12 December, 2013

Retrospective - Passing Off in the United States

The tort of passing off has been discussed on this blog before, yet the tort primarily exists in that form in some common law countries, such as the United Kingdom and Australia, but takes a different form in the US. The term more commonly used in America is not 'passing off', but 'misappropriation'. Misappropriation falls under the tort of unfair competition in the US, made even more complex through the existence of varying laws in all US States pertaining to unfair competition. The common law origins of misappropriation stem from a decision in the early 20th century.

The milestone case concerning misappropriation was International News Service v Associated Press, decided in 1918 by the US Supreme Court. Both parties in the case dealt with the distribution of news in the US, both of which exist even today as independent news agencies or having merged with others. The Associated Press at the time of the case was a representative organization of 950 newspapers all over the US. News items were shared between its members through a bulletin boards, some of which were taken by the International News Services (in addition to news from early editions of newspapers), rewritten and published in different parts of the US for sale, fully utilizing the time differences in the vast country. The Associated Press did not take to this kindly and took the International News Services to court, finally reaching the US Supreme Court.

The Supreme Court had to look at whether International News Services infringed the Associated Press' property rights in their literary work, and whether this amount to unfair competitive practices in business. The Court shortly touched on the existence of copyright in news, and saw no breach of it in International News Services' practices; however what was paramount to the Supreme Court was whether this would be unfair competition. The Court admitted there was no breach of confidence, although it was speculated that some of the news published by International News Services was obtained through paying some of Associated Press' employees to obtain early copies of news articles.

The work put into news can sometimes be extraordinary
The Court's focus turned to the effort and expenditure used by the Associated Press to acquire their news, stated by Justice Pitney: "Not only do the acquisition and transmission of news require elaborate organization and a large expenditure of money, skill, and effort; not only has it an exchange value to the gatherer, dependent chiefly upon its novelty and freshness, the regularity of the service, its reputed reliability and thoroughness, and its adaptability to the public needs; but also, as is evident, the news has an exchange value to one who can misappropriate it". News as a copyrighted work has very little value, but its main value is in its initial delivery and punctuality; one which was clearly abused by International News Services by obtaining and publishing the Associated Press' news. Due to this expenditure and labor which has been placed into the collection of the current news, and without International News Services actually contributing to it and still using it, they are "...endeavoring to reap where it has not sown", which amounts to "...an unauthorized interference with the normal operation of [Associated Press'] legitimate business precisely at the point where the profit is to be reaped". To further his point, Justice Pitney saw that this was underpinned by the equitable consideration of consideration, or in other words: "...he who has fairly paid the price should have the beneficial use of the property". Clearly the Associated Press should be able to enjoy the fruits of their labor, whereas if International News Services were allowed to swoop in and utilize that work and benefit, it would undermine the Associated Press' equitable interest; making International News Services' actions unfair competition.

Although news in itself is not the property of anyone or any entity, the Court saw it akin to quasi-property through its use. Justice Pitney summarized this well:
"Regarding news matter as the mere material from which these two competing parties are endeavoring to make money, and treating it, therefore, as quasi property for the purposes of their business because they are both selling it as such, defendant's conduct differs from the ordinary case of unfair competition in trade principally in this that, instead of selling its own goods as those of complainant, it substitutes misappropriation in the place of misrepresentation, and sells complainant's goods as its own". 
As such International News Services, by using the quasi-property of the Associated Press, misappropriated that property, and although they did not show any misrepresentation, prevented the Associated Press from enjoying the benefits of their work. International News Services' appeal was therefore unsuccessful.

The current form of misappropriation is slightly more developed since its inception. The requirements were well set-out in the case of National Basketball Association v Motorola, where Circuit Judge Winter set them out as:
"(i) the plaintiff generates or collects information at some cost or expense; (ii) the value of the information is highly time-sensitive; (iii) the defendant's use of the information constitutes free-riding on the plaintiff's costly efforts to generate or collect it; (iv) the defendant's use of the information is in direct competition with a product or service offered by the plaintiff; (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... rend[ering] [the] publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return".
As one can observe, misappropriation is a much looser, more flexible doctrine than that of passing off. The attitude of both judiciaries is the same however, preventing others from using the work or labor of another for their own benefit.

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