Chi. Bd. Options Exch., Inc. v. Int'l Sec. Exch., L.L.C.

Decision Date25 May 2012
Docket Number1–10–2252.,Nos. 1–10–2228,s. 1–10–2228
Citation2012 IL App (1st) 102228,103 U.S.P.Q.2d 1313,362 Ill.Dec. 290,973 N.E.2d 390
PartiesCHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED, CME Group Index Services, L.L.C., and The McGraw–Hill Companies, Inc., Plaintiffs–Appellees, v. INTERNATIONAL SECURITIES EXCHANGE, L.L.C., and The Options Clearing Corporation, Defendants–Appellants.
CourtUnited States Appellate Court of Illinois


William J. Nissen and Jamie E. Haney, both of Sidley Austin LLP, and Andrew L. Deutsch, Kenneth L. Schmetterer, and Steven L. Reynolds, all of DLA Piper LLP (US), both of Chicago, for appellants.

Paul E. Dengel, Stacie R. Hartman, and Ayad P. Jacob, all of Schiff Hardin LLP, and Robert P. LoBue, Adeel A. Mangi, and Elizabeth Shofner, all of Patterson Belknap Webb & Tyler LLP, both of Chicago, and R. Bruce Rich, Benjamin E. Marks, and Mark J. Fiore, all of Weil, Gotshal & Manges LLP, and Alan L. Unikel and Justin K. Beyer, both of Seyfarth Shaw LLP, both of New York, New York, for appellees.


Justice GARCIA delivered the judgment of the court, with opinion.

[362 Ill.Dec. 293]¶ 1 Defendants International Securities Exchange (ISE) and The Options Clearing Corporation (OCC) appeal the circuit court's order enjoining them from providing an exchange market for the trading of index options tethered to the Dow Jones Industrial Average (DJIA) and the S & P 500 Composite Stock Price Index (S & P 500), which are, respectively, owned by plaintiffs CME Group Index Services (CME) and McGraw–Hill Companies. Plaintiff Chicago Board Options Exchange (CBOE) pays CME and McGraw–Hill for exclusive licenses to provide such a market. ISE contends the circuit court erred in declining to find the plaintiffs' state law claims of misappropriation and unfair competition preempted by federal copyright law. We hold the circuit court correctly rejected ISE's contention of preemption because the plaintiffs' claims are not centered on “works of authorship” to trigger copyright protection. Rather, the plaintiffs' claims center on ISE's intended unlicensed, unauthorized use of the research, development, expertise, and goodwill of the indexes for its own gain. Under Illinois law, this constitutes misappropriation as our supreme court ruled in Board of Trade v. Dow Jones & Co., 98 Ill.2d 109, 74 Ill.Dec. 582, 456 N.E.2d 84 (1983), which concluded that a commodities exchange's unlicensed use of the DJIA to offer a derivative contract to investors constituted misappropriation. While there is some indication that federal jurisprudence may have shifted from the underpinnings of Board of Trade, the case remains the law in Illinois. Thus, we uphold the circuit court's injunction against ISE's unlicensed use of the indexes and OCC's clearing of trades on those indexes. We also reject ISE's conflict of law claim that Illinois law and New York law differ on the issue of misappropriation.


¶ 3 The DJIA and S & P 500 indexes are widely disseminated to provide investors with a gauge by which to measure the overall activity of the stock market. The indexes generate millions of dollars in licensing revenues by serving as the underlying bases for a wide variety of financial products. The indexes are tabulated through complex calculations involving both objective and subjective factors, including the selection of appropriate securities to evaluate, identification of evaluation criteria, and determination of policies for reflecting mergers, takeovers, spin-offs, and other corporate events affecting the index components.

¶ 4 CBOE is a national securities exchange registered with the Securities and Exchange Commission (SEC) and located in Chicago. It offers index options that trace the DJIA and S & P 500 under its exclusive licenses with CME and McGraw–Hill Companies. An index option gives its holder the right, but not the obligation, to exercise the option and receive the difference between an index level when the index option is opened (the “strike price” or “exercise price”) and the index level at the expiration of the option. It is essentially “a bet on the future value of the index.” Dow Jones & Co. v. International Securities Exchange, Inc., 451 F.3d 295, 300 n. 6 (2d Cir.2006). Since an index option is based on the overall stock market, it gives the investor the ability to hedge against systemic risk in the market as a whole, something that cannot be accomplished by portfolio diversification.

