The Doctrine of Misappropriation
Michelle L. Spaulding
Last revised March 21, 1998
Misappropriation is one of the bodies of law to which litigants struggling over perceived misuses of the Internet are turning for guidance. There is no federal statute addressing misappropriation; the law varies according to a particular state's unfair competition doctrine.
The common law doctrine of misappropriation originates in the 1918 Supreme Court opinion, International News Service v. Associated Press, 248 U.S. 215. International News Service (INS) and Associated Press (AP) were two competing news services that employed correspondents to gather and report news worldwide. Local and regional newspapers would pay a fee to subscribe to either service and receive these news bulletins for use in their own papers, providing broader and more timely coverage to their readership than the paper would have the resources to provide without such a service. The articles from the service were printed in the paper with the service’s byline, indicating the source of the article. The problem arose when INS was barred from transmitting wartime information from Great Britain. Since news of the war was a hot commodity, INS began "lifting" AP’s stories from AP’s bulletin boards, and from early editions of AP-affiliated newspapers on the East Coast. An INS reporter would take the reported information, write an article in his own words, and the new article would be wired to INS-affiliated papers for publication. Sometimes this resulted in INS "scooping" AP’s West Coast affiliates, if the INS edition came out on the West Coast before the AP edition.
AP sued on three counts; the first two, alleging practices of bribery by INS employees to persuade AP employees to release news before publication, were enjoined by the District Court. The third count, involving the "lifting" practices described above, was a more complex matter. While the District Court recognized that it was an unfair trade practice, there was nothing per se illegal about it (AP had not sought copyright protection for the articles – there was no copying, INS took unprotected facts and wrote their own articles from those facts); therefore, the court refrained from granting an injunction pending appeal.
The Supreme Court granted the relief AP was seeking, and the misappropriation doctrine was born. In Justice Pitney’s majority opinion, he found that AP had a quasi-property right in the news that it had gathered. This right existed not against the world at large, because news is based on unprotectable facts, but against competitors. He offered three arguments to support this conclusion. The first is based on the labor-desert theory – AP invested substantial time, labor, and money in its news-gathering efforts and should be entitled to reap the benefits of this investment. The second is that the news has market value; therefore it resembles other forms of property and should be protected as such. The third is a utilitarian justification – if AP’s rights are not protected, there will be no economic incentive to expend the effort to gather the news, therefore the public won’t receive the benefits of being able to read worldwide news in the local paper.
Justices Holmes and Brandeis offered two secondary opinions which present an important divergence in perceptions of the feasibility of judicial application of the misappropriation doctrine. According to Justice Holmes, an injunction should issue forbidding competitors from using the news for only a number of hours after publication, allowing enough time to recoup the initial investment. The most serious charge Justice Holmes saw was a form of reverse passing off; INS passing off APs product as its own. Justice Brandeis argued that the issue was too complex for the judiciary to handle and an injunction should be denied, leaving it to the legislature to fashion a remedy. Today, the doctrine has its supporters and is also much criticized; the debate among the views of the three justices continues to the present.
Since INS two incompatible lines of cases have developed, one restricting the doctrine, and one expanding it. The result is a highly amorphous and unpredictable body of law.
CASES CONSTRICTING INS
The Second Circuit was very hostile to INS for many years. Justice Learned Hand agreed with Justices Holmes and Brandeis and was quite overt in getting his colleagues to circumvent INS. An example of this deliberate resistance was Cheney Bros. v. Doris Silk Corp., 35 F.2d 279 (2nd Circ. 1929), involving two competing silk manufacturers. Plaintiff Cheney requested an injunction barring Doris from copying patterns used in dress design during the eight to nine month fashion season. Cheney relied on INS, saying its situation was analogous because the considerable expense involved in designing the patterns couldn’t be recouped when the defendant copied the patterns with no similar expenditure and sold them for lower prices. Affirming the District Court’s denial of an injunction, Justice Hand noted that because of the short season life of the patterns, design patent protection was impractical and they would likely lack the requisite originality to qualify. Nor did the patterns qualify for copyright protection because they flunked the conceptual separability test. Justice Hand said that, although it seemed unfair to not provide a remedy to Cheney, it was not up to the judicial system to extend a patent- or copyright-like monopoly in the absence of legislation authorizing it.
