equivalent of exclusive
rights in copyright law.
Indeed, we said as much in FII. That decision involved the copying
of financial information by a rival financial reporting service
and specifically repudiated the broad [*32] misappropriation doctrine
of Metropolitan Opera. We explained:
We are not persuaded by FII's argument that misappropriation is
not "equivalent" to the exclusive rights provided by
the Copyright Act . . . . Nor do we believe that a possible exception
to the general rule of preemption in the misappropriation area
-- for claims involving "any form of commercial immorality,".
. . quoting Metropolitan Opera Ass'n v. Wagner-Nichols Recorder
Corp., 199 Misc. 786, 101 N.Y.S.2d 483, . . . -- should be applied
here. We believe that no such exception exists and reject its
use here. Whether or not reproduction of another's work is "immoral"
depends on whether such use of the work is wrongful. If, for example,
the work is in the public domain, then its use would not be wrongful.
Likewise, if, as here, the work is unprotected by fe2deral law
because of lack of originality, then its use is neither unfair
nor unjustified.
FII, 808 F.2d at 208. In fact, FII only begrudgingly concedes
that even narrow "hot news" INS-type claims survive
preemption. Id. at 209.
Moreover, Computer Associates Intern., Inc. v. Altai Inc. indicated
that the "extra element" test should [*33] not be applied
so as to allow state claims to survive preemption easily. 982
F.2d at 717. "An action will not be saved from preemption
by elements such as awareness or intent, which alter 'the action's
scope but not its nature' . . . . Following this 'extra element'
test, we have held that unfair competition and misappropriation
claims grounded solely in the copying of a plaintiff's protected
expression are preempted by section 301." Id. (citation omitted).
In light of cases such as FII and Altai that emphasize the narrowness
of state misappropriation claims that survive preemption, most
of the broadcast cases relied upon by the NBA are simply not good
law. Those cases were decided at a time when simultaneously-recorded
broadcasts were not protected under the Copyright Act and when
the state law claims they fashioned were not subject to federal
preemption.
Click here to see material excised from
the opinion.
Our conclusion, therefore, is that only a narrow "hot-news"
misappropriation claim survives preemption for actions concerning
material within the realm of copyright. n6 See
also 1 McCarthy on Trademarks and Unfair Competition (4th ed.
1996), @ 10:69, at 10-134 (discussing National Exhibition Co.
v. Fass, 133 N.Y.S.2d 379 (Sup. Ct. 1954), Muzak, 177 Misc. 489,
30 N.Y.S.2d 419, and other cases relied upon by NBA that pre-date
the 1976 amendment to the Copyright Act and concluding that after
the amendment, "state misappropriation law would be unnecessary
and would be preempted: protection is solely under federal copyright").
n7 [*36]
In our view, the elements central to an INS claim are: (i) the
plaintiff generates or collects information at some cost or expense,
see FII, 808 F.2d at 206; INS, 248 U.S. at 240; (ii) the value
of the information is highly time-sensitive, see FII, 808 F.2d
at 209; INS, 248 U.S. at 231; Restatement (Third) Unfair Competition,
@ 38 cmt. c.; (iii) the defendant's use of the information constitutes
free-riding on the plaintiff's costly efforts to generate or collect
it, see FII, 808 F.2d at 207; INS, 248 U.S. at 239-40; Restatement
@ 38 at cmt. c.; McCarthy, @ 10:73 at 10-139; (iv) the defendant's
use of the information is in direct competition with a product
or service offered by the plaintiff, FII, 808 F.2d at 209, INS,
248 U.S. at 240; (v) the ability of other parties to free-ride
on the efforts of the plaintiff would so reduce the incentive
to produce the product or service that its existence or quality
would be substantially threatened, FII, 808 F.2d at 209; Restatement,
@ 38 at cmt. c.; INS, 248 U.S. at 241 ("[INS's conduct] would
render [AP's] publication profitless, or so little profitable
as in effect to [*37] cut off the service by rendering the cost
prohibitive in comparison with the return.") n8
[*38]
INS is not about ethics; it is about the protection of property
rights in time-sensitive information so that the information will
be made available to the public by profit-seeking entrepreneurs.
If services like AP were not assured of property rights in the
news they pay to collect, they would cease to collect it. The
ability of their competitors to appropriate their product at only
nominal cost and thereby to disseminate a competing product at
a lower price would destroy the incentive to collect news in the
first place. The newspaper-reading public would suffer because
no one would have an incentive to collect "hot news."
We therefore find the extra elements -- those in addition to the
elements of copyright infringement -- that allow a "hotnews"
claim to survive preemption are: (i) the time-sensitive value
of factual information, (ii) the free-riding by a defendant, and
(iii) the threat to the very existence of the product or service
provided by the plaintiff.
2. The Legality of SportsTrax
We conclude that Motorola and STATS have not engaged in unlawful
misappropriation under the "hot-news" test set out above.
To be sure, some of the elements of a "hot-news" INS
[*39] -claim are met. The information transmitted to SportsTrax
is not precisely contemporaneous, but it is nevertheless time-sensitive.
Also, the NBA does provide, or will shortly do so, information
like that available through SportsTrax. It now offers a service
called "Gamestats" that provides official play-by-play
game sheets and half-time and final box scores within each arena.
It also provides such information to the media in each arena.
In the future, the NBA plans to enhance Gamestats so that it will
be networked between the various arenas and will support a pager
product analogous to SportsTrax. SportsTrax will of course directly
compete with an enhanced Gamestats.
However, there are critical elements missing in the NBA's attempt
to assert a "hot-news" INS-type claim. As framed by
the NBA, their claim compresses and confuses three different informational
products. The first product is generating the information by playing
the games; the second product is transmitting live, full descriptions
of those games; and the third product is collecting and retransmitting
strictly factual information about the games. The first and second
products are the NBA's primary business: producing [*40] basketball
games for live attendance and licensing copyrighted broadcasts
of those games. The collection and retransmission of strictly
factual material about the games is a different product: e.g.,
box-scores in newspapers, summaries of statistics on television
sports news, and real-time facts to be transmitted to pagers.
In our view, the NBA has failed to show any competitive effect
whatsoever from SportsTrax on the first and second products and
a lack of any free-riding by SportsTrax on the third.
With regard to the NBA's primary products -- producing basketball
games with live attendance and licensing copyrighted broadcasts
of those games -- there is no evidence that anyone regards SportsTrax
or the AOL site as a substitute for attending NBA games or watching
them on television. In fact, Motorola markets SportsTrax as being
designed "for those times when you cannot be at the arena,
watch the game on TV, or listen to the radio . . ."
The NBA argues that the pager market is also relevant to a "hot-news"
INS-type claim and that SportsTrax's future competition with Gamestats
satisfies any missing element. We agree that there is a separate
market for the real-time transmission [*41] of factual information
to pagers or similar devices, such as STATS's AOL site. However,
we disagree that SportsTrax is in any sense free-riding off Gamestats.
An indispensable element of an INS "hot-news" claim
is free-riding by a defendant on a plaintiff's product, enabling
the defendant to produce a directly competitive product for less
money because it has lower costs. SportsTrax is not such a product.
The use of pagers to transmit real-time information about NBA
games requires: (i) the collecting of facts about the games; (ii)
the transmission of these facts on a network; (iii) the assembling
of them by the particular service; and (iv) the transmission of
them to pagers or an on-line computer site. Appellants are in
no way free-riding on Gamestats. Motorola and STATS expend their
own resources to collect purely factual information generated
in NBA games to transmit to SportsTrax pagers. They have their
own network and assemble and transmit data themselves.
To be sure, if appellants in the future were to collect facts
from an enhanced Gamestats pager to retransmit them to SportsTrax
pagers, that would constitute free-riding and might well cause
Gamestats to be unprofitable
[*42] because it had to bear costs to collect facts that SportsTrax
did not. If the appropriation of facts from one pager to another
pager service were allowed, transmission of current information
on NBA games to pagers or similar devices would be substantially
deterred because any potential transmitter would know that the
first entrant would quickly encounter a lower cost competitor
free-riding on the originator's transmissions. n9
However, that is not the [*43] case in the instant matter. SportsTrax
and Gamestats are each bearing their own costs of collecting factual
information on NBA games, and, if one produces a product that
is cheaper or otherwise superior to the other, that producer will
prevail in the marketplace. This is obviously not the situation
against which INS was intended to prevent: the potential lack
of any such product or service because of the anticipation of
free-riding.
For the foregoing reasons, the NBA has not shown any damage to
any of its products based on free-riding by Motorola and STATS,
and the NBA's misappropriation claim based on New York law is
preempted. n10
Click here to see material excised from
the opinion.
We vacate the injunction entered by the district court and
order that the NBA's claim for misappropriation be dismissed.
Click here to see material excised from
the opinion.