Federal Court: Copyright Law Might Protect Stock Market Indices

NEW YORK–Yesterday the U.S. District Court for the Southern District of New York ruled that copyright law may protect indices that measure rates and performance in U.S. banking and mortgage markets.

BanxQuote compiled select banking, mortgage, and loan data and then licensed this information to allow Capitol One to measure performance of various U.S. markets. Capitol One then entered into an agreement with Costco Wholesale Corp. to provide a co-branded banking services with high yield savings accounts and CD accounts. BanxQuote alleged Capitol One breached the licensing agreement by redistributing the BanxQuote indices to Costco.

BanxQuote alleged copyright infringement, violation of the DMCA, misappropriation of the time-sensitive data, fraud, breach of contract, unfair competition, and unjust enrichment. Costco and Capitol One responded with a motion to dismiss all claims by arguing the raw data in BanxQuote’s indices were facts and therefore not protected by copyright law. BanxQuote argued it had a copyright in the final values and calculations, because such final values are not facts.

First the court pointed out the problems with obtaining copyright protection for financial market indices. Plaintiff could not seek copyright protection for raw data about interest rates because such data would fail to meet requisite originality requirements under copyright law. Second, the rates paid by investors on negotiable certificates of deposit and high yield savings were objective facts about the banking market, also lacking requisite elements of originality. Third, the information was not protectable even when compiling the data was expensive and time-consuming. Evidence that the indices were authoritative also undercut BankQuote’s case because it suggested the indices had achieved industry-wide acceptance.

The remaining question was whether BanxQuote had pled sufficient facts to allege originality in the method of converting this raw data into final values. BanxQuote argued its method for creating the indices involved complex proprietary algorithm. But the court emphasized the issue was originality, not difficulty of deriving the data. It was relevant that BanxQuate independently developed its methodology for deriving the indicies. But that independence was not sufficient to establish originality because purely objective methodologies could be developed independently.

The court also ruled copyright protection was not barred by the merger doctrine—which ensures that expression is not protected in those instances where there is only one or so few ways of expressing an idea that protection of the expression would effectively accord protection to the idea itself. It is plausible the BanxQuote Indices were sufficiently subjective that a wide range of potential final values would be possible. Thus, the court denied Costco’s motion to dismiss the copyright infringement claims.

The decision to deny Costco’s motion to dismiss copyright infringement claims, written by Judge Kenneth M. Karas, is BanxCorp d/b/a BanxQuote v. Costco Wholesale Corp., S.D.N.Y., No. 09-cv-1783 (July, 13, 2010).

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