NEW YORK (
) -- A federal judge's ruling restricting the right of a financial news Web site to disseminate information about analyst rating changes flies in the face of the First Amendment and impairs the smooth operation of a free marketplace.
U.S. District Judge Denise Cote on Thursday ruled in favor of
Bank of America's
Merrill Lynch in an action against theflyonthewall.com for disseminating "time-sensitive recommendations" of analysts before those recommendations have been fully delivered to clients.
to pay Barclays $6,750 and Morgan Stanley $6,000 in damages.
I don't begrudge these banks for trying to protect proprietary analyst recommendations. Clients pay good money for this kind of thing. The banks should do all they can to make sure clients see this information first, before it is widely disseminated.
But to limit theflyonthewall.com, or any other media outlet, from making this information more widely available -- assuming it is legally obtained -- serves only to impede the free flow of information that is critical to an efficient marketplace.
Cote, in her 89-page decision, concedes that the information contained in analyst reports are in the public interest. But she argues banks would be disincentivized from producing such information if they could not make money off of it. Therefore, the public interest is served by placing restrictions on the media's right to report the information as soon as it becomes available to them.
Fair enough, but markets react to analyst recommendations. The media's role in the operation of a free marketplace is to make as much information available for public consumption as possible, as soon as possible. The courts should not protect the interests of a few at the expense of many.
Moreover, there are other avenues for the banks outside of the courts to protect proprietary information and give clients access to it first. Media companies already have a tough time getting access to analyst research that is moving markets -- the banks and research outfits often are loath to just hand it over. And by the time the media do get access to this research, the clients who share it with us have already had a chance to trade on it.
Banks can make it even harder, if they want. Put the reports on encrypted servers, where the information cannot be copied and passed along. Go after clients who made the information available to outsiders, and cut off access for offenders to future reports. Sure, that kind of detective work is expensive. So charge more for the research to make up the difference.
I'm sure these things are already being done in some way, shape or form. And I know none of these solutions will be warmly embraced by bank clients. But at least they do not raise constitutional hackles. They are a necessary evil in an age in which the public and the marketplace crave more information than ever, delivered immediately.
The courts' job is to protect intellectual property rights, while preserving what is in the public interest. It's not to make things easier for multibillion-dollar banks.
-- Written by Michael Gannon in New York.
Gannon joined TheStreet.com in March 2007, after spending more than six years as a reporter and editor for The Journal News in Westchester County, N.Y., most recently as an assistant metro editor. He earlier covered several political and government beats as a reporter, including the city of Yonkers. Earlier in his career, he covered venture capital, private equity and the IPO market for Thomson Financial?s Venture Capital Journal and advertising for Sales-Fax, a small, independent trade weekly. He earned a B.A. in history from the College of the Holy Cross and an M.S. in journalism from Northwestern University?s Medill School.