Buffalo Law Review Volume 55 Number 1 Article 2 5-1-2007 Licensing the Word on the Street: The SEC's Role in Regulating Information Onnig H. Dombalagian Tulane Law School Follow this and additional works at: https://digitalcommons.law.buffalo.edu/buffalolawreview Part of the Business Organizations Law Commons Recommended Citation Onnig H. Dombalagian, Licensing the Word on the Street: The SEC's Role in Regulating Information, 55 Buff. L. Rev. 1 (2007). Available at: https://digitalcommons.law.buffalo.edu/buffalolawreview/vol55/iss1/2 This Article is brought to you for free and open access by the Law Journals at Digital Commons @ University at Buffalo School of Law. It has been accepted for inclusion in Buffalo Law Review by an authorized editor of Digital Commons @ University at Buffalo School of Law. For more information, please contact [email protected]. BUFFALO LAW REVIEW VOLUME 55 MAY 2007 NUMBER 1 Licensing the Word on the Street: The SEC's Role in Regulating Information ONNIG H. DOMBALAGIANt INTRODUCTION Information is said to be the lifeblood of financial markets.' Securities markets rely on corporate disclosures, quotes, prices, and indices, as well as the market structures, products, and standards that give them context and meaning, for the efficient allocation of capital in the global economy. The availability of and access to such information on reasonable terms has been identified as one t Associate Professor of Law, Tulane Law School. I would like to thank Roberta Karmel, Steve Williams, and Elizabeth King for their comments on prior drafts of this Article and Lloyd Bonfield, David Snyder, Jonathan Nash, and Christopher Cotropia for their helpful insights. Special thanks are due to the faculty and staff of the Georgetown University Law Center for the hospitality shown to my colleagues and me during the evacuation of New Orleans following Hurricane Katrina. I am also grateful to Christopher Kyle Johnston and Samuel Vigil for their research assistance and Toni Mochetta for her assistance in preparing this Article for publication. All errors are mine. 1. Arthur Levitt, Former Chairman, SEC, Quality Information: The Lifeblood of Our Markets (Oct. 18, 1999), available at http://www.sec.gov/news/ speech/speecharchive/1999/spch304.htm; Christopher Cox, Chairman, SEC, Improving Financial Disclosure for Individual Investors (May 3, 2006), available at http://www.sec.gov/news/testimony/ts042506cc.htm ("When it comes to giving investors the protection they need, information is the single most powerful tool we have. It's what separates investing from roulette."). BUFFALO LAW REVIEW [Vol. 55 of the essential characteristics of strong financial markets. 2 And yet because information is a commodity, 3 policymakers must balance the desirability of providing public access to such goods against the need to 4maintain appropriate incentives for information producers. In U.S. securities markets, the Securities and Exchange Commission (SEC or Commission) faces the primary challenge of regulating the balance between the commercial and social value of information. In some areas, the Commission has all but extinguished private rights, while in other areas, it has disavowed any authority to tread upon private rights in deference to federal or state intellectual property doctrines. In yet other areas, the SEC has created intricate entitlements tailored to historical market structures. Against this backdrop, self-regulatory organizations (SROs), securities intermediaries, and other entities have staked out proprietary claims to position themselves competitively in the ongoing transformation of the securities marketplace. As we move away from the paradigm of the dominant national exchange to the reality of competing national and global trading venues, it is increasingly urgent that the Commission articulate an intellectual property policy.5 The 2. See, e.g., Bernard S. Black, The Legal and Institutional Preconditionsfor Strong Securities Markets, 48 UCLA L. REV. 781, 783 (2001). 3. See RAYMOND T. NIMMER, INFORMATION LAW § 1:8, at 1-12 to -13 (2005) (defining the elements of information as the "communication or receipt" of raw data, linked to an "interpretation or understanding" that renders the data meaningful); see also generally Raymond T. Nimmer & Patricia Ann Krauthaus, Information as a Commodity: New Imperatives of Commercial Law, 55 LAw & CONTEMP. PROBS. 103 (1992) (discussing the framework for modern commerce and regulation of information law). 4. See generally Market Data: Implications to Investors, Hearing Before the Subcomm. on Capital Mkts., Ins., and Gov't Sponsored Enters. of the Comm. on Fin. Servs., 107th Cong. (2001) (testimony by producers and consumers of market information on the appropriateness of granting proprietary rights in market information). 