Media observers say the ruling against Meltwater U.S. Holdings Inc. and its Meltwater News Service, if upheld on appeal, could provide strong protection for the news industry as it struggles to survive in an Internet age.
U.S. District Judge Denise Cote rejected Meltwater's claims that its use of Web stories drawn from a scan of 162,000 news websites from more than 190 countries was a fair use of copyright-protected material.
"Through its use of AP content and refusal to pay a licensing fee, Meltwater has obtained an unfair commercial advantage in the marketplace and directly harmed the creator of expressive content protected by the Copyright Act," Cote said.
She said in a ruling released to lawyers in the case Wednesday and to the public on Thursday that investigating and writing about newsworthy events worldwide was expensive, and copyright laws permits the AP to earn money to pay for it.
"Permitting Meltwater to take the fruit of AP's labour for its own profit, without compensating AP, injures AP's ability to perform this essential function of democracy," Cote wrote.
In a statement, Meltwater called the ruling "at odds with a variety of prior decisions that have paved the way for today's Internet," and said it would appeal.
The judge noted that commercial Internet news clipping services like Meltwater perform an important function for their customers, but that "does not outweigh the strong public interest in the enforcement of the copyright laws or justify allowing Meltwater to free ride on the costly news gathering and coverage work performed by other organizations. Moreover, permitting Meltwater to avoid paying licensing fees gives it an unwarranted advantage over its competitors who do pay licensing fees."
Meltwater is a 12-year-old electronic news clipping service that helps its clients monitor how they are covered in the press. In its lawsuit, the AP alleged that Meltwater News had been pilfering current and past material from the AP and other news providers without paying licensing fees.
George Freeman, a media law expert in private practice at Jenner & Bloch, called the ruling "one of the most solid and comprehensive that we've had in this very important field."
Richard Stim, a San Francisco attorney and author of "Getting Permission: How to License & Clear Copyrighted Materials Online & Off," said the ruling is special because most lawsuits against news aggregators get settled out of court.
"It gets a case out there that makes it easier to push people into licensing agreements," he said. "That's its ultimate business function. That's why everybody settles. They don't want a case out there that gives (content owners) the ammunition to say, 'Last time we did it, we won in court.' "
Even on appeal, the case will provide an important precedent, he said.
"The appeal may or may not go the same way," Stim added. "For people who follow these things, there'll finally be some judicial decisions."
Dwayne Buttler, an expert on copyright law and an endowed chair at the University of Louisville, said Cote's ruling was likely not the final word on the matter, since various appellate courts are in disagreement on the subject.
He also cautioned that works that are more factual than creative are given less protection by U.S. copyright law, which does not protect facts or ideas from copying.
"Newspapers are on the borderline of protectability," Buttler said.
The judge rejected Meltwater's claims that it operates like a search engine.
"Meltwater News is an expensive subscription service that markets itself as a news clipping service, not as a publicly available tool to improve access to content across the Internet," she said. "Instead of driving subscribers to third-party websites, Meltwater News acts as a substitute for news sites operated or licensed by AP."
Cote praised the operation of legitimate search engines.
"These interests are complementary. The Internet would be far poorer if it were bereft of the reporting done by news organizations and both are enhanced by the accessibility the Internet provides to news gathered and delivered by news organizations," Cote said.
She also defended the creativity necessary to write the first paragraph of a story, known as a "lede," saying Meltwater "misses the mark" when it argues that ledes are teasers and not summaries of news.
"If anything, the observation emphasizes the creativity and therefore protected expression involved with writing a lede and the skill required to tweak a reader's interest," Cote said.
Meltwater said it believes Cote misapplied the fair-use doctrine.
"Meltwater is especially troubled by the implications of this decision for other search engines and services that have long relied on the fair-use principles for which Meltwater is fighting," the company said.
Jorn Lyseggen, Meltwater's founder and chief executive, said the company was considering options and looked forward to appealing to the 2nd U.S. Circuit Court of Appeals.
AP CEO Gary Pruitt said the ruling was important for the AP and "others in the news business who work so hard to provide high-quality original news reports on which the public relies."
"For years, all of us have been hearing that if it is free on the Internet, it is free for the taking. The judge in this case just rejected that argument," he said.
Earlier this year, The New York Times, USA Today publisher Gannett Co. Inc., the McClatchy Co. and Advance Publications Inc. said in court papers that their businesses would be jeopardized if Meltwater was permitted to continue as it had.
The publishers said the ability of companies to distribute their content without paying licensing fees jeopardized their websites and other digital businesses that generate revenue through advertising, subscriptions and licensing fees.
One of Meltwater's competitors, BurrellesLuce, joined in a friend-of-the-court brief to say that it operates at a disadvantage because it pays to license content that Meltwater takes for free.
The Electronic Frontier Foundation and Public Knowledge supported Meltwater in a court brief.
Caroline H. Little, president and CEO of the Newspaper Association of America in Arlington, Va., which joined an amicus brief on behalf of news companies, called the ruling a "monumental decision" that recognizes the value of newsgathering in society.
"The significant costs associated with global, national, regional and local newsgathering cannot be sustained if news organizations cannot protect the integrity of our publishing process," she said.
Meltwater was founded in 2001 in Oslo, Norway. According to the company's website, it has more than 800 employees working in 55 offices around the world.
Associated Press Business Writer Ryan Nakashima in Los Angeles contributed to this report.