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..."

Comments

Open letter..

[Folmer]

Trading Technologies has written an open letter to the future trading industry about this...

http://www.tradingtechnologies.com/news/documents/ TTsOpenLetter12.14.04.pdf

Re:Open letter..

[carnivore302]

Unfortunately, the exchanges will just divert the extra costs of 2.5 cents to their costumers. For private investors, this will be a small amount, but institutions and market makers who are charged much lower costs now (compare 40 - 60 cents to 2 euro/dollar for private investors) will be severely hurt. Especially since they do massive amounts of trades.

The problem is that for traders there is almost no choice. You trade on Eurex because it is very liquid. And by trading it stays liquid. If a smaller exchange offers to lower the fees it is still not attractive because the risk of trading illiquid futures are to big. So, essentially a successful exchange can do whatever it wants.

Re:Open letter..

[js7a]

That letter basically amounts to blackmail;

"Take this offer, because the next will be worse..."

Blackmail is a threat to expose embarassing information unless paid off.

Extortion is a threat against property or persons unless paid off.

Threatening to worsen the terms of a license to GUI software patents if it isn't accepted is neither. It is, however, criminally stupid in the present Euorpean patent law environment.

Re:Open letter..

[gl4ss]

it's a letter that reasons why the following would be true: "The solution that TT has offered to each of the 'big four' exchanges is as follows:
TT and the participating exchange (PE) would guarantee each other level access, permanently.
Inside the world of PE futures and future options (this includes traders, customers, FCMs, ISVs, exchanges, etc.), TT would forfeit the right to be the aggressor in any patent infringement lawsuit, permanently; in that way allowing absolutely anyone to use TT's current and future patent protected concepts any way they desire.
TT would receive from PE 2.5 cents per side for every PE future and future option transaction, permanently."

then they go on rambling abou "competition, competition, competition", apparently it's just for eveyone else since they want permanently 2.5c on any transaction made(with no way to end the agreement). basically tt could just sit on their asses after that and keep receiving money to the end of the world even when their patents expire! the letter is also full of stuff that you would expect to find from a 419 letter(using capitals in wrong place, yes i know the irony in that i don't usually bother with them myself, also they ramble a fair amount on how the 'customers' would benefit from this 2.5c agreement, make zillions with their magic technology and so forth).

amazing that they got such advanced tech.. yet need to protect it with sealed court procediings(if it's so much out there that they need go around suing people, do they really have something unique?).

Re:Open letter..

[bakes]

Unfortunately, the exchanges will just divert the extra costs of 2.5 cents to their costumers.

Well, you can't blame them - costumes can be really expensive. Especially the frilly period costumes and all the sci-fi stuff.

(Score -1: Cheap hit at simple tyop)

Re:Open letter..

[Hope Thelps]

Blackmail is a threat to expose embarassing information unless paid off.

In the UK, at least, "A person is guilty of blackmail if, with a view to gain for himself or asnother or with intent to cause loss to another, he makes unwarranted demand with menaces..." (Theft Act 1968 Section 21 - based on age old common law).

Re:Open letter..

[Yaruar]

the problem is that TT don't have particually good tech. their platforms are universally flakey (almost daily i needed to reset accounts and restart the x-trader platforms) I used to get daily patch updates to iron out bugs. When i left my previous job as a tech support manager for a Futures and options traders we were actually looking to move away from TT to other vendors.

we couldn't even patch the servers that their gateway software ran on because they refused to support on any platform above a 2 year old windows 2000 service pack.

Our traders used to lose a fortune in exchange fees due to their downtime. It's no wonder they are desperate for money.

Re:Open letter..

[idlake]

Anybody who has to mention "innovation" repeatedly in their press releases, and even put it in italics, probably doesn't have much of it. Companies that actually do innovate just advertise with their product features, and the innovation is self-explanatory.

It's going to be traumatic...

[ites]

My Belgian company (which spent a couple of years developing a very sophisticated SMS product) got a phone call and then an email from some guy who has a US patent on a very broad and shallow aspect of our work. His claim: you are totally infringing, stop selling your product and sell mine. My answer: since when does a US patent apply in Belgium? Him: Ah, in about... (checks watch) 18 months.

