Chicago options market goes nuclear, files $525 million patent suit

by Stephan Kinsella on November 15, 2012

From ars technica. Another day, another insane patent lawsuit:

 

Chicago options market goes nuclear, files $525 million patent suit

In a long war between two options exchanges, patents are the most dangerous weapon.

by  - Nov 14 2012, 7:00pm CST

There was a time, not long ago, when the titans of the US financial world ran away from patents. During the Bilski case, big banks filed an amicus brief (PDF) on the same side as Google, asking the Supreme Court to disallow so-called “business method” patents to no avail.
However, a few key financial institutions have embraced patents enthusiastically. This week, the Chicago Board Options Exchange has taken finance-patent wars to a new level. CBOE filed a lawsuit against a competing options exchange, International Securities Exchange (ISE), demanding $525 million for the infringement of three patents: US Patent Nos. 7,356,4987,980,457and 8,266,044. The board asked for the first patent in 1999, at the height of the patent-everything craze, and the patents were issued between 2008 and 2011.

In its complaint, the Chicago board says the patents cover its Quote Risk Monitor system. That lets traders “actively control their risk exposure” by telling CBOE the “risk threshold” they want to take on.

The bad blood and litigation between these two exchanges goes back years. The European-owned ISE was the first US all-electronic exchange when it opened in 2000. The Chicago Board Options Exchange was the first options exchange, period, when it was founded in 1973.

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 high-stakes suit-and-countersuit between two major options exchanges raises the question: will patent disputes infect the world of corporate finance like they have the tech world?

 

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