What is a Price? The Courts Think They Know; The Courts are Wrong.

Michael Giberson

A fact? An opinion? A creation? An idea? What kind of thing is a price?

Perhaps too philosophical for you this morning. Try the question this way: Is the NYMEX’s report of daily futures contract prices like a phone book, like the census taker’s count of population in an area, or more like a publishing house’s estimates of used car values?

The question was raised in a court case in which the New York Mercantile Exchange (NYMEX) sought to enforce a copyright in NYMEX oil and gas settlement prices against the IntercontinentalExchange (ICE). ICE uses NYMEX’s daily settlement prices to clear ICE’s customers’ trades. NYMEX alleged that ICE’s use of NYMEX prices infringes upon NYMEX’s copyright. So far, the courts have sided with ICE.

The Southern District Court of New York first saw this case. It sided with ICE on two grounds. First, the court concluded that, under copyright law, NYMEX’s prices were akin to real-world facts which are discovered by the NYMEX. While an author’s particular depiction of real-world facts can be copyrighted, the facts themselves cannot be copyrighted. Second, the court said that the expression of NYMEX’s prices could not be disentangled from the idea of the prices. Because ideas cannot be copyrighted, NYMEX cannot be granted a copyright in its prices. (NYMEX also made trademark and other legal claims not central to the continuing controversy.)

NYMEX appealed to the U.S. Court of Appeals for the Second District, which last week also ruled against the company. The Second District court considered but did not resolve the question of the nature of a price. The court seemed tempted by the idea that the prices were more like estimates of used car values than like a census taker’s report, especially for contracts trading in low volumes and for which more judgment is called for on the part of NYMEX’s settlement committee. But the court stopped short of a conclusion, saying the question did not matter to the case. (One of the judges added a concurrence explicitly not joining in this portion of the ruling, and arguing strongly that NYMEX clearly met the creativity standard. The judge joined in the decision that NYMEX was nonetheless defeated for reasons explained here.)

Instead this court, too, concluded that NYMEX’s prices were merged with the idea of a price, and asserted that enforcing a copyright would in effect grant NYMEX a copyright on the idea. The court observed, “It has been long accepted that copyright protection does not extend to ideas; it protects only the means of expression employed by the author.”

The issue for the courts, then, was just what was the idea involved in NYMEX’s settlement prices, and how closely bound was the idea with the expression of the idea. The court said policy was biased toward protecting access to ideas, such that expression was not protected in instances in which there were only one or a few ways of expressing the idea. When there were few ways to express an idea, protecting expression would effectively provide copyright protection to the idea itself. The court wrote:

We begin by identifying the “idea” that might be merging with its expression. The district court stated that the idea is “the price of a particular futures contract at the close of trading.” NYMEX disputes this approach and argues that the idea is “that a sound and reasonable opinion of fair market value for each NYMEX contract as of the close of open outcry trading on the NYMEX floor each day may be achieved by assessing trades, bids, and offers and (in various instances) off exchange information, particularly developed late in the trading day.” The United States disagrees, and argues instead that a “settlement price is the expression of a much more specific idea, for example, that a Henry Hub natural gas futures contracts is worth $25 dollars [sic] at the end of a given day.”

Even if we accept NYMEX’s formulation, however, the expression here merges with the idea. In this Circuit, we look at the range of possible expressions and consider whether all possible expressions are so “substantially similar” that granting the copyright would bar others from expressing the underlying idea.

It was at this point that the appeals court decided NYMEX loses, since it concluded that the range of possible expressions of the idea was so limited that protection for the expression would limit access to the idea. The court suggested that, because the prices will, naturally, be expressed as a number, and only a narrow range of numbers could adequately capture the fundamental market facts surrounding a futures contract for a particular month, and therefore granting NYMEX’s requested copyright would limit other people’s use of the underlying idea.

But this result presents a puzzle. When courts considered the case involving published estimates of used car value (CCC Information Services, Inc. v. Maclean Hunter Market Reports, Inc.), the court made much of the fact that sufficient creativity when into the identification of prices and the selection and arrangement of the prices in the publications. But no matter how creative the publisher was in devising the estimates, the result is a price that would be expressed as a number, and only a limited range of numbers would capture the fundamental market facts reported. In the NYMEX’s court’s opinion, creativity doesn’t matter when publishing prices, because the idea is too closely linked to the expression of the idea.

The court chattered a bit about other policy matters, but everything else is beside the point. The merger doctrine – the asserted that the expression of a price is inherently bound up with the idea of the price – is the basis of the court’s ruling. NYMEX cannot prevail due to application of the merger doctrine, said the court, but that conclusion leaves us wondering how CCC did prevail. In fact, how can any publisher of numerical reports gain copyright protection? (And in this digital age, how many copyrighted products are, fundamentally, lists of numbers?)

In my view, the question of the creativity cannot be ignored. Either the product of the NYMEX settlement committee involves creativity or it doesn’t. As noted above, the majority was tempted to conclude that creativity was involved, but sidestepped the question on grounds that the expression of settlement prices was inherently bound up with the idea of settlement prices, and ideas cannot gain copyright protection. Judge Hall, in the concurrence, strongly argued that sufficient creativity was involved.

But if the possible range of values for a price is so narrowly proscribed by fundamental market conditions that only a relative few numbers could reasonably express the idea, as the court holds in order to make the merger doctrine apply, where is the creativity? The very possibility of a divergence of opinion, the possibility of the settlement committee selecting an X rather than a Y, when X and Y are economically distinguishable, suggests that the range of values is not so narrow.

The court said, “While NYMEX contends that there are ‘numerous possible variations … as to what the Settlement Prices should be,’ it has not demonstrated a range of possible variations that would preclude application of the merger doctrine.” Similarly, the court offers no hint of how wide the range of “creative” variations must become in order for NYMEX to gain copyright protection.

Perhaps if the NYMEX settlement committee was a little more arbitrary in the selection of prices, maybe if each day the settlement committee picks a favorite number and adds or subtracts it, in that case the resulting numbers would vary more from any discoverable facts, and then the courts would allow a copyright. The implication of the court’s rule seems to be that the better that NYMEX’s prices reflect the underlying scarcity and fundamental market conditions, the less protection the courts will give NYMEX. Surely a perverse result.

NOTE: The court decision is here. And here is an earlier news story about the case.