As businesses continue to develop creative ways to monetize information in the digital age, friction has developed between the companies that create content and the companies that stand to profit from new models of distribution. In February, the United States District Court in New York addressed some of the basic issues faced by online media outlets when it issued a ruling in favor of the Associated Press (AP) in its lawsuit against online news aggregator All Headline News Corporation.

All Headline News Corporation (AHN) is a Florida-based online business that bills itself as a “leading provider of news, weather, and other content for web sites, wireless, digital signage, interactive applications, broadcast and print use.” The AHN business model does not seem to differ greatly from brick-and-mortar news service models: the company also syndicates its content for republication.

But in the era of instantaneous information transfer, online ventures like AHN pose a challenge to companies like the AP, which also licenses its content to clients for a subscription fee, but also engages in effort and great expense to investigate leads and to develop, report, package and transmit news stories. On the other hand, according to the AP’s complaint, AHN “hires poorly paid persons to find news stories online and prep them for republication under AHN brand, either rewriting the text or copying stories in full.”

Subsequently, the AP filed a lawsuit against AHN in New York federal court for unlawfully copying and altering copyrighted AP news stories. The AP complaint cited AHN for alleged violations of copyright law, trademark law, and common law misappropriation theory liability. AHN attempted to dismiss the lawsuit, but most of its arguments were rejected by Judge Kevin Castel in a ruling that has been examined closely by those in the media and publishing industries.

Interestingly, the AP court’s holding reaffirmed and revived the misappropriation theory of so-called “hot news,” which offers content creators protection beyond copyright law and originates from an earlier era of newspaper publishing. The ruling drew heavily from International News Service v. Associated Press, a 1918 case in which the Associated Press sued the International News Service for gaining access to breaking news leads through bribery and then publishing the stories under its own banner. Copyright law did not (and still does not) protect facts, but the INS court addressed the needs of publishers and the limitations of intellectual property, by characterizing breaking news as the “quasi-property” of news gathering organizations.

Today some states, including New York, still recognize a claim for the misappropriation of “hot news” in order to protect the “expenditure of labor, skill and money” involved in newsgathering. AHN sought dismissal of AP’s claim under New York misappropriation law by arguing that it had been preempted by federal copyright law, since federal copyright statutes preempt conflicting state laws. However, the court rejected this argument and held that the AP’s misappropriation claim under New York law was still viable.

The ruling opens the door to potential liability for news sources on the Internet and also poses the question of what constitutes hot news in the era in which information sources and information distribution channels – blogs, RSS feeds, blogs, news sites and Twitter pages – abound. In a press conference on April 6, 2009, AP chairman William Dean Singleton said that the AP will “work with portals and other partners who legally license our content” and will “seek legal and legislative remedies against those who don’t.”

-By Dava Casoni, Annie Lin