CITE: 105 F.3d 841
CMON: January 1997
PLAIN: NBA
DEFND: Motorola and Sport Team Analysis
COURT: United States Court of Appeals for the Second Circuit
DATE: January 30, 1997
HISTORY:
Motorola and Sports Team Analysis and Tracking Systems ("STATS") appeal
from a permanent injunction entered by the United States District Court
for the Southern District of New York (Loretta A. Preska, Judge) barring,
inter alia, the sale of a handheld pager that displays updated scores and
statistics of National Basketball Association games as they are played.
The NBA and NBA Properties, Inc. cross-appeal from the district court's
dismissal of its Lanham Act claim. We hold that Motorola and STATS have
not unlawfully misappropriated NBA's property by transmitting "real-time"
NBA game scores and statistics taken from television and radio broadcasts
of games in progress. We therefore reverse on the misappropriation claim
and vacate the injunction. On the cross-appeal, we affirm.
SUMMARY:
Sports events are not "authored" and therefore not copyrightable,
but recorded broadcasts of such events are copyrightable. Facts
and statistics about sports events are not copyrightable.
JUDGE: WINTER, Circuit Judge
Before: VAN GRAAFEILAND, WINTER, and ALTIMARI, Circuit Judges.
DECISION:
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 ("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 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.
I. BACKGROUND
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. 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.
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
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. Section 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;
(v) federal copyright infringement; and (vi) unlawful interception of
communications under the Communications Act of 1934, 47 U.S.C. Section 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.
II. THE STATE LAW MISAPPROPRIATION CLAIM
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 (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 news stories by wire
to member newspapers. Id. 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 passed legislation expressly affording copyright
protection to simultaneously-recorded broadcasts of live performances such
as sports events. See 17 U.S.C. Section 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. Section 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;
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. Section 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 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. 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 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 Section 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. See Prod. Contractors, Inc. v. WGN Continental Broad. Co., 622 F. Supp.
1500 (N.D. Ill. 1985) (Christmas parade is not a work of authorship
entitled to copyright protection). In claiming a copyright in the
underlying games, the NBA relied in part on a footnote in Baltimore
Orioles, Inc. v. Major League Baseball Players Assn., 805 F.2d 663, 669 n.7
(7th Cir. 1986), cert. denied, 480 U.S. 941 (1987), which stated that the
"players' performances" contain the "modest creativity required for
copyrightability". However, the court went on to state, "Moreover, even
if the players' performances were not sufficiently creative, the players
agree that the cameramen and director contribute creative labor to the
telecasts." Id. This last sentence indicates that the court was considering
the copyrightability of telecasts -- not the underlying games, which
obviously can be played without cameras.
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 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. Section 102(a). Accordingly,
Section 101 of the Act, containing definitions, was amended to read:
A work consisting of sounds, images, or both, that are being
transmitted, is "fixed" for purposes of this title if a fixation of
the work is being made simultaneously with its transmission.
17 U.S.C. Section 101. Congress specifically had sporting events in mind:
The bill seeks to resolve, through the definition of "fixation" in
section 101, the status of live broadcasts -- sports, news coverage,
live performances of music, etc. -- that are reaching the public in
unfixed form but that are simultaneously being recorded.
H.R. No. 94-1476 at 52, reprinted in 1976 U.S.C.C.A.N. at 5665. The House
Report also makes clear that it is the broadcast, not the underlying game,
that is the subject of copyright protection. In explaining how game
broadcasts meet the Act's requirement that the subject matter be an
"original work[] of authorship", 17 U.S.C. Section 102(a), the House Report
stated:
When a football game is being covered by four television cameras, with
a director guiding the activities of the four cameramen and choosing
which of their electronic images are sent out to the public and
in what order, there is little doubt that what the cameramen and
the director are doing constitutes "authorship".
H.R. No. 94-1476 at 52, reprinted in 1976 U.S.C.C.A.N. at 5665.
