Judge Dismisses Liquidnet Patent Infringement Lawsuit Against ITG

A judge has dismissed Liquidnet’s patent infringement lawsuit against Investment Technology Group.

ITG issued a release yesterday afternoon stating that Judge Shira Scheindlin of the United States District Court for the Southern District of New York issued a 65-page ruling granting ITG ‘s motion for summary judgment of non-infringement of US Patent No. 7, 136, 834 (known as patent 834) held by Liquidnet Holdings, Inc.

In Novermber of 2006, the US Patent and Trademark Office issued patent 834 to Liquidnet Holdings, which operates on of the largest alternative trading systems for matching buy and sell orders. In basic terms, the patented invention allows institutional investment management firms to connect with an electronic marketplace and trade securities.

Liquidnet filed a lawsuit against ITG asserting that the ITG Channel, Posit Alert and Macgregor XIP products infringed Liquidnet’s patent 834. In her ruling, Judge Scheindlin held that ITGs products do not infringe and that Liquidnet’s proposed construction of the its patent was “simply not reasonable.”

According to the court document: “Liquidnet has alleged that certain electronic methods for integrating buy-side firms' order management systems with electronic securities marketplaces, developed and marketed by ITG and Pulse Trading, literally infringe claim one of Patent '834, and that ITG willfully infringed the Patent. ITG and Pulse allege that Patent ‘834 is invalid, unenforceable, and not infringed by lTG's and Pulse's products.”

The patent describes a method for integrating an order management system with an electronic marketplace for the purpose of sending non-binding indications to that marketplace.

ITG has long maintained that the ‘834 patent is invalid and was obtained by inequitable conduct due, among other reasons, Liquidnet’s failure to disclose the @Harborside system and a related patent application to the U.S. Patent and Trademark Office.

ITG had also accused Liquidnet’s founders of stealing the idea for the patent from Richard Holway, then an executive at Harborside. In her opinion, Judge Scheindlin wrote, “Liquidnet is patently wrong” that there is no evidence that Liquidnet personnel knew about the Harborside patent application prior to filing its own patent application.

As a result of the ruling, Liquidnet’s patent infringement claims have been dismissed, while ITG will remain free to pursue its inequitable conduct and invalidity claims against Liquidnet.

“This decision vindicates our long-held position that ITG has not in any way infringed Liquidnet’s ‘834 patent,” commented ITG’s CEO and President, Bob Gasser, in the firm’s release. “ITG has a strong tradition of innovation and its own robust portfolio of intellectual property, with 17 patents to our name. We are proud of our position as the preeminent provider of block liquidity to the institutional investment community.”

In response to the Judge's decision, Liquidnet issued the following statement: “We strongly disagree with the Court’s recent decision, which we believe contains significant legal errors and inconsistencies with earlier Court rulings. We are considering our next steps, including appeal, pending a thorough further review.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio