ISE Back in Court in Automated-Markets Patent Fight
March 11, 2013
International Securities Exchange Monday is set to renew legal hostilities with Chicago Board Options Exchange Inc. in a fight over an automated trading patent.
The jury trial scheduled to start in federal court in Chicago is one of at least four legal disputes between the Deutsche Borse AG-owned electronic options-trading firm and CBOE Holdings Inc., the Chicago-based operator of the biggest U.S. options exchange.
“The evidence will establish that CBOE deliberately copied ISE’s patented system for executing trades,” New York-based ISE said in a court filing last month.
Competition is increasing among derivatives-exchange operators including NYSE Euronext and Nasdaq OMX Group Inc. ISE in a March 1 regulatory filing revealed plans to start a second options market called Topaz which, if approved, would be the 12th such U.S. forum. Nasdaq OMX owns three of the venues while CBOE and NYSE Euronext have two each.
ISE’s patent scrap with the Chicago Board Options Exchange began with a complaint filed in federal court in Manhattan in 2006. The case was transferred to Chicago after CBOE counter- sued there, seeking a finding of non-infringement.
ISE seeks a royalty and lost profits, as well as either an injunction barring further infringement or royalties for the balance of the patent’s life. The patent expires in 2019.
CBOE contends that ISE did nothing more than acquire a patent for a method that had already been used elsewhere.
“Automating such floor-based trading is far from new,” the Chicago exchange’s lawyers said in a pretrial brief filed last month. CBOE argued that the ISE patent claims lack innovation and should be declared invalid.
U.S. District Judge Joan Humphrey Lefkow, who will preside over the trial, declared the patent invalid in March 2011. A federal appeals court reversed that ruling in May.
Farhan Husain, an ISE spokesman, declined to comment on the amount of damages sought by the company.
CBOE, in a separate lawsuit filed in Chicago last year, accused ISE of infringing patents related to quote-risk monitoring and quote-modification. That case, in which CBOE seeks at least $525 million in damages, has been transfered to federal court in New York.
An Illinois appeals court last year rejected ISE’s bid to overturn a court order barring it from providing a forum for trading S&P 500 index options. ISE had been sued by McGraw-Hill Co., parent of Standard & Poor’s, and CBOE, which claims an exclusive license to offer S&P 500-based options.
ISE has asked the U.S. Supreme Court to review that ruling.