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 Co., 499 U.S. 340, 350 (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 (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 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. Section 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. Section 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}
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 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), reversed on other
grounds, 471 U.S. 539 (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:
Once a performance is reduced to tangible form, there is no
distinction between the performance and the recording of the
performance for the purposes of preemption under Section 301(a).
Thus, if a baseball game were not broadcast or were telecast without
being recorded, the Players' performances similarly would not be fixed
in tangible form and their rights of publicity would not be subject
to preemption. By virtue of being videotaped, however, the Players'
performances are fixed in tangible form, and any rights of publicity
in their performances that are equivalent to the rights contained
in the copyright of the telecast are preempted.
Baltimore Orioles, 805 F.2d at 675 (citation omitted).
Copyrightable material often contains uncopyrightable elements within it,
but Section 301 preemption bars state law misappropriation claims with
respect to uncopyrightable as well as copyrightable elements. In Harper
& Row, for example, we held that state law claims based on the copying
of excerpts from President Ford's memoirs were preempted even with respect
to information that was purely factual and not copyrightable. We stated:
The [Copyright] Act clearly embraces "works of authorship", including
"literary works", as within its subject matter. The fact that portions
of the Ford memoirs may consist of uncopyrightable material . . .
does not take the work as a whole outside the subject matter
protected by the Act. Were this not so, states would be free
to expand the perimeters of copyright protection to their own liking,
on the theory that preemption would be no bar to state protection
of material not meeting federal statutory standards.
723 F.2d at 200 (citation omitted). The legislative history supports this
understanding of Section 301(a)'s subject matter requirement. The House
Report stated:
As long as a work fits within one of the general subject matter
categories of sections 102 and 103, the bill prevents the States from
protecting it even if it fails to achieve Federal statutory copyright
because it is too minimal or lacking in originality to qualify,
or because it has fallen into the public domain.
H.R. No. 94-1476 at 131, reprinted in 1976 U.S.C.C.A.N. at 5747. See also
Baltimore Orioles, 805 F.2d at 676 (citing excerpts of House Report 94-1476).
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
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's software and data are "fixed in a tangible medium of
expression", and the district judge held that they are "within the
subject matter of copyright". The latter conclusion is plainly right
for the copyrighted application program, and the judge thought that
the data likewise are "within the subject matter of copyright"
even if, after Feist, they are not sufficiently original to be
copyrighted. 908 F. Supp. at 656-57. Baltimore Orioles, Inc. v.
Major League Baseball Players Ass'n, 805 F.2d 663, 676 (7th Cir.
1986), supports that conclusion, with which commentators agree. . . .
One function of Section 301(a) is to prevent states from giving special
protection to works of authorship that Congress has decided should be
in the public domain, which it can accomplish only if "subject matter
of copyright" includes all works of a type covered by sections 102
and 103, even if federal law does not afford protection to them.
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). 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:
But if an "extra element" is "required instead of or in addition to
the acts of reproduction, performance, distribution or display, in
order to constitute a state-created cause of action, then the right
does not lie 'within the general scope of copyright', and there is
no preemption."
Id. (quoting 1 Nimmer on Copyright Section 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 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 (1987) ("FII"). This conclusion
is based in part on the legislative history of the 1976 amendments.
The House Report stated:
"Misappropriation" is not necessarily synonymous with copyright
infringement, and thus a cause of action labeled as "misappropriation"
is not preempted if it is in fact based neither on a right within the
general scope of copyright as specified by section 106 nor on a right
equivalent thereto. For example, state law should have the flexibility
to afford a remedy (under traditional principles of equity) against a
consistent pattern of unauthorized appropriation by a competitor of
the facts (i.e., not the literary expression) constituting "hot" news,
whether in the traditional mold of International News Service v.
Associated Press, 248 U.S. 215 (1918), or in the newer form of data
updates from scientific, business, or financial data bases.
