Board of Trade of City of Chicago v. Dow Jones & Co., Inc.

Decision Date21 October 1983
Docket NumberNo. 57145,57145
Citation456 N.E.2d 84,74 Ill.Dec. 582,98 Ill.2d 109
Parties, 74 Ill.Dec. 582 The BOARD OF TRADE OF the CITY OF CHICAGO, Appellant, v. DOW JONES & COMPANY, INC., Appellee.
CourtIllinois Supreme Court

Kirkland & Ellis, Chicago, appellant, Bd. of Trade of the City of Chicago; James M. Amend, Robert G. Krupka, G. Christian Kronberg, Michael S. Walsh, Chicago, of counsel.

Lawrence Gunnels, Reuben & Proctor, Chicago, Patterson, Belknap, Webb & Tyler, New York City, for appellee Dow Jones & Co., Inc.; Robert D. Sack, Thomas C. Morrison, Robert P. LoBue, Donald A. Baer, New York City, of counsel.


Defendant, Dow Jones & Company, Inc., appealed from the judgment of the circuit court of Cook County entered in favor of plaintiff, the Board of Trade of the city of Chicago, in its action for declaratory judgment. Plaintiff sought a declaration that its offering of a commodity futures contract utilizing the Dow Jones Industrial Average as the underlying commodity would not violate defendant's legal or proprietary rights. The appellate court reversed (108 Ill.App.3d 681, 64 Ill.Dec. 275, 439 N.E.2d 526), and we allowed plaintiff's petition for leave to appeal (87 Ill.2d R. 315).

The opinion of the appellate court adequately sets forth the facts, and they will be restated here only to the extent necessary to discuss the issues. Defendant, a Delaware corporation with its principal office in New York City, publishes the Wall Street Journal, Barrons, a weekly business magazine, and the Asian Wall Street Journal. It also maintains the Dow Jones News Service, through which it distributes financial news to subscribers. It produces several stock market indexes, the Dow Jones Industrial Average, Transportation Average, and Utilities Average, which are computed on the basis of the current prices of stocks of certain companies selected by defendant's editorial board.

The financial news furnished by defendant is disseminated in a variety of ways. It is distributed to brokerage houses, banks, financial institutions, individual investors, and others who are interested in stock market news. This information is transmitted to teleprinters, cathode-ray-tube receivers, and other devices, such as wall displays in brokerage houses. Subscribers desiring the averages can extract them from the news service or arrange with defendant to deliver the averages directly to them by teleprinter. Through special contracts, others receive the averages through entities which are licensed by defendant to sublicense the distribution of the averages. Plaintiff has a "Subscription Agreement" under which it pays defendant for its News Service and is allowed to compute and display the Dow Jones Averages on plaintiff's trading floor on a continuous, "real time" basis.

Plaintiff is the oldest and largest commodities exchange market in the United States. It was organized in 1848, and in 1859 the General Assembly granted plaintiff a special charter which incorporated it as a not-for-pecuniary-profit organization. Over the years plaintiff has added different types of futures contracts and now offers these contracts in a variety of fields, including agricultural products, precious metals and financial instruments. All commodities exchanges in the United States are regulated by the Commodities Futures Trading Commission (CFTC), and no exchange may trade a futures contract until the CFTC approves the futures contract and designates the exchange as a contract market for that contract.

A futures contract is a contract traded on a commodities exchange which binds the parties to a particular transaction at a specified future date. A stock index futures contract is a futures contract based upon the value of a particular stock market index. Dr. James H. Lorie, stipulated by the parties to be an expert, called by plaintiff, testified that these contracts have been traded since February 1982. At the time of trial they were traded on the Kansas City Board of Trade based on the Value Line Average, on the Chicago Mercantile Exchange based on the Standard & Poor's 500 Stock Index and on the New York Futures Exchange based on the New York Stock Exchange Composite Index. He stated that their "overriding purpose is the management of risk." Unlike other futures contracts, no underlying commodity exists to be delivered at the future date, but rather the transaction is settled by the delivery of a certified promissory note in lieu of cash. He explained that the total risks of investing in the stock market are divided into two parts. One part is the "nonsystematic risk," which occurs when an individual company encounters problems such as strikes, changing consumer attitudes or other problems which would devalue that company's stock. "Nonsystematic risk" can be controlled by an investor through the use of a diversified portfolio. The other type of risk is "systematic risk," which is the risk associated with the broad general movements of the stock market as a whole. Diversification of one's stock portfolio will not provide protection against sharp declines in the stock market. He explained that there are only two ways to protect against systematic risk. The most direct way is for an investor to sell his stocks. This method is rather costly because of the transactional costs in selling and buying stocks, such as brokerage fees. Additionally, if capital gains are realized, the transaction becomes even more costly. The second method of protecting against systematic risk is to deal in stock market futures contracts. This method is more efficient, Professor Lorie explained, since an investor holding a hypothetical $100,000 portfolio could purchase two futures contracts in the Chicago Mercantile Exchange for one-fifteenth the cost of selling his stocks.

An investor who holds a diversified stock portfolio may "hedge" against systematic risk by entering into a stock index futures contract predicting that the market index would decline. Dr. Lorie testified that this was the most effective method of "hedging" of which he was aware.

Plaintiff, desiring to be designated as a contract market for stock index futures contracts, devoted more than two years to developing its own index to be used as the basis for its stock index futures contract. During the greater part of this period, the Securities and Exchange Commission (SEC) and the CFTC were in a dispute concerning which agency had jurisdiction to regulate stock index futures contracts. In December 1981, the two Federal agencies agreed on the scope of their respective jurisdiction and on recommendations to Congress for regulatory legislation. They agreed that the CFTC would regulate trading in stock market index contracts and that such trading would be permitted only if the contracts were based on widely known and well-established stock market indexes. This jurisdictional agreement effectively precluded CFTC approval of a contract based on the index developed by plaintiff.

On February 26, 1982, plaintiff submitted an application to the CFTC asking that it be designated as a contract market for Chicago Board of Trade Portfolio Futures Contracts. The application proposed the use of three indexes, the stock market index, transport index, and the electric index portfolio contracts. It was explained:

"Each index covers a significant portion of the overall stock market. The stock market index covers industrial firms, the Transport Index covers air, rail, and trucking firms, and the Gas and Electric Index covers utility companies. This division is similar to the way other major market indices divide the stock market."

No mention of the Dow Jones name appeared in the application, but the stocks used in each of the indexes were identical to those used in the Dow Jones averages. In a draft proposal to the CFTC for trading "CBT indexes," the Dow Jones averages stock lists were cut out of the Wall Street Journal and pasted into the proposals. The CFTC advised plaintiff that the CBT indexes were not just similar to, but were identical to the Dow Jones averages and that this should be explicitly stated in its application. On May 7, 1982, plaintiff amended its application to state that the CBT indexes were identical to Dow Jones averages and that when Dow Jones changed a component stock or revised the divisor, plaintiff would make the same change so that the CBT indexes would remain identical to the Dow Jones averages. Plaintiff also added a disclaimer to the application disclaiming any association with Dow Jones. On May 13, the CFTC approved plaintiff's use of the stock market index portfolio contract, but did not rule concerning the use of the transportation or utility index portfolio contracts.

The circuit court held that the burden of producing evidence and the burden of persuading the trier of fact fell upon defendant, and found that defendant had a "property right and valuable interest in the Dow Jones averages" but that plaintiff's use of the averages in the manner proposed did not violate those rights. The order, however, required that there be imprinted upon the CBT index contract a disclaimer disavowing any association with or sponsorship by defendant, Dow Jones. The appellate court reversed, holding that plaintiff had the burden of production and persuasion, and that plaintiff's use of the averages constituted commercial misappropriation "of the Dow Jones index and averages."

Prior to review of the substantive issues we consider a matter of procedure. Plaintiff contends that the appellate court erred in holding that plaintiff bore the burden of proof of the allegation in its complaint that "by offering the commodity futures contract described in paragraph 4, the Board of Trade will not violate any legal or proprietary right of Dow Jones." Citing In re Estate of Sandusky (1943), 321 Ill.App. 1, 52 N.E.2d 285, Hecht v. Hecht (1977), 49 Ill.App.3d 334, 7 Ill.Dec. 169, 364 N.E.2d 330, Shumak v. Shumak (1975), 30...

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