logo

Features - Liftoff Over the Lifting of the Arbitration Awards Database: PIABA v. CCH and SAC

By Kathy Biehl, Published on December 17, 2001

T. R. Halvorson is Deputy County Attorney in Sidney, MT, President of Synoptic Text Information Services, Inc., webmaster of LexNotes, and author of Law of the Super Searchers: the Online Secrets of Top Legal Researchers.


"Houston, We Have Liftoff"

An entire database has been lifted, and people have gone ballistic.

Between June and October 2001, the Public Investors Arbitration Bar Association, Inc. (PIABA) downloaded what is believed to be all of the more than 26,000 awards in the SAC-CCH Awards Library (also known as the SCAN Library, where SCAN signifies SAC-CCH Awards Network) from the NASD Dispute Resolution, Inc. website.  PIABA revealed plans to provide its members with access to the database for a fee.

One of PIABA's founders and past presidents, Stuart C. Goldberg, sent an email message to PIABA's Executive Committee, its Board of Directors, and its membership at large via PIABA-LIST on September 26, 2001.  In the message,1 Goldberg decries his removal as PIABA's General Counsel a few months earlier apparently because of his opposition to taking the awards database, and he uses strong language to characterize the lifting of the database and the people presently constituting the Board of Directors and the Executive Committee.  The message calls the lifting a "theft" that is "unethical, immoral and totally shameless."  It says, "PIABA has been left to the unrestrained impulses of those directors who are motivated by pure personal greed and self-aggrandizement, devoid of ethical and moral conscience."

The next day, September 27, 2001, PIABA's co-founder, Robert Dyer, sent a message to PIABA's members.  While Dyer's tone is generally measured and temperate, his message says, "This data base purloining (until the Board obtains legal cover) is a bit like Watergate," and:

[F]or the life of me, I cannot imagine any member -- let alone any Director -- of this organization who would want to simply steal Rick Ryder's data base and then try to sell it to our membership.  This is so offensive to me personally -- and I would think offensive to any lawyer with the genuine moral compass -- that I would urge all of you to reconsider your mission in light of PIABA's mission.

From the opening of Dyer's message, it appears that his occasion for writing was a formal motion to remove Goldberg as a Director.

In an email from Philip M. Aidikoff, President of PIABA, to the membership of PIABA,7 Aidikoff says,

Prior to this work, we researched the legal issues raised in connection with development of this software and concluded that we were within our rights.  We then retained the firm of Goodwin Procter to issue an opinion letter and they concurred with our analysis that SAC does not have any copyright protection in either the compilation of the Awards or the underlying Awards themselves.

On October 29, 2001, PIABA filed a declaratory judgment action against Securities Arbitration Commentator, Inc. (SAC), the producer of the awards database, and CCH Incorporated, SAC's partner in bringing the database online.  The suit is filed in U.S. District Court, District of New Jersey, Case No. 01-CV-5021 (WGB).  The complaint prays for a judgment declaring that:

the Copyright Laws and copyright protection thereunder do not extend to CCH and SAC's compilation of the Awards that are publicly-accessible through the SAC/CCH web site and that PIABA's creation of its own securities awards database and plans to make the Awards available to its subscribers does not violate any of SAC or CCH's copyrights nor any other such rights as they are claiming.

Paragraph 15 of the Complaint contends that SAC's "compilation of the Awards [does not] involve sufficient creativity or originality to entitle it to copyright protection."

On November 29, 2001, CCH and SAC filed their answer and counterclaims.  As an indication of the atmosphere of the litigation, this pleading includes two claims of racketeering.  This pleading names PIABA and three individuals, Philip M. Aidikoff, Seth E. Lipner, and Charles W. Austin.  All three are alleged to be members of the Executive Committee and the Board of Directors of PIABA.  Aidikoff is alleged to have been the President-Elect and Austin is alleged to have been the President of PIABA when the acts mentioned in the counterclaims were performed.  The nine counterclaims are:

An understanding of this litigation and the probable merits of the claims, defenses, and counterclaims depends on the background of the arbitration awards database.  It helps to know the origin, sources, compilation, and publication of the database, and the recent history of relations between the parties concerning the database.

Birth of a Database

In 1984, two customers of a securities brokerage firm filed a complaint in federal district court alleging violations of the Securities Exchange Act of 1934. The Act provides that the federal district courts have exclusive jurisdiction of violations of the Act. The two customers and the brokerage firm had agreements that provided for arbitration of any controversy relating to the accounts the customers maintained with the firm. The brokerage firm moved to compel arbitration of the claims pursuant to the Federal Arbitration Act. The U.S. Supreme Court held8 that the Securities Exchange Act only prohibits waiver of the substantive obligations of the Act and that the arbitration agreements that, in effect, waived the jurisdiction of the federal district courts were not impermissible waivers of the substantive protections of the Act. The Arbitration Act establishes a federal policy favoring arbitration, requiring that the courts rigorously enforce arbitration agreements. The Court observed that the Securities Exchange Commission specifically approved such arbitration procedures and had sufficient statutory authority to ensure that arbitration was adequate to vindicate Securities Exchange Act rights.  Investors with arbitration contracts would have to arbitrate.

Among the effects of the holding was the birth of a new information product, a database of securities and commodities arbitration awards.  Richard P. Ryder founded Securities Arbitration Commentator, Inc. in 1988.  SAC published the first issue of its Commentator newsletter in April of that year.  In May 1989, when the major securities arbitration forums began making their awards publicly available, SAC began tabulating the arbitration awards on a computer database.  The awards are gathered from various self-regulatory organizations including the National Association of Securities Dealers (NASD), the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Municipal Securities Rulemaking Board (MSRB), the National Futures Associations (NFA), the Chicago Board Options Exchange (CBOE), the Chicago Board of Trade (CBOT), the Chicago Stock Exchange (CSX), the Pacific Exchange (PCX), the Philadelphia Stock Exchange (PHLX), the Boston Stock Exchange (BSE), the Cincinnati Stock Exchange (CSE), and the American Arbitration Association (AAA).

Over the years SAC developed a database of hard copies of arbitration awards.  Of relevance to the claim of compilation copyright, SAC describes its development efforts saying it selected, collected, compiled, arranged, summarized, analyzed, and categorized the awards.  SAC provided copies of specific awards by fax or mail to attorneys and others who requested them.  The awards database is valuable because it provides information on both procedural and substantive issues that arise during arbitration proceedings and the prior rulings of arbitrators who might serve in future arbitration proceedings.

Going Online

In October 1999, SAC decided to publish different subscription-based and free online products using the awards database.  These include the Premier product, the SCAN Plus product, and a free product offered in an arrangement with NADS Dispute Resolution, Inc.

In creating the database behind these products, SAC attempts to correct data errors such as misspellings and docket number errors.  It assigns a unique and recognizable SAC number that categorizes the awards.  It makes graphic image files of the awards in .TIF format and converts the files from .TIF to .PDF.  SAC creates separate index files that organize, arrange, and sequence the awards for searching.  Of relevance to the claim of compilation copyright, SAC claims to have used an involved set of criteria to select the awards included in the SAC-CCH Awards Library or SCAN Library.  It claims the criteria are based on its experience and professional judgment.

In July 2000, SAC contracted with Information Handling Services (IHS) for data processing and technical infrastructure.  IHS agreed to convert the .TIF files to .PDF format with an embedded text element, create and maintain the database, provide a search engine, and provide SAC customers online access to the database.  More than that, SAC and IHS agreed to jointly market the database and search programs.  On December 19, 2000, CCH acquired IHS and stepped into its shoes with respect to the online awards database.  CCH maintains the SAC-CCH Awards Library on its secured servers.

In May 2001, SAC and NASD agreed to publish the database on the NASD Dispute Resolution website.  It takes a bit of clicking convolution to navigate to the database.  Because of the computer offense counterclaims, this convolution matters.  From the NASD Dispute Resolution  homepage, one clicks on a "Get Arbitration Awards" button.  That brings up the "Obtain Arbitration Awards Online" page on the NASD Dispute Resolution website.  The page briefly describes the database and the involvement of SAC and CCH.  It provides a link to "SAC's arbitration awards library," and says "You will be leaving the NASD Dispute Resolution Web Site when accessing the arbitration awards library located on the SAC Site."  The link is wired to a Javascript function that first calls a transferring Active Server Page, http://www.nasdadr.com/awards_xfer.asp, that in turn calls the database search page, http://www.nasdaadatabase.com/nasd_sac_start.asp.  The search page is on a different website, http://www.nasdaadatabase.com.  One cannot navigate to that simple domain URL.  An attempt to yields a redirection to an "Access denied" page, http://www.nasdaadatabase.com/sac_access_denied.asp, with the following message:

Access Denied

This page can only be accessed from the NASD Web site.

