A legal dispute between Nasdaq and IEX Group over trading technology is heating up in the latest example of the fiercely competitive landscape in the world’s largest equity market.
In a filing late on Tuesday, IEX alleged that patents held by Nasdaq were invalid and has separately petitioned patent authorities to have them declared as such. Two of IEX’s patent challenges were rejected, one is going to move forward to the merits stage and four are still pending.
The moves come after Nasdaq last year sued IEX alleging that it knowingly violated a series of Nasdaq patents in developing the Investors Exchange’s trading platform.
As part of its counterclaim, IEX claimed that some of Nasdaq’s patents were “unenforceable due to inequitable conduct” before the US Patent and Trademark Office.
The filing cited a 2003 email from Fred Stiening, a former Nasdaq director, to Nasdaq lawyers saying that OptiMark and the London Stock Exchange were already selling and using, respectively, technology that was similar to what Nasdaq sought patents for. Mr Stiening also said non-Nasdaq employees were not named as inventors on Nasdaq’s patent applications, while Nasdaq employees who had not contributed were improperly named as inventors.
Nasdaq declined to comment.
It argued in its lawsuit last year that former employees who are now at IEX have been involved in crafting its rival’s trading platform, and that IEX has said that its closing auction process was “based on extensive review of the auction designs” of other exchanges including Nasdaq, and that the information it disseminates as part of that auction is “substantially similar” to a patented process at Nasdaq.
In addition to developing trading technology for in-house use, Nasdaq sells trading technology. In 2018 revenues from selling market technology were $270m out of a total of $2.5bn.
IEX, which was founded in 2012, fought a bitter battle to become an exchange, with Nasdaq among those opposed to its application. Since launching as a registered stock exchange in 2016, the Investors Exchange has garnered a market share of less than 3 per cent.
“Just like Nasdaq’s failed attempt to prevent Investors Exchange from obtaining SEC approval, its attempt to use this court to shut down Investors Exchange is baseless,” IEX said in the filing.