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NEW YORK MERCANTILE EXCHANGE v. INTERCONTINENTAL EXCHANGE

June 30, 2004.

NEW YORK MERCANTILE EXCHANGE, INC., Plaintiff,
v.
INTERCONTINENTAL EXCHANGE, INC., Defendant.



The opinion of the court was delivered by: JOHN KOELTL, District Judge

OPINION and ORDER

The plaintiff, New York Mercantile Exchange, Inc. ("NYMEX"), brings this action against the defendant, IntercontinentalExchange, Inc. ("ICE"), for copyright infringement, service mark infringement, dilution of the plaintiff's marks, and tortious interference with contract.

ICE has also filed counterclaims. Its First Amended Counterclaims allege four causes of action seeking certain declaratory relief and asserting that NYMEX engaged in monopoly maintenance and monopoly leveraging in violation of § 2 of the Sherman Act. ICE's first cause of action alleges that NYMEX has engaged in anticompetitive conduct to maintain its monopoly power in two relevant markets: (1) the market for intermediation services for cleared contracts for the purchase and sale of Henry Hub natural gas, and (2) the market for intermediation services for cleared contracts for the purchase and sale of West Texas Intermediate ("WTI") crude oil. ICE's second cause of action seeks a declaratory judgment that NYMEX's settlement prices for cleared contracts in these commodities are an essential facility and that ICE has the right to obtain, refer to, and use NYMEX's settlement prices on the same terms as other members of the public. ICE's third cause of action alleges, in the alternative, that if the Court finds that there are separate markets for the intermediation of futures contracts based on these commodities and for the intermediation of cleared over-the-counter ("OTC") contracts based on the same commodities, that NYMEX violated § 2 of the Sherman Act by leveraging its monopoly in the former market to gain an unlawful competitive advantage in the latter market. ICE's fourth cause of action seeks a declaratory judgment that NYMEX does not have a copyright in its settlement prices, or, alternatively, that NYMEX cannot enforce such a copyright against ICE, or that ICE has not infringed any such copyright.

  NYMEX moves pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss ICE's First Amended Counterclaims.*fn1 In its memorandum of law in opposition to this motion, ICE characterizes its § 2 counterclaims as follows: "NYMEX has violated Section 2 of the Sherman Act by (1) engaging in sham litigation and creating publicity of such litigation, and (2) attempting to deny ICE access to an essential facility." (ICE's Mem. Opp. Mot. Dismiss at 8.) At the argument of the motion, ICE conceded that it could not prevail on its claim alleging sham litigation and accompanying publicity, and it agreed to withdraw the claim. (Transcript of Hearing dated June 7, 2004 ("Tr.") at 38.) Also at the argument of the motion, ICE asserted that its allegations comport with the § 2 refusal-to-deal claims recognized by the Supreme Court in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), and Otter Tail Power Co. v. United States, 410 U.S. 366 (1973).

  I

  On a motion to dismiss a counterclaim, the allegations in the counterclaim are accepted as true. See Universal Acupuncture Pain Services, P.C. v. State Farm Mutual Automobile Ins. Co., 196 F. Supp.2d 378, 382 (S.D.N.Y. 2002); see also Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss a counterclaim, all reasonable inferences must be drawn in the counterplaintiff's favor. See Universal Acupuncture, 196 F. Supp.2d at 382; see also Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, NYMEX's present motion should be granted only if it appears that ICE can prove no set of facts in support of its claims that would entitle ICE to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506 (2002); Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; Goldman, 754 F.2d at 1065.

  In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court may consider documents that are referenced in the counterclaims, documents that the counterplaintiff relied on in bringing suit and that are either in the counterplaintiff's possession or that the counterplaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc. 282 F.3d 147, 153 (2d Cir. 2002); see also Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); I. Meyer Pincus & Assoc., P.C. v. Oppenheimer & Co., Inc., 936 F.2d 759, 762 (2d Cir. 1991); Skeete v. IVF, Inc., 972 F. Supp. 206, 208 (S.D.N.Y. 1997); Vtech Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp.2d 435, 437 (S.D.N.Y. 2001). However, "in antitrust cases, where `the proof is largely in the hands of the alleged conspirators,' dismissals prior to giving the [counter] plaintiff ample opportunity for discovery should be granted very sparingly." Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 746 (1976) (quoting Poller v. Columbia Broad., 368 U.S. 464, 473 (1962)).

  II

  ICE's First Amended Counterclaims allege the following relevant facts. NYMEX is a Designated Contract Market — the statutory term for a regulated futures exchange — that is subject to the Commodity Exchange Act ("CEA") and the jurisdiction of the Commodity Futures Trading Commission ("CFTC"). (First Amended Counterclaims ("FAC") ¶ 8.) NYMEX operates as an "open-outcry" system, in which brokers and traders transact with each other by physical communications on a physical trading "floor." (FAC ¶¶ 8-9.)

