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Instinet Inc. v. Ariel Limited

March 5, 2010


The opinion of the court was delivered by: John F. Keenan, United States District Judge

Opinion and Order

This action arises from a dispute regarding the scope of defendant Ariel (UK) Limited's ("Ariel" or "Defendant") rights in the computerized securities trading software developed by the plaintiff Instinet entities (collectively "Instinet" or "Plaintiff") pursuant to a series of licensing agreements signed in the 1970's. Ariel contends that the nearly 35-year-old licensing agreements provide it the right to use and grant non- exclusive sub-licenses in the technology underlying Instinet's current trading platform. On August 11, 2008, Instinet commenced the instant action seeking a declaratory judgment to the effect that Ariel has no rights in Instinet's current technology. Before the Court is Instinet's motion for summary judgment. For the reasons that follow, the motion is granted in part, and denied in part.


Instinet is a successor in interest to Institutional Networks Corporation ("INC"), which was founded in 1969 to develop and operate a computerized trading system for securities. Ariel is a British company established in 1971 by a group of London-based merchant banks which also sought to establish a computerized trading system that could trade blocks of stock between large institutions.

In or around 1970, Instinet obtained both European and American patents on an early computerized securities trading system (the "Instinet System"). Ariel was then attempting to develop its own trading system (the "Ariel System"). Ariel was concerned that Instinet's European patents could be an obstacle to the development of the Ariel System and thus it entered into a licensing agreement with Instinet on August 11, 1972, under which Ariel could develop its own computerized securities trading system based on the design of the Instinet System (the "1972 Agreement"). In return, Ariel agreed to pay Instinet specified licensing fees and royalties. Both parties agreed to disclose to each other all improvements and enhancements relating to the Instinet System, whether patentable or unpatenable, developed by either of them during the term of the agreement. The 1972 Agreement had a term of 14 years, subject to certain conditions that would provide Ariel licensing rights under the agreement in perpetuity.

Some time after the execution of the 1972 Agreement, Ariel and Instinet began working together, in conjunction with a third-party vendor named Datasynteks, to develop a new version of the Instinet System (the "Instinet II System" or "Instinet Two System"). According to Ariel, its role in this project was to "develop and deliver to Instinet the definitions and the specifications of the messaging between the information backbone and the trading engine." (Ariel 56.1 Response Statement ¶ 21.)

On or about December 24, 1975, Ariel sent a proposal to Instinet's attorney by cable to renegotiate the 1972 Agreement (the "Proposal"). Under the terms of the Proposal, Ariel would pay Instinet $175,000 provided that, among other things, Ariel would receive "a non-exclusive license in all those territories where Instinet has patents granted or pending" and "full and unencumbered access to and right to make use of the Instinet Two System and documentation on same terms as though [the 1972 Agreement] were still in force." (Pl. Ex. H.) The Proposal was subject to the condition that the parties' attorneys would "draw up such legal documentation . . . as will give effect to the preceding agreement and conditions." (Id.)

On December 26, 1975, Instinet responded by telex, accepting the offer on the "terms set forth in [the] Ariel cable." (together with the Proposal, "the Cable Agreement"). In the telex, Instinet also urged that Ariel's lawyers "send confirming papers [to Instinet's lawyers] soonest." (Id.)

In or about April 1976, the parties finalized their agreement by signing a written contract with an effective date of December 31, 1975. (the 1975 Agreement"). The 1975 Agreement provided that the 1972 Agreement "be treated as terminated" after the effective date, "on the basis the obligations of both parties . . . shall wholly cease on that date." (Def. Ex. I § 4(1).)

The parties' disagreement in the instant litigation pertains to the scope of Ariel's rights under the 1975 Agreement. The Cable Agreement expressly stated that Ariel would maintain the same rights in the Instinet II System as if the 1972 Agreement were still in effect. On the other hand, the 1975 Agreement does not refer to the Cable Agreement, and refers to the 1972 Agreement only to the extent that it expressly terminates it. The 1975 Agreement provides Ariel a non- exclusive, world-wide license to exploit the "Know-how," "Patents," and "Future Patents" pertaining to the Ariel, Instinet, and Instinet II Systems.

"Know-how," as defined in the 1975 Agreement, "means and includes all know-how[,] documentation[,] information[,] procedures[,] knowledge[,] experience[,] and data: (a) developed up to 31st December 1975 by or for Instinet or Ariel and which relates in any way to the Instinet System[,] the Ariel System[,] and the Instinet Two System[;] and (b) developed after 31st December 1975 but prior to 30th June 1976 by Instinet in conjunction with Ariel and Datasynteks and which relates in any way to the Instinet Two System." (Id. § 1.)

"Patents" are defined in the 1975 Agreement as "all patents or similar forms of protection in any part of the world" which relate to the Ariel System, Instinet System, and Instinet II System "of which Instinet or Ariel is the proprietor at the time of the signature hereof." (Id.) (emphasis added). "Future Patents" are defined to include patent applications, and patents issued pursuant to such applications, that "cover" the Ariel System, the Instinet System, or the Instinet II System and were pending at the time of the contract's execution or filed thereafter. (Id.)

On June 30, 1976, David Manns, an author of the Instinet II System, left his employment at Ariel and began working at Instinet on or about the next day, July 1, 1976. It is undisputed that David Manns's departure from Ariel to Instinet terminated the working relationship between the two firms. The Instinet II System was not complete as of that date, however; it began commercial operation in or about September 1976.

In 1996, roughly 20 years later, Ariel sent letters to both Instinet and Reuters, the majority owner of Instinet at the time, requesting a meeting with their representatives regarding the status of its rights pursuant to the 1975 Agreement. Instinet declined Ariel's request. In October 2003, Ariel engaged Origin Limited ("Origin") to provide an opinion on the validity of Ariel's intellectual property rights. On March 22, 2005, Origin, on behalf of Ariel, sent a demand letter to Instinet and Reuters, requesting "assurance that [they] will honour [their] obligations to Ariel" under the 1975 Agreement. (Pl. Ex. K, at 4.) Representatives for Instinet and Reuters again rejected Ariel's demand.

In November 2005, Ariel brought an action in this Court against Instinet and other defendants for copyright infringement, declaratory relief, and breach of contract based on Instinet's use of Ariel's technology pursuant to the 1975 Agreement. On October 31, 2006, this Court issued an opinion and order dismissing the copyright claim with prejudice on the grounds that defendants held licenses to use that technology.

See Ariel (UK) Ltd. v. Reuters Group PLC, No. 05 Civ. 9646, 2006 WL 3161467 (S.D.N.Y. Oct. 31, 2006), aff'd 277 F. App'x 43 (2d Cir. 2008). The Court also declined to exercise supplemental jurisdiction over the remaining state law claims, dismissing them without prejudice. Id. at *10-11.

In June 2008, Ariel sent a demand letter to Instinet, claiming that it has a right of ingress in Instinet's current ...

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