So Much For Competing In The Market: Grab Bag Of IP Weapons Used In Legal Fight Between Options Exchanges

from the whatever-happened-to-competition? dept

We've pointed out that while we're told that intellectual property is supposed to be about the incentive to create, the reality is that it tends to be a protectionist tool to attack the competition. If you want to see an amazing example of this and how some companies will use any and all possible IP claims, look no further than the ongoing legal battle between the Chicago Board Options Exchange and the International Securities Exchange. Now, you might think that financial markets wouldn't need "intellectual property protection" in order to incentivize their creation and continued innovation. And you'd be right. But, if you wanted to use those tools to annoy the hell out of competitors, well, you've stepped up to the right window.

The legal disputes, starting back in 2006 and continuing to escalate, touch on a little bit of everything, starting with patents, moving on to copyrights and hot news and then right back to patents again, as described in the article linked above. A few key snippets on the history:

ISE first sued the Chicago board back in 2006, claiming infringement on its own patent—filed in 1999, just two months before CBOE's first patent filing. CBOE beat that lawsuit at the district court level, but this May, it was revived (PDF) by the nation's top patent appeals court. Now it looks like the lawsuit against Chicago is going to go forward, whether the exchange likes it or not—and filing their own "defensive" patent suit is the best way to get leverage.

[....] The patent suits seem to have grown out of an earlier dispute over licensing, which also reached a head this year. ISE had long wanted to offer "index options" tied to the Dow Jones Industrial Average and the S&P 500. Dow Jones & Co. had maintained that was a use of its intellectual property rights and required a license; McGraw-Hill Companies, which owns the S&P 500 Index, held the same position.

[....] ISE tried to take that case to federal court, saying it was a copyright issue. The court sided with CBOE and the index owners, however, saying the claims for misappropriation and unfair competition weren't about "authorship."

That left the case in Illinois state courts, which sided with the Chicago exchange and its allies. The courts said that ISE shouldn't be allowed to "profit for free from the efforts, skill, and reputation of the Index Providers." ISE appealed that to a higher state court, but in May it lost there as well. In that case, Illinois judges allowed the index owners to lean on the controversial "hot news" doctrine, first enunciated in a 1918 case brought by The Associated Press against a competitor.

Basically, these two exchanges don't like each other and don't like competing, so they're pulling out all sorts of random IP arguments and throwing them at each other, culminating in the latest effort which is suing each other over patents. CBOE is suing over a few patents (7,356,498, 7,980,457 and 8,266,044) which all seem like relatively broad business method patents.

I don't think anyone actually thinks the patents and what they cover really matter here. This is all about a fight between two competitors and them trying to use IP laws as leverage to hurt one another. This isn't "business", this is about wasting a ton of money on lawyers in the hopes that the other side wastes even more money -- and with the hope that, at the end, a judge miraculously tells one competitor to hand over barges full of cash to the other for no good reason.

Is it really so wrong to wonder whatever happened to just competing in the marketplace?

Filed Under: competition, copyright, options exchange, patents
Companies: chicago board options exchange, international securities exchange