My point being: I've asked the EPO several times in the past whether I could patent aspects of our company's software R&D, they have always rejected this out of hand. I know that they have allowed software patents anyhow, if described sufficiently bizarrely.

But if a flood of US software patents hits the European market it will have the effect of killing the European technology business almost overnight.

We have, so to speak, no immunity.

Do I live under Republican US law or something?

[t_allardyce]

Im not trolling or anything, but how about we Europeans just ignore everything the US says law wise, treat their patents as null and void, and basically tell companies they can either trade with us or have a nice cup of STFU and we, and the rest of the world will live happily ever after.

Re:Do I live under Republican US law or something?

[Flyboy Connor]

but how about we Europeans just ignore everything the US says law wise, treat their patents as null and void,

Basically, US patents ARE null and void in the EU. They only hold in the US. The problem is that if a company wishes to sell something to a US-based firm, that firm will need to comply to US patent law. The company, if based in the EU, has nothing to fear, but its clients have. And these clients may ask for indemnification from the company, which the company is probably unwilling to provide.

So what I expect to happen, is that many European companies will not trade with the US anymore. This is probably a big step in getting the US a saner patent system anyway.

Excellent

[ultrabot]

Stuff like this is just what the doctor ordered to paint the software patents in as bad a light as possible. Let the parasites try to leech as much as possible, in most disgusting means available.

One day these leeches will be crushed, but they need to demonstrate to the wider audience that they *need* to be crushed. Hopefully this happens before they are too established.

Here's one patent -- looks like a GUI patent!

[putko]

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.

They say they believe in competition

[Red Moose]

TT Open Letter (PDF

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.

Re:Aaah but patents are GOOD!! no really...

[NigelJohnstone]

Or you could just not disclose your code!

I mean Dyson put out a Vacuum cleaner and its obvious how it works just by examining it.

Microsoft put out a modified Kerberos and nobody can figure out how it works until they gave out the documentation...

Re:Sealed?

[yaddayaddaslashdot]

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.

A mis-quote from the article:

[tod_miller]

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."

I think she meant to say:

She added: "Independent software vendors may have to reconsider doing business, and in particular the way they make new software, perhaps they should just crumble under the weight of patent law and become resellers for larger firms?."

damn TT.

Groklaw has also article

[NoSuchGuy]

Groklaw has it's own story.

Read the comments:
...What they have done here is patented an IDEA and haven't even TRIED to pass it
off as a PROCESS. And they got a PATENT on it....

Re:That's hardly fair

[ooze]

500 years ago you needed an army of mercenaries to defend your interests. Today the people that would have been mercenaries back then, are lawyers. The resemblies are striking.

They benefit from all conflicts, and all sides of the conflicts.
They rape, loot and soil everything they get their hands on.
Whole areas are starved by them.
They still are asskissing servants. ...the list could go on and on. The major difference actually is, that mercenaries had balls and risked their life while doing all this.

No Doubt

[Compulawyer]

"No doubt, all those IP lawyers think this is a good thing..."

As an IP lawyer, and specifically a registered patent attorney who handles software patents, I could not disagree more. Courts are supposed to be PUBLIC fora so that EVERYONE can see justice being dispensed. Closing hearings and sealing files inevitably leads to suspicion that proceedings are not being conducted fairly. Therefore I am strongly FOR keeping things open.

That said, there are sometimes portions of proceedings that SHOULD be closed to the public. One example is a hearing where a defendant's trade secrets will be discussed. Most times such a discussion, or at least details of it, are not crucial to understanding the basic proeeding. A defendant should not have to lose its trade secrets merely because it chooses to defend itself in court instead of settling the case.

Take the IBM v. SCO case, for instance. SCO is trying to force IBM to hand over the source code for IBM's *NIX versions. Should SCO be able to force this? Theoretically, yes, but in that instance, SCO would have shown some more concrete proof of its claims. Having so forced IBM to turn over the source code, should SCO be able to make it public? NO. IBM has the right to protect its property and SCO should not be able to (mis)use the courts to destroy potential trade secrets of a competitor.

