SWISS watch company Swatch Group AG is suing Bloomberg for distributing a recording and transcript of its latest earnings call, but the case could have unintended consequences for the company and its European peers.
The world’s largest watchmaker filed a copyright infringement suit saying Bloomberg was not invited to its earnings call with a select group of analysts on February 8, but recorded and transcribed it without the company’s permission and then distributed the information to its clients.
The Bienne, Switzerland-based company wants a court order forcing Bloomberg to destroy copies of the recording and transcript as well as damages and other remedies for its claimed “willful” infringement of US federal copyright law.
Public right to know
Bloomberg spokesman Ty Trippet told Reuters in an email that if a public company discloses financial performance information to a select group of analysts, it has a responsibility to provide the information to everyone.
“The investing public has a right to know, and we’ll continue to provide transcripts and recordings from analyst calls to our audiences. We don’t think the Copyright Act says otherwise,” Trippet told Reuters.
The case is likely to be watched closely by services that transcribe company earnings calls and distribute them to investors and the public. The biggest services include StreetEvents, owned by Thomson Reuters, CallStreet owned by FactSet, Seeking Alpha, and Morningstar.
While most US companies webcast their earnings calls publicly, they often post or read notices saying that unauthorized rebroadcasting or transcription of their calls is not permitted. But these warnings are ignored by service providers because they believe the information is in the public domain and all investors have a right to it. To date, it appears that no US company has sued transcription services.
European practices in spotlight
European companies, however, differ from their US counterparts by mostly holding their earnings calls in private. As reported on IR Web Report by Dave Brickell, a team of German researchers from Goethe University Frankfurt published a study recently that finds evidence to suggest that corporate executives are sharing material, non-public information in private earnings calls and conferences with select groups of invited analysts.
The authors point out that there is no European equivalent of Regulation FD, which is the main reason US companies open their earnings calls to the public. They say their findings suggest that current practice is not consistent with the goal of European regulators to provide a level playing field among investors.
Rule 12g3-2(b) exemption risk
Since Swatch is a foreign company with it primary listing in Switzerland, it is not subject to Regulation FD. However, the company’s shares do trade in the US market as an unsponsored ADR created by The Bank of New York under an exemption from SEC registration under Rule 12g3-2(b), apparently with no objection from the company.
That basically means that Swatch does not have to file reports with the SEC or comply with other requirements, such as the dreaded Sarbanes-Oxley legislation. However, to maintain the exemption from registration, Swatch is required to provide US investors with access to its disclosure information in English on its website or via a regulatory database in its home market.
The rules do not specify that access to earnings calls must be provided, but they do say that information required to be published electronically “is information that is material to an investment decision regarding the subject securities” including “results of operations or financial condition” and “changes in business.”
It could also be argued that earnings calls are part of a Rule 12g3-2(b) company’s normal financial disclosures and should be accessible to all investors just as they are to investors in US-regulated companies, particularly since evidence suggests that European managers are selectively disclosing information to analysts.
By barring US investors from its earnings calls, Swatch may no longer qualify for exemption from registration. That would require Swatch to register with the SEC and comply with Sarbanes-Oxley requirements, a burden most European companies want to avoid.
By suing Bloomberg, Swatch is now shining a spotlight on the disclosure practices of hundreds of foreign companies that have used the Rule 12g3-2(b) exemption to avoid registration with the SEC and thereby potentially opened a can of worms that it may well regret.
While Swatch appears content to use the US legal system to enforce its own rights, it might not be as willing to have US securities laws enforce investors’ rights.
Vanessa Schoenthaler contributed to this report.