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Instinet Incorporated, Instinet Holdings Incorporated, Instinet Group, LLC, and Instinet, LLC v. Ariel (Uk) Limited

September 20, 2012

INSTINET INCORPORATED, INSTINET HOLDINGS INCORPORATED, INSTINET GROUP, LLC, AND INSTINET, LLC, PLAINTIFFS,
v.
ARIEL (UK) LIMITED, DEFENDANT.



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

OPINION AND ORDER

This declaratory judgment action arises from a dispute regarding the scope of defendant Ariel (UK) Limited's ("Ariel") rights in the computerized securities trading software developed by Plaintiffs Instinet Incorporated, Instinet Holdings Incorporated, Instinet Group, LLC, and Instinet, LLC (collectively, "Instinet"), pursuant to a series of licensing agreements signed in the 1970s. The Court previously granted Instinet's motion for summary judgment with respect to its first and second claims for declaratory judgment, but denied Instinet's motion with respect to its third and fourth claims for declaratory judgment because the parties had not adequately addressed the question whether Instinet's current securities trading platform incorporates know-how or patents in which Ariel possesses licensing rights. See Instinet Inc. v. Ariel (UK) Ltd., No. 08-CV-7141 (JFK), 2010 WL 779324, at *9 (S.D.N.Y. Mar. 5, 2010). They have now done so.

Instinet renews its motion for summary judgment with respect to its remaining claims. For the reasons that follow, the motion is granted.

I. BACKGROUND

The following facts are taken from the parties' Local Civil Rule 56.1 Statements submitted in connection with the instant motion (which incorporate by reference the Local Civil Rule 56.1 Statements submitted in connection with Instinet's prior motion for summary judgment), the affidavits submitted in connection with the instant motion, and the exhibits attached thereto. Unless otherwise noted, the facts are undisputed.

A. THE PARTIES

Instinet is successor in interest to Institutional Networks Corporation, which was founded in 1969 to develop a computerized trading system for securities. Instinet, 2010 WL 779324, at *1. Through its various entities, Instinet continues to operate an alternative securities trading system and uses its computerized network to match buyers and sellers of securities. (Pls.' L. Civ. R. 56.1 S. ("Pls.' Nov. 2011 56.1 S.") ¶ 1, Nov. 29, 2011, ECF No. 56.)

Ariel is a British company formed in 1971 by a group of London-based merchant banks to establish a computerized trading system that could trade blocks of stock between large institutions. (Pls.' L. Civ. R. 56.1 S. ("Pls.' Sept. 2009 56.1 S.)

¶ 1, Sept. 2, 2009, ECF No. 22.)

B. CREATION OF THE INSTINET SYSTEM AND THE ORIGINAL INSTINET II SYSTEM

In or around 1970, Instinet obtained both European and American patents on an early computerized securities trading system (the "Instinet System"). At around the same time, Ariel was attempting to develop its own trading system (the "Ariel System"). Concerned that Instinet's European patents could pose an obstacle to the development of the Ariel System, Ariel entered into a licensing agreement (the "1972 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. In return, Ariel agreed to pay Instinet licensing fees and royalties. Both parties agreed to disclose to each other all improvements relating to the systems they developed during the term of the agreement, regardless of whether the improvements were patentable. The 1972 Agreement had a term of 14 years, subject to certain conditions that would provide Ariel licensing rights under the agreement in perpetuity. See Instinet, 2010 WL 779324, at *1.

After the execution of the 1972 Agreement, Ariel and Instinet began working together to develop a new version of the Instinet System (the "Original Instinet II System"). Id. According to Ariel, its role in the joint effort was to "develop and deliver to Instinet the definitions and the specifications of the messaging between the information backbone and the trading engine." (Df.'s Sept. 2009 56.1 S. ¶ 21.)

C. THE 1975 AGREEMENT AND CHANGES TO INSTINET'S TRADING PLATFORM

On or about December 24, 1975, Ariel sent to Instinet a proposal to

renegotiate the 1972 Agreement. Under the terms of the proposal, Ariel would pay Instinet $175,000.00, and in exchange would receive a non-exclusive license in all those territories where Instinet had patents granted or pending, as well as full and unencumbered access to and right to make use of the Original Instinet II System and documentation on the same terms as though the 1972 Agreement were still in force. This proposal was subject to the condition that the parties' attorneys would "draw preceding agreement and conditions." See Instinet, 2010 WL 779324, at *1. On December 26, 1975, Instinet accepted the offer and urged Ariel's lawyers to send confirming papers. Id. at *2.

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"). See id. The 1975 Agreement provided that the 1972 Agreement "be treated as terminated" and "the obligations of both parties . . . shall wholly cease on that date." (Sillis Decl. Ex. I (the "1975 Agreement") ¶ 4(1), Sept. 2, 2009, ECF No. 17.) The 1975 Agreement also granted Ariel "a non-exclusive license in respect of the Patents[,] the Future Patents[,] and the Know-How . . . together with the right to grant sub-licenses thereunder." (Id. ¶¶ C, 5(1)--(2).) The parties defined the "Know-How" to mean: all know-how[,] document ation[,] information[,] procedures[,] knowledge[,] experience[,] and data . . . developed up to [December 31, 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, [or] . . . developed after [December 31, 1975] but prior to [June 30, 1976] by Instinet in conjunction with Ariel and Datasynteks and which relates in any way to the Instinet Two System so far in each case as the same is for the time being secret or confidential. (Id. at 3.) In the 1975 Agreement, the parties also defined the term "Patents" and "Future Patents." "Patents" was defined to include "all patents or similar forms of protection in any part of the world of which Instinet or Ariel is the proprietor at the time of signature hereof and which relate in any way to the Instinet System[,] the Ariel System[,] and the Instinet Two System." (Id.) "Future Patents" referred to: all applications for Patents or similar forms of protection in any part of the world made by or on behalf of Instinet or Ariel and pending at the time of signature hereof to the extent only that the same cover the Instinet System[,] the Ariel System[,] and the Inst inet Two System . . . and all such applications in any part of the world which may hereafter be made by or on behalf of Instinet (or by or on behalf of Ariel . . . ) and any patents granted pursuant to any such applications as are mentioned above. (Id. at 3--4.)

Under the 1975 Agreement, Ariel was "entitled to retain all materials, plans, programs, information, and documentation[,] including the Instinet Documentation supplied by Instinet at any time on the basis that Ariel shall continue after [December 31, 1975] to operate the Ariel System but without payment of any kind to Instinet." (Id. ¶ 4(3).) Ariel was also granted "full and unencumbered access to and the right to make use of the Instinet Two System and all documentation programs and data relating thereto without payment of any kind." (Id. ¶ 5(4).) The 1975 Agreement reflected Ariel and Instinet's agreement that "each of them is free to operate and to license others to operate computerized communications systems in any part of the world as contemplated herein." (Id. ¶ 6.)

On June 30, 1976, David Manns, one of the creators of the Original Instinet II System, left his employment at Ariel and soon began working at Instinet. Over the next three decades, Manns would continue to work on the improvements to the Original Instinet II System (Decl. of Michael J. Little ("Little Decl.") Ex. E 21:22-- 22:23, Nov. 29, 2011, ECF No. 59,) but as the Court noted in its ruling on Instinet's prior motion for summary judgment, "it is undisputed that David Mann's departure from Ariel to Instinet terminated the working relationship between the two firms," Instinet, 2010 WL 779324, at *2.

In September 1976, Instinet began operation of the Original Instinet II System, which was based on new software (the "1976 Software") different from that which operated the Instinet System. (Declaration of Chris Rogers ("Rogers Decl.")

¶ 4, Nov. 29, 2011, ECF No. 55.) The Original Instinet II System was incrementally modified over the next three decades, resulting in a modified system (the "Modified Instinet II System") of which the 1976 Software remained a part. (Little Decl. Ex. E 22:4--23.)

In 2005, Instinet began development of a new system (the "Current Instinet System") developed by its Chief Technology Officer, Chris Rogers. (Rogers Decl. ¶¶ 8, 10--11.) The Current Instinet System was based on new software (the "2005 Software") that was written in a different programming language than the 1976 Software and contains "algorithms and programming logic" different from its predecessor systems. (Id. ¶¶ 11, 13--14.) According to Instinet, a replacement of the Modified Instinet II System was necessary because the 1976 Software was designed to run on the now-obsolete Digital Equipment PDP-II computer system, which "has not been manufactured or supported since the mid-1990s." (Pls.' Nov. 2011 56.1 S. ¶ 4.) Instinet asserts that even "if a copy of the 1976 Software could be located, its components could not be run on any modern computer." (Pls.' Nov. 2011 56.1 S. ¶ 4.)

Ariel claims that the Current Instinet System continues to integrate components of the Original Instinet II System and disputes Instinet's characterization of Instinet's various systems as consisting primarily of software. In a deposition taken in connection with this litigation, David Manns testified that the Original Instinet II System consisted of "an engine," "a backbone network," and "front end systems and virtual display screens for traders." (Df.'s L. R. 56.1 S. ("Df.'s Nov. 2011 56.1 S.") ΒΆ 2, Nov. 29, 2011, ECF No. 60.) The 1976 Software, in Ariel's view, was just one component of the Original Instinet II System. Additionally, Ariel provides quotations of statements allegedly made by Instinet employees to three online news sources to support its claim that the Current Instinet System continues to use technology from the Original Instinet II System. (Df.'s Mem. Opp. Mot. Summ. J. 2--4, Nov. 29, 2011, ECF No. 58.) Contrary to the assertions of Instinet, Ariel contends that ...


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