I have found that people who make blanket statements about what lawyers love or about the evils of intellectual property usually understand neither of those topics. Software development is (properly, I might add) now an engineering endeavor. Engineers have had to deal with patents in every field for literally hundreds of years. Software development is no different. If you think it should be otherwise, I challenge you to examine the basis for that opinion. I suspect you will find it is because you think or know that you could create a patented piece of software yourself without using anyone else's code because you have the necessary skills. In that case, you are no different from the skilled artisan in any other field. In that case, if you are against software patents, then you must be against any type of patents because it would not be fair to have a special exemption for one type of invention and not another.

Think about it. Think long. Think hard. Think critically. Then let me know what you think. Flamers - save your keystrokes. I sleep very well at night knowing I am providing a valuable service to my clients - many of then small and individual inventors who are looking at being able to actually PROFIT from their hard work BECAUSE they have a patent and not in spite of it.

TT has problems....

[hughk]

The market for their product, Xtrader has become much more static in recent years as the growth of electronic markets has slowed and margins have been considerably reduced by competition They need something else to demonstrate the growth their funders demand.

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.

Re:Software patents in Europe

[Halo1]

First off, lots of European software companies own patents.

75% of already granted European software patents are owned by US and Japanese companies. European companies have only something like 20% of all granted software patents.

Not specifically on software, but on processes.

US companies also patent processes implemented in software (to buy something with one click of a mouse, to load certain kinds of XML information, ...), and not individual computer programs.

A very nice report was published recently by the European Parliament's Directorate General on Economic and Social Policy, which completely debunks the "computer-implemented inventions are entirely different things that software", and which confirms that the European Patent Office's practice is not all that different from US practice.

The report is linked at the bottom of this PR.

These are permitted. Say for example an new process for compressing an image, or for searching. That is patentable, whheter it's software or not.

Compressing an image is generally plain maths, and "mathematical processes" are not (should not be) patentable in Europe. Of course, the EPO (with the help of enterprising lawyers appealing to its Technical Board of Appeals) has found ways to interpret the European Patent Convention to get around this. I'm also not sure how you can say in general that "searching" is patentable.

Secondly, most of these European software companies also patent their inventions in the US, and are thus protected by US law against infringment of their patents in the US.

I'd be very interested in seeing any numbers you have on this. Also, whether or not we have software patents in Europe is completely independent of those companies' abilities to get software patents in the US.

Thirdly, If a US company does the same, and patents their inventions in Europe, under the European system, and then nationalises their patent in any of the European countries, they are protected against infringment in the contries they have nationalised in. Thats fair enough isn't it?

Patents are not about fairness, patents are economic means which can be used to correct an economic system running haywire due to relentless imitation. You do not introduce artificial monopolies in an economic sector because it's "fair".

Finally, what we are talking about are property rights, which are generally protected in our western societies.

You might want to look at this presentation by a lawyer and law scholar specialised in software patents on that. Trying to paint it as a "communists vs capitalists" is sooooo last 5 years (although Bill Gates doesn't seem to know that yet either).

Lile most valuable posessions (wealth), thoes who have them, want them, thoes who don have their own want to take others!

Even if you unconditionally believe that any sort of intellectual creation should be associated with the broadest possible form of property rights, there's still the problem that software patents conflict with the property rights of software authors, granted to them by copyright. They prevent the normal exploitation of their works, which is even in conflict with the often cited TRIPs agreement.

In Europe, I hope we are sophisticated enough in our appreciation of the compeating rights involved to be able to balance theese rights and accept that there is a place for patent laws that incentivise and reward creative thinking.

Again, this has nothing to do with rewards, respect for work or whatever. It's

Analysis and explanation

[Jack.Gavigan]

Now, I'm no expert on trading systems... No, wait - I am an expert on trading systems!

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:

|..BQ.|...Bid..|..Offer.|..OQ.|
|.100.|.100.00.|. 100.01.|..50.|
|1277.|..99.99.|.100.02.|.492.|

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:

|..BQ.|...Bid..|..Offer.|..OQ.|
|..50.|.100.00.|. 100.01.|..50.|
|1277.|..99.99.|.100.02.|.492.|

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:

|TotBQ|..AvgBid..|..BQ.|...Bid..|..Offer.|..OQ.|..