H.R. No. 94-1476 at 132, reprinted in 1976 U.S.C.C.A.N. at 5748 (footnote
omitted), {n5} see also FII, 808 F.2d at 209 ("'misappropriation' of 'hot'
news, under International News Service, [is] a branch of the unfair
competition doctrine not preempted by the Copyright Act according to
the House Report") (citation omitted)). 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 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 (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
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 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 federal 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 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. For example, Metropolitan
Opera, 199 Misc. 786, 101 N.Y.S.2d 483, involved the unauthorized copying,
marketing, and sale of opera radio broadcasts. As another example, in
Mutual Broadcasting System v. Muzak Corp., 177 Misc. 489, 30 N.Y.S.2d 419
(Sup. Ct. 1941), the defendant simultaneously retransmitted the plaintiff's
baseball radio broadcasts onto telephone lines. As discussed above, the
1976 amendments to the Copyright Act were specifically designed to afford
copyright protection to simultaneously-recorded broadcasts, and Metropolitan
Opera and Muzak could today be brought as copyright infringement cases.
Moreover, we believe that they would have to be brought as copyright cases
because the amendments affording broadcasts copyright protection also
preempted the state law misappropriation claims under which they were
decided.
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), Section 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}
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, Section 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 Section 38 at cmt. c.;
McCarthy, Section 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, Section 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 cut off the service by rendering the cost
prohibitive in comparison with the return.") {n8}
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-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 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 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
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 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}
III. THE NBA'S CROSS-APPEAL
The NBA cross-appeals from the district court's dismissal of its false
advertising claim under Section 43(a) of the Lanham Act, 15 U.S.C. Section
1125(a). {n11} This claim was based on a January 1996 Motorola press
release stating that SportsTrax provides "updated game information direct
from each arena" which "originates from the press table in each arena" and
on a statement appearing on the spine of the retail box and on the
retail display stand that SportsTrax provides "game updates from the arena".
NBA argues that because STATS reporters collect their information from
television and radio broadcasts, the information is not "direct from each
arena" or even "from the arena". Motorola responds that the statement
about information coming from the press table was an isolated remark
occurring only in that press release. It also claims that the assertion
that the game updates come "from the arena" is not literally false,
presumably because the factual information does originate in the arena.
To establish a false advertising claim under Section 43(a), the plaintiff
must demonstrate that the statement in the challenged advertisement is false.
"Falsity may be established by proving that (1) the advertising is literally
false as a factual matter, or (2) although the advertisement is literally
true, it is likely to deceive or confuse customers." Lipton v. Nature Co.,
71 F.3d 464, 474 (2d Cir. 1995). However, in addition to proving falsity,
the plaintiff must also show that the defendants "misrepresented an
'inherent quality or characteristic'" of the product. National Assoc.
of Pharm. Mfrs. v. Ayerst Lab., 850 F.2d 904, 917 (2d Cir. 1988) (quoting
Vidal Sassoon, Inc. v. Bristol-Myers Co., 661 F.2d 272, 278 (2d Cir. 1981)).
This requirement is essentially one of materiality, a term explicitly used
in other circuits. See American Tel. & Tel. Co. v. Winback and Conserve
Program, Inc., 42 F.3d 1421, 1428 n. 9 (3d Cir. 1994) (plaintiff alleging
false advertising must prove "that the deception is material in that it
is likely to influence purchasing decisions") (citations and internal
quotation marks omitted), cert. denied, 131 L. Ed. 2d 757, 115 S. Ct. 1838
(1995); ALPO Petfoods, Inc. v. Ralston Purina Co., 286 U.S. App. D.C. 192,
913 F.2d 958, 964 (D.C. Cir. 1990) (false or misleading ads must be
"material in their effects on buying decisions"); Taquino v. Teledyne Monarch
Rubber, 893 F.2d 1488, 1500 (5th Cir. 1990) (deception must be "material,
in that it is likely to influence the purchasing decision"); see also
3 McCarthy on Trademarks Section 27:35 at 27-54 (there must be "some
showing that the defendant's misrepresentation was 'material' in the
sense that it would have some effect on consumers' purchasing decisions.").
The district court found, "after viewing the complained-of statements in this
action in their context," that "the statements as to the particular origin of
game updates constitute nothing more than minutiae about SportsTrax." 939
F. Supp. at 1110. We agree with the district court that the statements in
question are not material in the present factual context. The inaccuracy
in the statements would not influence consumers at the present time, whose
interest in obtaining updated game scores on pagers is served only by
SportsTrax. Whether the data is taken from broadcasts instead of being
observed first-hand is, therefore, simply irrelevant. However, we note
that if the NBA were in the future to market a rival pager with a direct
data-feed from the arenas -- perhaps with quicker updates than SportsTrax
and official statistics -- then Motorola's statements regarding source
might well be materially misleading. On the present facts, however, the
complained-of statements are not material and do not misrepresent an
inherent quality or characteristic of the product.
IV. CONCLUSION
We vacate the injunction entered by the district court and order that the
NBA's claim for misappropriation be dismissed. We affirm the district
court's dismissal of the NBA's claim for false advertising under
Section 43(a) of the Lanham Act.
FOOTNOTES:
{n1} The other three SportsTrax modes involve information that is far
less contemporaneous than that provided in the "current" mode. In the
"statistics" mode, the SportsTrax pager displays a variety of player and
team statistics, such as field goal shooting percentages and top scorers.
However, these are calculated only at half-time and when the game is over.
In the "final scores" mode, the unit displays final scores from the
previous day's games. In the "demonstration" mode, the unit merely
simulates information shown during a hypothetical NBA game. The core issue
in the instant matter is the dissemination of continuously-updated
real-time NBA game information in the "current" mode. Because we conclude
that the dissemination of such real-time information is lawful, the other
modes need no further description or discussion.
{n2} The NBA moved initially for a preliminary injunction and a hearing
was held on that motion. Subsequently, the parties agreed to consolidate
the hearing into a trial on the merits, submitting supplemental briefing
and attending an additional oral argument.
{n3} The text of Section 102(a) reads:
Section 102. Subject matter of copyright: In general
(a) Copyright protection subsists, in accordance with this title,
in original works of authorship fixed in any tangible medium of
expression, now known or later developed, from which they can be
perceived, reproduced, or otherwise communicated, either directly or
with the aid of a machine or device. Works of authorship include
the following categories:
(1) literary works;
(2) musical works, including any accompanying words;
(3) dramatic works, including any accompanying music;
(4) pantomimes and choreographic works;
(5) pictorial, graphic, and sculptural works;
(6) motion pictures and other audiovisual works;
(7) sound recordings; and
(8) architectural works.
{n4} The relevant portions of the statute, 17 U.S.C. Section 301, read:
Section 301. Preemption with respect to other laws
(a) On and after January 1, 1978, all legal or equitable rights that
are equivalent to any of the exclusive rights within the general scope
of copyright as specified by section 106 in works of authorship that
are fixed in a tangible medium of expression and come within the
subject matter of copyright as specified by sections 102 and 103,
whether created before or after that date and whether published or
unpublished, are governed exclusively by this title. Thereafter, no
person is entitled to any such right or equivalent right in any such
work under the common law or statutes of any State.
(b) Nothing in this title annuls or limits any rights or remedies
under the common law or statutes of any State with respect to--
(1) subject matter that does not come within the subject matter
of copyright as specified by sections 102 and 103, including
works of authorship not fixed in any tangible medium of
expression; or . . .
(3) activities violating legal or equitable rights that are not
equivalent to any of the exclusive rights within the general
scope of copyright as specified by section 106.
{n5} Although this passage implies that INS survives preemption because it
fails the general scope requirement, Nimmer apparently takes the view
adopted by the district court, namely that INS survives preemption because
the subject matter requirement is not met. Nimmer Section 1.01[B][2][b]
at 1-44.2.
{n6} State law claims involving breach of fiduciary duties or trade-secret
claims are not involved in this matter and are not addressed by this
discussion. These claims are generally not preempted because they pass
the "extra elements" test. See Altai, 982 F.2d at 717.
{n7} Quite apart from Copyright Act preemption, INS has long been regarded
with skepticism by many courts and scholars and often confined strictly
to its facts. In particular, Judge Learned Hand was notably hostile to
a broad reading of the case. He wrote:
We think that no more was covered than situations substantially
similar to those then at bar. The difficulties of understanding it
otherwise are insuperable. We are to suppose that the court meant
to create a sort of common-law patent or copyright for reasons of
justice. Either would flagrantly conflict with the scheme which
Congress has for more than a century devised to cover the
subject-matter.
Cheney Bros. v. Doris Silk Corp., 35 F.2d 279, 280 (2d Cir. 1929), cert.
denied, 281 U.S. 728 (1930). See also Restatement (Third) of Unfair
Competition Section 38 cmt. c (1995):
The facts of the INS decision are unusual and may serve, in part,
to limit its rationale . . . . The limited extent to which the INS
rationale has been incorporated into the common law of the states
indicate that the decision is properly viewed as a response to
unusual circumstances rather than as a statement of generally
applicable principles of common law. Many subsequent decisions
have expressly limited the INS case to its facts.
{n8} Some authorities have labeled this element as requiring direct
competition between the defendant and the plaintiff in a primary market.
"In most of the small number of cases in which the misappropriation
doctrine has been determinative, the defendant's appropriation, like that
in INS, resulted in direct competition in the plaintiffs' primary market.
. . Appeals to the misappropriation doctrine are almost always rejected
when the appropriation does not intrude upon the plaintiff's primary
market.", Restatement (Third) of Unfair Competition, Section 38 cmt. c,
at 412-13; see also National Football League v. Delaware, 435 F. Supp.
1372 (D. Del. 1977). In that case, the NFL sued Delaware over the state's
lottery game which was based on NFL games. In dismissing the wrongful
misappropriation claims, the court stated:
While courts have recognized that one has a right to one's own
harvest, this proposition has not been construed to preclude others
from profiting from demands for collateral services generated by
the success of one's business venture.
Id. at 1378. The court also noted, "It is true that Delaware is thus making
profits it would not make but for the existence of the NFL, but I find this
difficult to distinguish from the multitude of charter bus companies who
generate profit from servicing those of plaintiffs' fans who want to go to
the stadium or, indeed, the sidewalk popcorn salesman who services the
crowd as it surges towards the gate." Id.
{n9} It may well be that the NBA's product, when enhanced, will actually
have a competitive edge because its Gamestats system will apparently be
used for a number of in-stadium services as well as the pager market,
resulting in a certain amount of cost-sharing. Gamestats might also have
a temporal advantage in collecting and transmitting official statistics.
Whether this is so does not affect our disposition of this matter, although
it does demonstrate the gulf between this case and INS, where the
free-riding created the danger of no wire service being viable.
{n10} In view of our disposition of this matter, we need not address
appellants' First Amendment and laches defenses.
{n11} The text of 15 U.S.C. Section 1125(a)(1) reads in pertinent part:
1125. False designations of origin, false descriptions, and
dilution forbidden
(a) Civil action; any person
(1) Any person who, on or in connection with any goods or services,
or any container for goods, uses in commerce any word, term, name,
symbol, or device, or any combination thereof, or any false
designation of origin, false or misleading description of fact,
or false or misleading representation of fact, which--
(A) is likely to cause confusion, or to cause mistake, or to
deceive as to the affiliation, connection, or association
of such person with another person, or as to the origin,
sponsorship, or approval of his or her goods, services,
or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents
the nature, characteristics, qualities, or geographic origin
of his or her or another person's goods, services, or
commercial activities,
shall be liable in a civil action by any person who believes that he or
she is or is likely to be damaged by such act.