The misappropriation doctrine is a U.S. legal theory conferring a "quasi-property right" on a person who invests "labor, skill, and money" to create an intangible asset. The right operates against another person (usually a competitor of the first person) "endeavoring to reap where it has not sown" by "misappropriating" the value of the asset (ordinarily by copying what the first person has created). The quoted language and the legal principle come from the decision of the United States Supreme Court in International News Service v. Associated Press, 248 U.S. 215 (1918), also known as INS v. AP or simply the INS case.
The misappropriation doctrine originated as federal common law but since 1938 it has been based on state law. The current viability of the misappropriation doctrine is uncertain because of subsequent developments in U.S. patent and copyright law that "preempt" state law that operates in the same field of law, as is explained in the article on INS v. AP.
Legal setting in which doctrine arose
Why doctrine developed under federal law but is now under state law
In 1918 when the Supreme Court decided the INS case, a body of federal common law concerning business practices and torts existed that the Supreme Court had power to declare or create. This legal regime stemmed from the 1842 decision of the Supreme Court in Swift v. Tyson.41 U.S. 1 (1842). That case held that the federal courts, when deciding legal issues not specifically addressed by the applicable state legislature, had the authority to develop a federal common law. In 1938, however, in Erie Railroad Co. v. Tompkins,304 U.S. 64 (1938). the Supreme Court overruled Swift v. Tyson. Consequently, since that time the misappropriation doctrine fell under the control of the laws of the various states, which were therefore free to accept or reject it.
Previous state of unfair competition law
Before the INS case, unfair competition law was generally considered to be limited to cases of "palming off"—where the defendant deceived customers by causing them erroneously to believe that the defendant's product emanated from the plaintiff, and as a result diverted trade from the plaintiff to the defendant.See Paul Goldstein, Federal System Ordering of the Copyright Interest, 69 49, 58 (1969). The INS case extended the concept of unfair competition to a much wider range of business conduct, based on the particular court's concept of morality.In New Jersey, for example, "the tort of Unfair Competition protects businesses from the commercial immortality of others. There is no one standard for the tort, rather at its essence are notions of fair play. As a concept, it is said to be as 'flexible and elastic' as is demanded by the ever evolving standards of commercial morality." Law for Change . See also Roy Export Co. Establishment v. Columbia Broadcasting System, Inc., 672 F.2d 1095, 1105 (2d Cir. 1982) (New York unfair competition law: "encompassing any form of commercial immorality").
The INS case
Background
The INS case, the cornerstone of the misappropriation doctrine, arose out of a dispute between two news gathering organizations, the Associated Press (AP) and the International News Service (INS) over reporting World War I news. The Allied Powers (England and France) perceived William Randolph Hearst's INS to be unduly favorable to the Central Powers (Germany and Austria); therefore, the Allies barred INS from using Allied telegraph lines to report news; this effectively prevented INS from reporting war news. To deal with this, INS copied AP's news bulletins from publicly accessible sources, rewrite them, and distributed the rewrites to INS's client newspapers. The AP then brought an action seeking to enjoin INS from copying AP-gathered news.News Pirating Case in Supreme Court, , May 3, 1918.
Supreme Court ruling
The Supreme Court ruled in favor of the AP, with Justice Pitney writing for the majority. Justices Holmes and Brandeis wrote dissents.
Majority opinion
The majority opinion by Justice Pitney recognized that the information found in the AP news was not copyrightable. Instead, Pitney approached the issue from the perspective of unfair competition. He found that there was a "quasi-property right" in the fresh news as it is "stock in trade to be gathered at the cost of enterprise, organization, skill, labor and money, and to be distributed and sold to those who will pay money for it." Given the "economic value" of the news, a company can "therefore" have a limited property interest in it against a competitor (but not against the general public) who would attempt to take unfair advantage of the information.See See INS v. AP, 248 U.S. at 234-38.
The Court characterized INS's behavior as "misappropriation."See INS v. AP, 248 U.S. at 240, 242. Due to the tenuous value of "hot" news, Pitney narrowed the period for which the proprietary right would apply: copying was forbidden "only to the extent necessary to prevent that competitor from reaping the fruits of complainant's efforts and expenditure."See INS v. AP, 248 U.S. at 241.
The Court justified its creation of a "quasi-property right" in these terms:
Holmes dissent
Justice Holmes dissented, arguing that the law of unfair competition requires a misrepresentation. If the misrepresentation here is that some people may think AP copied the news from INS, the proper remedy would be only to prohibit INS (for a limited time) from copying from AP unless it provides a notice that it copied from AP.See INS v. AP, 248 U.S. at 246-48.