Even pasting the URL of the search page into the location or address box of a freshly opened browser window yields the same denial of access page.  Although there might be holes in the implementation, the series of pages and the programming of them are designed to allow one access to the data only by following the route from the NASD Dispute Resolution page through the Javascript function, through the Active Server Page transfer page to the search page.

Once at the search page, users can search one month at a time and retrieve awards without charge.  The search portion of the search page appears as follows:

Copyright and Notice of Copyright

As of June 2001, the library contained over 26,000 awards.  SAC filed an application in the U.S. Copyright Office to register a compilation copyright in the SAC-CCH Awards Library.  The Copyright Office issued certificate of registration No. TX 5-392-604.  The record for that certificate in the Copyright Office's web-based database shows a publication date of October 18, 2001 and a registration date of October 26, 2001.

The search page contains a copyright notice, "Copyright © 1996 - 2001, CCH® Financial Products. All rights reserved."  It is not obvious, however, that the notice relates to the database.  The page has three columns.  The left column advertises several SAC products.  The right column advertises several CCH products.  The center column begins with the search portion of the page illustrated above and concludes with brief information about and links to the SAC-CCH Awards Network (SCAN).  There one obtains information about the fee-based access to the database.  The Premier service has enhanced search features such as sorting hits by relevance or date, searching for synonyms and acronyms, and removal of the limitation of searching only one month at a time.  The copyright notice is at the bottom of the left column.  That placement does not associate the notice clearly with the database.  It appears to relate to the web page.

The counterclaims point out that from the search page, one could click on the SAC name and trademark in the upper left corner, navigate to the SAC homepage, and read SAC's privacy, copyright, and disclaimer statements.  But why would you?  The copyright notice on the search page gives notice of a copyright claimed by CCH Financial Products, not by SAC.  The certificate of registration is issued to SAC, not CCH.  Recall that the counterclaim for copyright infringement is claimed by SAC, not by CCH.  If the notice on the search page is inadequate so that SAC must rely on the notice at its site, that means it is relying on a notice not only ambiguously placed on a page, but completely absent from the page and on an entirely different website.

Supposing the problem of offsite placement were overcome.  What does the notice at SAC's site say?  It says, "The works of authorship contained in this World Wide Web Site in the domain "www.sacarbitration.com" (the "Site"), ..."  That presents two problems.  The database is not in that domain, and the awards are not SAC's works of authorship.  SAC does not claim authorship copyright in the awards.  It claims a compilation copyright in the database.

Despite these problems, the copyright registration exits and is easy to find.  If the compilation copyright is valid, a defense of innocent infringement looks weak.

Recent Relations between the Parties

SAC claims it had previously offered to make its arbitration awards services available to PIABA and its members at a discounted rate, with PIABA retaining a portion of the fee.  When SAC and CCH created the SCAN Library and the Premier and SCAN Plus products based on the library, SAC claims it again approached PIABA in 1999 and 2000.  SAC says it offered PIABA authorized access to the SCAN Library by means of the Premier and SCAN Plus products at a discount.

In an email from Philip M. Aidikoff, President of PIABA, to the membership of PIABA, Aidikoff says, "CCH offered to sell to PIABA its NASD arbitration database for $100,000 the first year plus a percentage we would receive from making the database available to our membership."

Later in the same email, Aidikoff says,

Not all of our members do securities arbitration work exclusively.  To be forced to pay CCH/SAC $800 per year will be prohibitive for some.  And that isn't fair. The industry [the adversary of the clients of PIABA's members] can afford the price of this access, but that doesn't mean we have to.   As important, their database allows a search of only one month's Awards at a time, while ours allows a comprehensive search with just a few clicks."

Besides giving some indication of the per member cost of CCH's offer to PIABA, that quotation is an interesting study in PIABA's method of argument.  It employs the fallacy of term switching.  It uses the single term "database," giving the impression that in each use, the argument refers to the same thing, but actually different uses refer to different things.  A switch of meaning is concealed under a term.  The "database" that would cost $800 per year is the Premier or SCAN Plus access to the SCAN Library, not the free access on the NASD Dispute Resolution website.  The free access allows searching of only one month at a time, but that is not true of the Premier and SCAN Plus products. By use of term switching, Aidikoff makes it sound like a PIABA member would pay $800 per month for a service that could only be searched one month at a time.  That is not the truth.

