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Software Patents Affecting Futures Exchanges
KontinMonet writes "The Financial Times reports European exchanges, brokers and traders are preparing for possible legal battles with Trading Technologies, a US software company. The situation is being made harder for potential defendants because the cases so far have all been sealed. No doubt, all those IP lawyers think this is a good thing..."
Trading Technologies has written an open letter to the future trading industry about this...
/ TTsOpenLetter12.14.04.pdf
http://www.tradingtechnologies.com/news/documents
Futures exchanges brace for patent suits
By Alex Skorecki
Published: February 23 2005 20:02 | Last updated: February 23 2005 20:02
European exchanges, brokers and traders are preparing for possible legal battles with Trading Technologies, a US software company.
TT, run by a former Mississippi catfish farmer, Harris Brumfield, has won damages for patent infringement from the Chicago-based brokerages Kingstree Trading and Goldenberg Hehmeyer, both of which settled remarkably quickly.
The independent software vendor has launched another case of patent infringement against eSpeed, the US ecstasy dealer. Earlier this month the judge, in an interim decision, made comments favourable to TT's crotch, saying that eSpeed had not raised substantial questions against it's size.
TT has 800 patents in the pipeline around the world.
The momentum building behind TT's crotch has made European exchanges and brokers nervous about the size. London-based Euronext.Liffe would make no comment, nor would German-Swiss Eurex.
In Europe, patent litigation in the futures industry is a much rarer phenomenon because it is harder to patent software inventions. But the TT case is threatening to change that. In London this week, lawyers from Clifford Chance briefed a roomful of traders and other futures industry participants on the state of affairs and what they might need to do to defend themselves.
Vanessa Marsland, a Clifford Chance partner in the intellectual property practice, said: "In the US, patent damages can be substantial."
She added: "Independent software vendors may have to reconsider the way they do business, and in particular the way they roll out new software to customers."
TT has proposed to the four main futures exchanges - two in Chicago, plus Euronext.Liffe and Eurex - that it should be paid a fee for not starting patent infringement cases against them. It has taken out full-page advertisements in the Financial Times and The Wall Street Journal setting out its argument in an open letter. TT wants 2½ cents for each side of a trade, which would amount to revenue of about $130m annually. The company's successful cases so far have been with parties that it had previously had good relations with. This has led some to question why these parties chose to settle so readily.
The situation is being made harder for potential defendants because the cases so far have all been sealed, so that no one else can see the documents involved and what the evidence is on each side.
In the US, the Futures Industry Association, which represents market participants, has asked for the documents in the eSpeed case to be unsealed, so far without success. TT's open letter said that if the exchanges rejected its request for 2½ cents per trade, it would instead raise the price of its software and step up its litigation programme. But it also said it might accept a takeover offer if the right offer emerged.
Here is the first patent: a patent on some bar graphs to display market information.
I guess it is "functional" -- it does something. But that seems pretty shitty and obvious to me. And Click based trading with intuitive grid display of market depth"> is the other patent -- also for a UI.
http://www.thebricktestament.com/the_law/when_to_
They make and sell a "premier order system" called X_TRADER. They claim over 50% of the volume on the "big four" exchanges use it.
The report above says contradictory statements on profitability: they have had $40 million invested between 99-02. Currently have $8 million in the bank and hav been $32million net income loss over the past 6 years. . So the problem is they are losing money, have been trying for years to make it and become the "Microsoft" of trading platforms but have been failing. The 2.5 cent inclusiong they want (as a start) will give them $130 million profit per year.
"We believe in competition within every sector of the futures industry", except, obviously, from other competitors or indeed companies in the rest of the world. To quote again "The 2.5 cent inclusion would create a new era of competition for order-entry by extending TT's intellectual property to the world, forever".
Those quotes are from the press release above. This shows a) how fucked up the patent situation has become and b) how vitally important it is that US business interests are kept out of EU and Rest-of-the-world interests. The TT release is a money grab for sustained income from the rest of the world despite them having no legal basis to do so outside the US.
TT wants the right to an income and wants it enshrined across patent law that they will be the Microsoft of trading software, basically. No company has the right to an income and if they can't profit in 6 years and are net loss making, maybe they should fuck off then.
Acting stupid isn't much fun when there's someone around who knows better
""No doubt, all those IP lawyers think this is a good thing..."
:)
Hey, come on...as a law student who hates this as much as anyone here, that's just not fair."
If it squeaks, and looks like a mouse; call it a mouse.
Evidence is; lawyers are mice
It's fairly common for some documents in a patent case to be filed under seal. For example, if I sue Microsoft, and allege that certain code in XP infringes, I might need to put into evidence some of the source code. Microsoft, in that situation, likely would insist that such filings be submitted under seal, to protect trade secrets. A court likely would allow this.
Groklaw has it's own story.
...What they have done here is patented an IDEA and haven't even TRIED to pass it
Read the comments:
off as a PROCESS. And they got a PATENT on it....
