Liquidnet Loses Patent Infringement Lawsuit Against ITG
December 22, 2010
A New York district court judge has just ruled that Investment Technology Group, a New York based financial technology firm, did not infringe a patent held by rival Liquidnet Holdings, paving the way for ITG to pursue a countersuit against Liquidnet.
Judge Shira Scheindlin of the United States District Court for the Southern District of New York on Dec. 21 granted ITG’s motion for summary judgment of non-infringement of U.S. Patent No. 7, 136,834 held by Liquidnet’s chief executive Seth Merrin and others, as of November 2006.
Liquidnet was formed in 1999. It operates one of the largest alternative trading systems in the U.S. and competes with ITG’s crossing network Posit.
In her ruling, Schindlin said ITG’s products do not infringe on Liquidnet’s patent which described a method for integrating an order management system with an electronic marketplace to send non-binding indications to the marketplace. “Under Liquidnet’s theory, all Liquidnet must show to win a motion for a summary judgement is that the accused infringers periodically receive some records of open orders from OMS [order management system] databases. Given the plain language of the claim, the specification, and the prosecution history, Liquidnet’s construction is simply not reasonable,” wrote Schindlin.
“ITG has a strong tradition of innovation and its own robust portfolio of intellectual property, with 17 patents to our name. We are proud of our position as the preeminent provider of block liquidity to the institutional investment community,” said ITG’s CEO and President, Bob Gasser.
Liquidnet first sued ITG in Delaware in late 2006, claiming that ITG’s ITG Channel, Posit Alert and MacGregor XIP products infringed on its ‘834 patent’ the case was moved to New York in 2007. In 2008, ITG alleged that the Liquidnet’s patent granted by the U.S Patent and Trademark Office was “invalid, unenforceable and procured by fraud.”
At that time, ITG’s filing said that Liquidnet’s chief executive Seth Merrin and other inventors of the ‘834 patent really didn’t invent what was claimed in the patent. ITG sought damages of more than $200 million from Liquidnet for “relief and vindication” of ITG and its subsidiaries as well as damages based on what ITG called Liquidnet’s “tortuous interference” with ITG’s prospective business relations.
In its 2008 suit, ITG claimed that the real inventor of Liquidnet’s patent was Richard Holway, who formerly worked for a firm called Harborside, an alternative trading system that was launched in 1999 as a subsidiary of broker-dealer Jefferies Group. Harborside+, a version of the crossing platform that was then relaunched as a broker-dealer by Jefferies and Thomson Financial, shut down in 2005.
In the suit, ITG also alleged that Liquidnet’s executives based their patent on the Harborside system which was “on sale and in public use” in the US for a year before Merrin and his colleagues filed with the US patent office for a provisional patent.Furthermore, according to ITG, when Merrin and his colleagues tried to gain approval for their own patent, they misled the U.S. patent office into believing that Harborside had copied Liquidnet’s system. Holway and his colleagues filed for their own patent for the Harborside system in 2000.