Options Trading in Exchange-Traded Funds Does not Infringe IP Rights

The US Court of Appeals for the Second Circuit has held that creating options trading in stock exchange-indexed funds (ETFs) does not breach any proprietary rights of the stock exchanges which created the ETFs. Both Dow Jones & Company Inc (DJ Inc) and The McGraw-Hill Companies Inc (McGraw Hill Inc) had created widely-known stock indexes (respectively, the Dow Jones Industrial Index and the S&P 500 Index) (collectively, Indexes) which reflected the average market value of a basket of stocks. DJ Inc and McGraw Hill Inc had also licensed the creation of ETFs to track the Indexes, and by purchasing shares in these ETFs, the public could thereby track the performance of the Indexes. International Securities Exchange Inc (ISE) is an options trading exchange which announced that it would offer options trading on shares of the ETFs, whereupon DJ Inc and McGraw-Hill Inc launched a suit against ETF alleging that it had misappropriated the intellectual property rights of the two plaintiffs in the Indexes, had engaged in unfair competition and would infringe the trade-mark rights of DJ Inc and McGraw-Hill Inc. Upholding a decision of a single Circuit Judge, the Court found that: "By authorizing the creation of ETFs using their proprietary formulas and the sale of ETFs to the public, the plaintiffs have relinquished any right of control, resale and public trading of those shares, notwithstanding that the plaintiffs' intellectual property may be embedded in the shares". For the text of the decision in Dow Jones & Company Inc. v International Securities Exchange Inc et al (Docket No 05-4812), see: http://makeashorterlink.com/?Z52824E6D Summary by: The Editor