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) was a very important point in the constriction of INS. The INS opinion doesn’t make reference to governing state law, because federal courts were not required to do so until Erie. The Erie decision eliminated "federal general common law," (i.e., legal doctrine that is established by federal jurisprudence) and mandated that, unless the question before a federal court relates to the Constitution or to a federal statute, the court must apply the law of the state in which it resides. This decision weakens the precedential value of INS, because INS was federal common law. Since there is no federal misappropriation statute, federal courts no longer decide misappropriation cases without relying on a specific body of state law.
The doctrine was further constrained in National Football League v. State of Delaware, 435 F. Supp. 1372 (D. Del. 1977). The state of Delaware implemented a lottery system based on the outcomes of weekly NFL games. In one of the games, players received a pick card from the lottery office which they marked with their predictions. If all seven of the player's picks won on that Sunday, the card paid off. Another game relied on a predicted point spread published the Wednesday before Sunday games. If you won on all 14 games, you won $1200 for $1 paid in. In offering this lottery, the State of Delaware meant to capitalize on NFL games, but also to offer a lottery system with some skill involved. The NFL promptly brought suit, arguing that this was a form of misappropriation. The Federal District Court acting in diversity said it was not, that the lottery was a collateral service not in competition with the NFL.
The most recent blow to misappropriation came in 1997 in National Basketball Association v. Motorola, Inc., 105 F. 3d 841 (2d Cir. 1997). Motorola sold SportsTrax pagers which transmit detailed information about games in progress to pager owners. NBA sued to enjoin Motorola from transmitting scores or other information about NBA games in progress, claiming that this was an INS-style "hot news" misappropriation. An important point argued in the case was that any misappropriation claim was preempted by the federal Copyright Act; in essence, that the NBA was trying to use misappropriation to protect uncopyrightable facts. The 2nd Circuit held that, while a narrowly-construed "hot news" misappropriation survives preemption, the NBA failed to show any free-riding behavior or competitive harm from the SportsTrax pagers.
CASES EXPANDING INS
In the twenty years following INS two New York cases involving broadcast piracy broadened the scope of misappropriation doctrine. In Twentieth Century Sporting Club, Inc. v. Transradio Press Service, 300 N.Y.S. 159 (N.Y. Sup. Ct. 1937), the plaintiff promoter of boxing matches had an exclusive contract with NBC to broadcast information of the matches in progress to radio stations. The rival defendant placed "spotters" at the match, who would relay information to produce a competing broadcast. Because the information relayed by the defendant relied at least in part on the plaintiff’s broadcast, the court held that the practice was unlawful misappropriation. Similarly, the court in Metropolitan Opera Assoc. v. Wagner-Nichols Recorder Corp., 101 N.Y.S.2d 483 (1950) found that the defendant’s taping of ABC broadcasts from the Opera and making records from these tapes interfered with Metropolitan Opera’s exclusive contracts with ABC to broadcast and Columbia Records to make records of the music. (Note that in 1976, sound recordings became protected under copyright law.)
A rare example of a case where misappropriation was found between non-competing parties is Board of Trade of the City of Chicago v. Dow Jones & Co., Inc., 98 Ill. 2d 109 (1983). In this case, the Chicago Board of Trade (CBT) wanted to enter the market of selling futures contracts, and devised an index for the contracts based on and mirroring the Dow Jones Industrial Average. CBT disclaimed any association with Dow Jones and claimed that there was no misappropriation because the futures contracts were of CBT’s own making, in no competition with Dow Jones, and the Dow Jones index was used only for reference. Dow Jones argued that CBT’s use of the Dow Jones index was free-riding on the goodwill built up in the Dow Jones name. The court noted that the law and its underlying policies did not mark a clear winner in this case. In finding for Dow Jones, the court balanced the potential effects of either decision. It concluded that while a finding for CBT would only cause Dow Jones to lose potential licensing revenue in the futures contracts market, a ruling for Dow Jones may have a beneficial effect for society because it will spur the creation of new indices that may prove to be better for the futures contract market than the Dow Jones.
In U.S. Sporting Products, Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W. 2d 214 (Texas Ct. App., 10th Dist. 1993) Johnny Stewart Game Calls sold tapes of animal sounds to hunters to aid in luring game. Sporting Products copied certain sounds from one of these tapes, arranged them in a different order, and sold a competing tape. (To browse examples of these animal sounds, click here.) The court held that this constituted free-riding on Game Calls’ efforts, issued a permanent injunction, and awarded substantial damages.
The net result of these sharply differentiated lines of adjudication is that the law of misappropriation is an unusually muddy field and litigants with divergent interests can often find in this body of law something to suit their purposes.