  NYMEX is the only Designated Contract Market that offers an active trading market for North American natural gas and crude oil futures contracts, among other commodities. (FAC ¶ 9.) Two of NYMEX's most successful futures contracts are its Henry Hub natural gas and WTI crude oil contracts. (FAC ¶ 10.) NYMEX's Henry Hub contract, which provides for delivery of natural gas at the Henry Hub natural gas pipeline in Louisiana, is the only actively traded natural gas futures contract in the United States. (FAC ¶ 10.) Similarly, the only actively traded crude oil futures contract in the United States is the NYMEX contract based on WTI light sweet crude oil, which provides for delivery in Oklahoma. (FAC ¶ 10.)

  The Henry Hub natural gas and WTI crude oil contracts traded on NYMEX, like other futures contracts on physical commodities, provide for the purchase and sale of the underlying commodity at an agreed-upon price in a specified delivery month. (FAC ¶ 11.) Although physical delivery is possible under a futures contract, only a very small percentage of futures contracts traded on NYMEX result in physical delivery. (FAC ¶ 12.) In most cases, each party enters into an equal and offsetting transaction for the same contract prior to delivery, thereby liquidating the original contract and obviating the need for physical delivery. (FAC ¶ 12.)

  Futures contracts are executed on the floor of the exchange, or through an electronic trading system, by the matching of buyers and sellers wishing to transact in the same quantities and at the same prices. (FAC ¶ 13.) Once a match occurs, a transaction is automatically novated to the NYMEX clearing house, which interposes itself between the original parties and becomes the buyer to every seller and the seller to every buyer. (FAC ¶ 13.) The clearing house thus assumes the credit risk of each party to the transaction by effectively guaranteeing each party's performance obligations. (FAC ¶ 13.) Each party must deposit initial margin, which serves as a "performance bond" to secure its performance under the contract. (FAC ¶ 13.) On each day that the contract remains open, each party pays or receives additional variation margin based on changes in the value of the contract. (FAC ¶ 13.) The changes in the value of the contract are determined by reference to the settlement prices each day. (FAC ¶ 13.)

  The settlement prices for Henry Hub natural gas and WTI crude oil futures contracts are determined by NYMEX's "settlement committee" at the end of each trading day. (FAC ¶ 15.) After NYMEX's floor closes at 2:30 p.m. each day, the trades executed during the closing range, which is usually the five minutes of trading prior to the close, are tabulated and circulated to the members of the settlement committee. (FAC ¶ 15.) The settlement committee then determines the NYMEX market price pursuant to the NYMEX Exchange Rules, a process that ICE alleges is mechanical and formulaic, not creative or original. (FAC ¶ 15.) NYMEX is alleged to have consistently represented that its settlement prices reflect actual trading activity and are not produced by NYMEX. (FAC ¶ 16.)

  NYMEX's settlement prices play an important role in the economy by disclosing the market price for various commodities. (FAC ¶ 18.) The CEA requires that NYMEX report its settlement prices, among other data, to the public. (FAC ¶ 18.) NYMEX makes its settlement prices available to the public on an almost instantaneous basis by reporting them on its website and transmitting them to its "market data vendors" — third parties to whom NYMEX has granted worldwide, non-exclusive licenses to redistribute NYMEX market data. (FAC ¶ 19.) Some market data vendors provide NYMEX market data to their subscribers for a fee, while others provide the data to the public at no charge and with no restrictions. (FAC ¶ 19.) Members of the public can obtain settlement prices for free and without restriction from publicly accessible websites and in various national newspapers. (FAC ¶ 19.)

  NYMEX does restrict the use of its settlement prices when subscribers receive the data on a "real time" basis, which is generally within thirty minutes of the data's release by NYMEX. (FAC ¶ 20.) NYMEX requires that subscribers who receive the settlement prices on a real-time basis enter into a "uniform subscriber addendum," which purports to limit the subscriber's use of NYMEX's real-time market data to its own "internal" business use and requires the subscriber to agree not to use NYMEX's real-time prices in competition with NYMEX. (FAC ¶ 20.) NYMEX does not impose these restrictions on subscribers who receive data on a "delayed" basis, which is generally one half hour after its release by NYMEX. (FAC ¶ 20.)

  Because NYMEX is the only Designated Contract Market that offers an active trading forum for Henry Hub natural gas and WTI crude oil, trading liquidity for these contracts is concentrated on NYMEX, and NYMEX's settlement prices for these contracts have gained acceptance as the market prices for the underlying commodities. (FAC ¶ 21.) Third-party market participants thus use NYMEX settlement prices in transactions executed outside of NYMEX because NYMEX prices are considered benchmarks and because NYMEX has actively encouraged third parties to use its prices. (FAC ¶ 23.) For example, NYMEX encouraged the International Swaps and Derivatives Association ("ISDA") to adopt the NYMEX settlement prices for Henry Hub natural gas and WTI crude oil as price references in standard form ISDA contracts, which are widely used in over-the-counter ("OTC") transactions. (FAC ¶ 23.) NYMEX allegedly encouraged the adoption of its prices as standard terms in ISDA's forms, but has never licensed ISDA to use NYMEX's name or to refer to NYMEX's settlement prices. (FAC ¶ 24.) NYMEX is also alleged to be aware that participants in OTC transactions use and reference NYMEX prices in their agreements and when marking their positions to market. (FAC ¶ 25.) Other futures exchanges, ...


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