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Swatch Your Back -- Copyrighted Corporate Earnings Calls Are Fair Game

By Barry Werbin and Sharon O'Shaughnessy
Herrick, Feinstein LLP

In The Swatch Group Management Services Ltd. v. Bloomberg L.P., 12-2412-cv (2d Cir. Jan. 27, 2014), a Second Circuit panel unanimously decided that Bloomberg L.P. (Bloomberg), the prominent financial news and data reporting service, did not infringe on The Swatch Group Management Services Ltd's (Swatch) copyright in an invitation-only recorded Swatch earnings call, by obtaining a copy of the recording without authorization and making it available to Bloomberg's paying subscribers. Despite the failure of Bloomberg to manifestly transform the recording in any way before publication, the Second Circuit nonetheless held that Bloomberg's use of the recording qualified as fair use under Section 107 of the Copyright Act. The court emphasized that American investors and analysts are entitled to receive newsworthy financial information and that Bloomberg's conduct is protected by the First Amendment.

On February 8, 2011, Swatch released its 2010 earnings report, which was subsequently made available to the public. Swatch then convened an earnings call with 132 analysts, who were informed that they were expressly prohibited from recording the call for publication or broadcast. Bloomberg, while not invited to the call, obtained a sound recording and written transcript of the call and made both available online, without alteration, to its subscribers. Swatch then sued for copyright infringement. In an opinion and order entered on May 17, 2012, Southern District Judge Alvin Hellerstein sua sponte granted summary judgment to Bloomberg, finding that Bloomberg's copying and dissemination of the recording qualified as fair use.

On appeal, the Second Circuit engaged in its own analysis of the fair use factors under 17 U.S.C. ยง 107 and affirmed the district court's grant of summary judgment in favor of Bloomberg, concluding that "the copyright law's goal of promoting the Progress of Science and useful Arts would be better served by allowing [Bloomberg's] use than by preventing it."

Turning to the first statutory fair use factor, "purpose and character of use," the court held that, although Bloomberg obtained the recording without authorization and put it to commercial use without transforming it, Bloomberg's use served an important public purpose of ensuring the wide dissemination of important financial information.

The court emphasized that "Bloomberg's overriding purpose here was not to 'scoop[]' Swatch or 'supplant the copyright holder's commercially valuable right of first publication," but rather simply to deliver newsworthy financial information to American investors and analysts. That kind of activity, whose protection lies at the core of the First Amendment, would be crippled if the news media and similar organizations were limited to authorized sources of information."

Moreover, after stressing that "transformative use" is not absolutely necessary for a finding of fair use, the court held that, in the context of news reporting and analogous activities, "the need to convey information to the public accurately may in some instances make it desirable and consonant with copyright law for a defendant to faithfully reproduce an original work rather than transform it."

With respect to the second statutory fair use factor, "the nature of the copyrighted work," the court determined that the balance tipped decidedly in Bloomberg's favor because, while the recording had not been "published" by Swatch as that term is applied under the Copyright Act, Swatch itself publicly disseminated the spoken performance embodied in the recording before Bloomberg's use and the earnings call was factual in nature. As the court noted, "the scope of fair use is greater with respect to factual than non-factual works."

Next, while the court declined to weigh the third "substantiality" factor in either party's favor, it did find that Bloomberg's use of the entire recording was nonetheless reasonable "in light of its purposes of disseminating important financial information to American investors and analysts."

Lastly, the court determined that the fourth statutory factor, "the effect of the use upon the potential market for or value of the copyrighted work," weighed in favor of fair use because Second Circuit case law limits the court's consideration to a use's "impact on potential licensing revenues for traditional, reasonable, or likely to be developed markets" and the possibility of receiving licensing royalties in no way factored into the creation of the earnings call. Furthermore, the court highlighted that the "value" of the copyrighted expression for Swatch rested in its capacity to convey important information about the company to interested investment analysts and that Bloomberg, "[b]y making the recording available to analysts who did not or could not participate in the call initially... simply widened the audience of that call, which is consistent with Swatch Group's initial purpose."

This decision continues what many see as a trend in the Second Circuit to expand the contours of the fair use doctrine. Interestingly, this is only the sixth time the Second Circuit has addressed the fair use doctrine in the past decade in a reported decision.

A copy of the Second Circuit decision is available here: http://caselaw.findlaw.com/us-2nd-circuit/1655777.html.

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This page contains a single entry from the blog posted on February 3, 2014 9:35 AM.

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