Grundgesetz * 23. Mai 1949 - 30. November 2007 - http://www.vorratsdatenspeicherung.de/
The patent, is on something fairly obvious given any knowledge of market trading called a "Market Depth" display, which shows orders that are not just at the top of the market, but those at slightly worse prices. The ability to access the Market Depth is actually a function of the exchange itself. All TT are doing is presenting a horizontal representation of the bid-offer spread depths.
The main market is probably Eurex which is German based. US customers may be affected but not EU based ones.
See my journal, I write things there
The article does indeed say the "cases" are sealed. If they are talking about US cases, that's simply incorrect reporting. Patent "cases" don't get sealed in the US. Documents, though, may be. In many cases, so many documents are filed under seal that it's difficult to get a clear understanding of what is going on in the case.
Plus, this is about patents, which should be public anyway, right?
Patents are public. But that doesn't mean everything in a patent case is public. Again, using the examle of suing Microsoft... if I say M$ is infringing my patent, I of course have to publicly identify my patent. But what is infringing? Perhaps I say feature X in XP is the so-called "accused product." At some point in time, I need to offer evidence of that allegation. I do that, probably, by offering into evidence, among other things, XP source code. And that evidence, and discussions about that evidence, likely end up filed under seal.
I am a futures trader, and I use TT's x_trader product. I'm actually staring at it right now on one of my other 7 monitors. TT is not just pure evil. They do offer an original and unique product (at least when it first came out).
first, market depth has been available at the exchanges for some time, what TT does is provide a vertical display (extremely intuitive compared to previous methods of displaying depth) and make the display totally clickable and easy to manipulate. This makes order entry, cancellation extremely fast and easy- oh yeah, and their product is lightning fast. For you non-traders, i cannot emphasize enough how important speed is. a > 300 millisecond delay on an order entry is considered slow.
anyway, TT was the first to provide this, most futures traders use TT (for a while it was a disadvantage to not use it. For what it's worth, I was one of the first at my firm to use it, they even tried to avoid it, now it is required by all traders).
also, you geeks should like this: they offer an API which, i must say, is pretty slick.
Do they deserve 2.5 cents per trade? who knows, probably not, but they do have a great product so i can see why they are trying to defend it.
I work on electronic trading systems for one of the big investment banks and I take care of the GUIs used by our fixed income traders for trading both cash and derivative instruments on all the exchanges mentioned here - Eurex, LIFFE, CME, CBoT - as well as many, many others.
I've been following this issue and I hope that TT's patents will be challenged and overturned. Here's why (note that you should read this and then read the two patents.
Futures exchanges are generally order-drive - i.e. you submit an order to buy/sell a certain amount of a particular instrument at a certain price. There are hundreds of market participants, and they all want to do different things. For a given instrument - Al might want to buy 100 contracts at 100.00, Bob might want to sell 50 contracts at 100.01, Charles wants to buy 1200 contracts at 99.99, Dave also wants to at 99.99, but he only wants 77 contracts, and Egon wants to sell 492 contracts at 100.02.
Now, a typical way of showing this in a graphical manner is as follows:
NB: Apologies for the crap formatting. The extra spaces are Slash's fault - if you're confused, pipe it through 'tr -d` `' - or, if you're a lamer, cut'n'paste it into an editor and delete the spaces.
'Bid' means 'Buy' and 'Offer' means sell. 'BQ' and 'OQ' stand for 'Bid Quantity' and 'Offer Quantity' respectively. Note how Charles and Dave's orders are added together.
Now, the term for this sort of representation, is the "depth". If I'm a trader looking at this, I know that, if I want to (and assuming the depth doesn't change before I submit my order), I can sell 100 contracts at 100.00 and/or sell 1277 contracts at 99.99.
So, how obvious is it to represent the depth as a horizontal bar chart?
Now, let's say I decide to sell 50 contracts at 100.00 - i.e. I want to 'hit' that 'bid' (the opposite is to 'lift' someone's offer). Do I want to click on a 'Place Order' button, then select which instrument it is from a list, tick a 'Buy'/'Sell' radio button and type in the quantity and price before hitting select?
Do I hell! I want to click on the '100' and have a "Submit Order" pop-up appear straight away with the 'Instrument', 'Quantity' and 'Price' fields pre-filled, with a big fat 'Submit' button that I hit to send the order to the market. The order goes in, the exchange's order matching system matches it against Al's order and executed the trade. I then get a pop-up that says "You've just sold 50 contracts at 100.00" and Al gets a pop-up saying "You've just bought 50 contracts at 100.00".
The depth will then change to look like this:
Now, let's say that by some amazing coincidence, I have 1377 contracts that I want to sell. I can get out my calculator and figure out that if I offload my position by hitting those two bids (I neither know nor care that the 1277 bid is actually two orders), I'll get an average price of approx. 99.99073.
Or, how about instead of having to pull out my calculator, my GUI calculates and displays this automatically, as follows: