The Software Patents of Trading Technologies

Today's Financial Times has an article about the predatory behavior of Trading Technologies, a firm that has been awarded two software patents in the UK, presumably based on its US patents 6,772,132, 6,766,304 and 6,828,968. I couldn't find the European patents in question. These patents are broad enough that many entry-order systems could be covered by the claims. The article indicates that Trading Technologies also has eighty more patents in the pipeline.

While Pamela Jones at Groklaw laments the prodigious number of software patents in Trading Technologies pipeline, it is also important to look at the effect on the financial markets.

One of the patents appears to describe any trading order entry system that displays market depth (essentially the difference between highest bid and lowest ask prices) and allows a trader to select (with one click) a region of prices in which to place an order it could affect a large number of home-grown or commercial trading software. The next patent describes the fancy table that is used to describe the market. The third appears to patent the idea of using multiple colors to make a more readable chart, although the added value comes from specifying additional colors to parameters of the table on the fly.

So why do patents on visual analysis and order entry tools matter to us? Because Trading Technologies is actively suing and getting settlements from other trading software companies:

TT… 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 electronic arm of the US brokerage Cantor Fitzgerald. Earlier this month the judge, in an interim decision, made comments favourable to TT’s case, saying that eSpeed had not raised substantial questions against it.

So, that would make trading software with useful analysis tools and order entry systems a bit more expensive. Is there more than that?

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.

That's the key bottom line. It's trying to leverage a patent that holds for a couple decades into a permanent licensing agreement. “Pay us five cents a future trade forever, get sued, or not be able to show market depth with one-click trade orders for 17 years!”

In addition, there's a time limit on the decision.

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.

Well, you never get rich without being brazen, but these guys are playing hardball. You can read their open letter to the future markets here.

So will futures trading be hampered by software patents, cost more because of software patents, or will the European Union reject software patents and move the future of the futures markets to foreign soil because US Patent Law is so forgiving of software patents? The clock is ticking…

Josh Poulson

Posted Thursday, Feb 24 2005 09:33 AM

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