On Thursday, March 1st, the American stock exchange Nasdaq filed a patent patent infringement lawsuit against electronic-based trading platform provider IEX Group in the District of New Jersey. Nasdaq is seeking enhanced damages for willful infringement of a series of patents covering auction and order processing as well as other technologies. Nasdaq alleges the patents and technologies were known to the founders of IEX, who themselves were former Nasdaq employees.
Nasdaq is asserting a series of seven U.S. patents in this case, including:
- U.S. Patent No. 7647264, titled Closing in an Electronic Market. Issued in January 2010, it covers an electronic system for trading of securities with a memory storing a queue of closing orders and other orders for a traded security, and a computer program product that receives orders and disseminates an order imbalance indicator which is used to ensure that a particular market order closes at a predetermined price.
- U.S. Patent No. 8117609, titled System and Method for Optimizing Changes of Data Sets. Issued in February 2012, it claims a computer system for generating an update data set to be sent to remote terminals in such a way that requires less central processing unit (CPU) processing time for the more efficient generation of update data sets.
- U.S. Patent No. 8244622, titled Order Matching Process and Method. Issued in September 2014, it discloses a computer system for trading securities in an electronic trading venue which includes instructions for matching a portion of a received order for a security against a security interest stored in an order book on random access memory, increasing the speed of executing an order to reduce trading backlogs.
Since it was founded in 1971 as the world’s first electronic stock market, Nasdaq and its subsidiaries now hold more than 250 patents covering “mission-critical technology solutions” for more than one hundred market infrastructure organizations worldwide, according to its complaint. IEX was founded in 2012 and between 2012 and 2013, four key technology employees left Nasdaq to help IEX form its own electronic trading platform which began operation in 2013.
One example of IEX’s alleged infringement provided by Nasdaq’s complaint involves closing auction technology utilized by both companies. Nasdaq’s electronic closing auctions make use of an order imbalance indicator which is disseminated for closing a large number of trades quickly. Nasdaq notes that this technology enabled it to close trades involving 972 million shares across 2,499 securities in a total of 0.861 seconds in one trading session last July. IEX has said that its own closing auction process was “designed based on extensive review of” Nasdaq’s patented technology, according to the complaint.