Three Wall Street banks suffered a legal setback when a federal appeals court in New York put on hold a ban on financial news service Theflyonthewall.com Inc from quickly reporting hot news about their analysts' research.

The ruling by the U.S. Second Circuit Court of Appeals was a defeat for Bank of America Corp's Merrill Lynch unit, Barclays Plc and Morgan Stanley.

These banks had won an injunction on March 18 from U.S. District Judge Denise Cote that required Theflyonthewall.com to wait two or more hours before publishing their research. Wednesday's appeals court ruling lifts that restriction.

The Second Circuit also granted Theflyonthewall.com's request for an expedited appeal. It will hear arguments at the earliest available date after July 26, when briefs are due.

Bank of America, Barclays and Morgan Stanley have argued that Theflyonthewall.com had been getting a free ride by systematically misappropriating analyst research, including upgrades and downgrades that can instantly move stock prices.

Cote had ordered Theflyonthewall.com to wait until 10 a.m. to report research issued before the market opens, and at least two hours for research issued thereafter.

The Summit, New Jersey-based company has said these limits have cost it subscribers and threatened its survival, because waiting to publish can render the research stale.

Morgan Stanley declined to comment specifically on Wednesday's ruling. Spokeswoman Sandra Hernandez said the bank wants to end the instantaneous stripping of our content and the free-riding off our research franchise,

Bank of America spokesman Bill Halldin and Barclays spokesman Mark Lane declined to comment. Glenn Ostrager, a lawyer for Theflyonthewall.com, was not immediately available for comment.

Dow Jones & Co, a unit of Rupert Murdoch's News Corp, last month filed a similar lawsuit accusing financial news service Briefing.com of republishing its news, often word-for-word, without permission or journalistic effort.

The cases raise issues of copyright infringement and the media's First Amendment rights under the U.S. Constitution.

The case is Theflyonthewall.com Inc v. Barclays Capital Inc et al, U.S. Second Circuit Court of Appeals, No. 10-1372.

(Reporting by Jonathan Stempel, editing by Dave Zimmerman)

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