That fallacy is employed as part of a larger argument that is repeated not only in emails, but in PIABA's press release and PIABA's complaint in federal court.  Stripped of legalese and dressed-for-dinner formality, the argument is:  your search product sucks, therefore we can take your database and make our own search engine for it.  PIABA's press release of October 29, 2001 says:

"PIABA's creation of its own database was in response to numerous and repeated expressions of frustration by our members over how difficult and time consuming it is to access the public awards SAC maintains for the NASD,'' said Phil Aidikoff, President of PIABA. "Our members and the investors they represent need a fast and cost-efficient way to do background research on arbitrators who seek to become involved in resolving these disputes, which often involve the life savings of senior citizens. The design of the SAC Database was so cumbersome that our members found themselves all but forced to send money to SAC simply to get copies of arbitration awards that were supposed to be publicly available. This has resulted in greater cost to wronged investors who are pursuing recovery. Technology and the Internet are supposed to make access to public documents easier and cheaper, not harder and more expensive. PIABA's purpose is simply to make this data available to our members and their clients, the investing public, at virtually no cost.''

Besides saying in effect, "Using the free access to SAC's database was cumbersome and frustrating, so we took it," the press release employs a number of other fallacies, such as glittering generality.  Any logical argument must have at least two premises.  A glittering generality employs only one premise, and hence is a fallacy, but the single premise chosen for the argument is so attractive, so glittering that it dazzles the eye into overlooking the lack of necessary additional premises.  Hence, "The internet is supposed to make information cheaper," is an attractive premise, but still a single premise that fails, without additional premises, to support the conclusion that, "we were justified in taking their database."

Another fallacy is presupposing a fact that is in issue.  PIABA repeatedly speaks of documents that are "supposed to be publicly available" and similar phrases in contexts where that would only matter if the documents are in the public domain in the copyright sense of the term.  Lots of documents are publicly available that are not in the public domain.  Are the awards in the public domain?  While SAC and CCH might not claim copyright in the awards (only in the compilation), does that mean the authors or the authoring self-regulatory organizations have no copyright?  I don't know, but at this stage, that is an issue, not a fact.  It can serve as a premise to reasoning only after it has been established as a fact.

Perhaps the cream of fallacy is the statement that PIABA will make the data available "to our members and their clients, the investing public, at virtually no cost."  Is that supposed to sound like PIABA will make the database available to the investing public at virtually no cost?  True, the clients of PIABA's members are drawn from the public, but PIABA is not offering to make the database available to the public at virtually no cost.  Only that subset of the public represented by PIABA lawyers would be benefited.  To tap that benefit, a lawyer would have to join PIABA, and member of the public would have to hire a PIABA lawyer.  A Robin Hood argument would be a fallacy, but this goes a step below because it is not even a Robin Hood argument.

Further, the fact that the industry might be able to pay does not mean that Robin Hood is taking from the industry to give to the poor.  It is taking from SAC, a firm of eleven employees whose primary business assets are the SCAN Library and related products.  The taking guts the balance sheet of a small firm.

Questions

Questions that I hope are answered in the litigation include:

Footnotes

1 The message is made public as an exhibit to the Answer, Counterclaims and Jury Demand of Securities Arbitration Commentator, Inc. and CCH Incorporated in Public Investors Arbitration Bar Association, Inc. v. Securities Arbitration Commentator, Inc. and CCH Incorporated, U.S. District Court, District of New Jersey, Case No. 01-CV-5021 (WGB).   <back to text>

2 18 U.S.C § 1030(g).   <back to text>

3 N.J.S.A. § 2A:38A-3(a).   <back to text>

4 N.J.S.A. § 2A:38A-3(c).   <back to text>

5 N.J.S.A. § 2C:41-2(c).   <back to text>

6 N.J.S.A. § 2C:41-2(c).   <back to text>

7 The message is made public as an exhibit to the Answer, Counterclaims and Jury Demand of Securities Arbitration Commentator, Inc. and CCH Incorporated in Public Investors Arbitration Bar Association, Inc. v. Securities Arbitration Commentator, Inc. and CCH Incorporated, U.S. District Court, District of New Jersey, Case No. 01-CV-5021 (WGB).    <back to text>

8 Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185, 55 U.S.L.W. 4757; Fed. Sec. L. Rep. (CCH) P93,265 (1987), rehearing denied, 483 U.S. 1056, 108 S.Ct. 31, 97 L.Ed.2d 819, 56 U.S.L.W. 3237 (1987).   <back to text>