ISE and CBOE go to trial in automated-markets patent fight

International Securities Exchange LLC is set to renew legal hostilities with Chicago Board Options Exchange Inc. in a fight over an automated trading patent.

Jury selection began today at the federal courthouse in Chicago for a trial that U.S. District Judge Joan Lefkow told the prospective panelists may last into early April. The case is one of at least four legal disputes between Deutsche Borse AG- owned ISE 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. exchange. 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.

Lost Profits

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.

Lefkow, in a ruling dated March 10 and posted on the court’s electronic docket today, said she will bar ISE from presenting evidence of pre-suit damages. The New York-based exchange failed to comply with a federal “marking statute,” requiring it to make public its patent claim, the judge said.

“Although ISE sufficiently pleaded CBOE’s knowledge of the patent and its infringement, ISE did not disclose its theory that it was not required to mark because it did not make or sell the invention after issuance of the patent,” prejudicing CBOE as it prepared for trial, Lefkow said.

The statutory punishment for that failure is that damages can only be recovered for that time period after notice of infringement is given, according to the judge’s ruling.

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