Brandeis dissent
Justice Brandeis dissented on the grounds that "reaping where another sowed" is not an actionable tort: "[O]rdinarily one is at perfect liberty to find out, if he can by lawful means, trade secrets of another, however valuable, and then use the knowledge so acquired gainfully, although it cost the original owner much in effort and in money to collect or produce."See See INS v. AP, 248 U.S. at 257.
Brandeis closed his dissent with an argument that the Court was ill-suited to act as a legislature and the matter should be left to the wisdom of Congress:
The creation or recognition by courts of a new private right may work serious injury to the general public, unless the boundaries of the right are definitely established and wisely guarded. ... A Legislature, urged to enact a law by which one news agency or newspaper may prevent appropriation of the fruits of its labors by another, would consider . . . [possible adverse effects on the public and other businesses]. Legislators might conclude that it was impossible to put an end to the obvious injustice involved in such appropriation of news, without opening the door to other evils, greater than that sought to be remedied.
Courts are ill-equipped to make the investigations which should precede a determination of the limitations which should be set upon any property right in news or of the circumstances under which news gathered by a private agency should be deemed affected with a public interest. Courts would be powerless to prescribe the detailed regulations essential to full enjoyment of the rights conferred or to introduce the machinery required for enforcement of such regulations. Considerations such as these should lead us to decline to establish a new rule of law . . .See INS v. AP, 248 U.S. at 262-63, 264, 267.
Subsequent developments
Although INS was a landmark case when it was decided, subsequent developments have diminished its significance and that of the misappropriation doctrine. A leading copyright law scholar has commented:
It has been suggested that the credence due the International News Service case today is minimal: that subsequent decisions have restricted its [misappropriation] doctrine to the news context and that, in any event, it is but a derelict of the federal common law, untenable after Erie R.R. v. Tompkins.Paul Goldstein, 69 at 49 (1969).
Seventh Circuit Judge Posner similarly remarked that INS is "a decision no longer authoritative because it was based on the federal courts' subsequently abandoned authority to formulate common law principles . . . .Confold Pacific, Inc. v. Polaris Indus., Inc., 433 F.3d 952, 960 (7th Cir. 2006).
The misappropriation doctrine still persists, however, in the area of "hot news" and other time-value information and in those states that give the INS doctrine expansive scope against "immoral" commercial behavior, typically involving copying.
An additional factor affecting the scope and viability of the misappropriation doctrine has been the development of the federal preemption doctrine since the 1960s.See Sears v. Stiffel and Compco v. Day-Brite. This doctrine makes state law ineffective when it conflicts with or disturbs the balance between competition and monopoly struck in the federal intellectual property laws. On the other hand, the misappropriation doctrine has not been preempted in areas where a type of copying is not regulated under federal copyright or patent law.See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974); Goldstein v. California, 412 U.S. 546 (1973). But the limits of this dispensation are uncertain: the boundary condition may be that state law may operate so long as the omission from federal regulation is not the result of a congressional decision that the area should be left open to free competition; an alternative boundary rule may be that the state law must not upset a delicate balance which the court perceives that the federal system has struck.See Leo J. Raskind, Assessing the Impact of Feist, 17 331 (1992). See also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989) ("We believe that the Florida statute . . . so substantially impedes the public use of the otherwise unprotected design and utilitarian ideas embodied in unpatented [products that the Florida law protects] as to run afoul of the teaching of . . . Sears and Compco.").
Effect of Kellogg case
In Kellogg Co. v. National Biscuit Co.,305 U.S. 111 (1938). in 1938, the Supreme Court considered a case arguably akin to INS but (with Justice Brandeis now writing for the Court's majority instead of dissenting as in INS) denied relief. The Kellogg Court said:
Kellogg Company is undoubtedly sharing in the goodwill of the article known as Shredded Wheat; and thus is sharing in a market which was created by the skill and judgment of plaintiff's predecessor and has been widely extended by vast expenditures in advertising persistently made. But that is not unfair. Sharing in the goodwill of an article unprotected by patent or trade-mark is the exercise of a right possessed by all—and in the free exercise of which the consuming public is deeply interested.305 U.S. at 122.
One commentator maintained that one could properly— ... view Kellogg as vindication of the views that he [Brandeis] expressed in INS. That Nabisco had invested in the shredded wheat product did not give it control over the use of the pillow shape (or the term SHREDDED WHEAT); it had no property right against misappropriation of the shape after the expiry of the patents. Instead, Brandeis inquired [only] whether Kellogg had engaged in any acts of misrepresentation.Graeme B. Dinwoodie, The Story of Kellogg Co. v. National Biscuit Co.: Breakfast with Brandeis 29 (2005).
Since Kellogg did not misrepresent its version of Shredded Wheat, the Court held it free to appropriate the unpatented, uncopyrighted biscuit features regardless of Nabisco's expenditure of labor, skill, and money, and it allowed Kellogg to reap where Nabisco had sown.
Effect of Sears and Compco cases