5. See, e.g., Jonathan R. Macey & David D. Haddock, Shirking at the SEC: The Failure of the National Market System, 1985 U. ILL. L. REV. 315 (1985) (predicting the rise of market-based information and reporting systems as exchanges lose market dominance); Jonathan R. Macey & Maureen O'Hara, From Markets to Venues: Securities Regulation in an Evolving World, 58 STAN. L. REV. 563 (2005) (describing the paradigm shift in terms of transaction and agency costs). 2007] REGULATING INFORMATION 3 demutualization of the Nasdaq Stock Market (Nasdaq) and the New York Stock Exchange (NYSE),6 the completed and impending mergers of numerous national and international exchanges and market centers, and the prevalence of securities listed simultaneously on U.S. and non-U.S. exchanges 7 (the Sarbanes-Oxley Act notwithstanding) are likely to generate numerous disputes over the allocation of rights and interests in securities information.8 Some articulated statement of policy would appear necessary to govern the Commission's regulation of rights in information, particularly given the incremental nature of the regulatory process and the delegation of authority within the Commission to its operating divisions. This Article undertakes a comprehensive comparative analysis of the SEC's agencywide initiatives as regulator of information and other intellectual property rights. The Article considers the Commission's regulatory objectives- both with respect to the public availability of information and larger macrostructural objectives-as well as the means by which it has sought to achieve these objectives. In doing so, I draw upon general theories of intellectual property to illustrate traditional approaches to balancing private and public claims to information, as applied to the discrete situations in which the Commission has invoked, or refrained from invoking, its regulatory authority to advance the purposes of the federal securities laws. The Article ultimately suggests that the Commission adopt a consistent policy with respect to information and intellectual property regulation and seek to achieve its various regulatory objectives through means that affirm the baseline rights of information creators. 6. See Caroline Bradley, Demutualization of FinancialExchanges: Business as Usual?, 21 Nw. J. INT'L L. & Bus. 657, 668 (2001); see also Andreas M. Fleckner, Stock Exchanges at the Crossroads, 74 FORDHAM L. REV. 2541, 2562 (2006); Roberta S. Karmel, Turning Seats into Shares: Causes and Implications of Demutualization of Stock and Futures Exchanges, 53 HASTINGS L.J. 367, 368 (2002); Robert A. Prentice, Regulatory Competition in Securities Law: A Dream (That Should Be) Deferred, 66 OHIO ST. L.J. 1155, 1190-94 (2005). 7. See, e.g., John C. Coffee, Jr., Racing Towards The Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 COLUM. L. REV. 1757 (2002). 8. See Reena Aggarwal & Sandeep Dahiya, Demutualization and Public Offerings of FinancialExchanges, 18 J. APPLIED CORP. FIN. 96, 96-100 (2005); Fleckner, supra note 6, at 2571-2618. BUFFALO LAW REVIEW [Vol. 55 Part I of this Article surveys the key types of information or intellectual property that have been implicated in securities litigation and regulatory action. Part II assesses the underlying justifications advanced by the SEC and others for acknowledging or subordinating such intellectual property interests in financial markets. Part III considers the various strategies used by the Commission and comparable regulators to manage intellectual property rights and their application to financial market regulation. Part IV synthesizes a set of principles to guide the SEC's regulatory agenda and illustrates how those principles might be implemented in various spheres of regulation. I. A TAXONOMY OF INFORMATION RIGHTS IN SECURITIES MARKETS Scholars have long debated the level of protection that should be given to intellectual property (including information) that falls outside the traditional paradigms of patent and copyright law.9 Since the seminal case of International News Service v. Associated Press0 prominently posed the question whether such types of information should be entitled to limited protection, academics, legislators, and regulators have struggled with determining the bases for granting such rights and their appropriate scope. At the heart of the debate is the perceived need to balance private incentives to produce information against the social benefit of making it broadly accessible." Property rights are generally thought to promote the efficient allocation of private resources to the creation of socially beneficial goods by allowing creators to internalize their benefits-specifically,