¶ 5 ISE is also a national securities exchange, with its principal place of business in New York City. It specializes in the trading of options contracts, including indexoptions. ISE has created over two dozen of its own indexes, including three that highly correlate with the S & P 500. ISE requires third parties to obtain licenses to offer financial products based on its indexes, and ISE itself has obtained licenses from third parties to use third parties' indexes as bases for its options products. ISE unsuccessfully requested a license to offer S & P 500 index options in the early and mid 2000s, and it expressed interest in a license for DJIA index options in 2002, but the index providers opted to grant exclusive licenses to CBOE.

¶ 6 OCC is based in Chicago and is the lone clearing agency for index options in the United States. It clears and settles every index option exercised in the country.

¶ 7 On November 2, 2006, ISE announced its intention to offer index options based on the DJIA and S & P 500 without obtaining a license from the providers of those indexes. That same day, ISE filed an action against Dow Jones 1 and McGraw–Hill in the United States District Court for the Southern District of New York, seeking a declaratory judgment that ISE would not infringe on any rights of Dow Jones or McGraw–Hill by listing DJIA and S & P 500 options without a license.

¶ 8 On November 15, 2006, the plaintiffs filed a complaint in the circuit court of Cook County advancing three counts: count I alleged that ISE's proposed use of the indexes would constitute misappropriation under Illinois common law; count II asserted that ISE's actions would tortiously interfere with CBOE's prospective business advantage; and count III alleged that ISE's actions would constitute unfair competition under Illinois common law.

¶ 9 ISE removed the Illinois action to the United States District Court for the Northern District of Illinois. On February 23, 2007, in accordance with the plaintiffs' motion, Judge Robert W. Gettleman remanded the matter to the circuit court of Cook County. Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC, No. 06 C 6852, 2007 WL 604984 (N.D.Ill. Feb. 23, 2007). In ordering the remand, the court concluded that [p]laintiffs' claims for misappropriation and unfair competition are not based on the defendants' threatened use of the published Index values themselves as ‘works of authorship.’ Instead, their claims are based on defendants' intended use of plaintiffs' research and development used to create the Indexes, in addition to goodwill, skills, labor, reputation, and necessary expenditures.” Id. at *5. The court expressly rejected ISE's contention that the plaintiffs' misappropriation and unfair practice claims came within the subject matter of federal copyright law. “The property interests that plaintiffs seek to protect have been recognized by the highest court of the state as state law claims, and thus do not fall within the subject matter of copyright as required by 17 U.S.C. §§ 102 and 103.” Id. (citing Board of Trade, 98 Ill.2d at 121–22, 74 Ill.Dec. 582, 456 N.E.2d 84). Nor were the rights the plaintiffs sought to protect of the type within the general scope of copyright. Judge Gettleman rejected the defendants' assertions that the plaintiffs' claims were based on “intended ‘copying and distributing [of] factual information embodied within works such as Internet websites and newspapers.’ Id. Judge Gettleman found [t]his statement [to be] a gross oversimplification of plaintiffs' claims.” Id. [362 Ill.Dec. 295]¶ 10 In light of the Northern District's remand to state court, the United States District Court for the Southern District of New York stayed the action before it, pending resolution of the action by our state court. International Securities Exchange, LLC v. Dow Jones & Co., No. 06 Civ. 12878, 2007 WL 2142068 (S.D.N.Y. July 25, 2007), aff'd,No. 07–3324–CV, 2009 WL 46889 (2d Cir. Jan. 8, 2009). The Second Circuit Court of Appeals declined to reach the merits of the case and affirmed the stay. International Securities Exchange, No. 07–3324–CV, 2009 WL 46889 (2d Cir. Jan. 8, 2009).

¶ 11 Before the circuit court below, ISE once again moved to dismiss the plaintiffs' complaint on preemption grounds, which the court denied. The Illinois Supreme Court denied ISE's requests for certification of an interlocutory appeal and for a writ of prohibition. ISE and the plaintiffs then filed cross-motions for summary judgment. The plaintiffs' joint summary judgment motion on counts I and III contended the counts were controlled by Board of Trade, 98 Ill.2d 109, 74 Ill.Dec. 582, 456 N.E.2d 84; ISE's motion for summary judgment argued that the plaintiffs' claims were preempted by federal copyright law. Alternatively, if preemption did not apply, ISE contended the action was governed by New York law, under which the misappropriation claim could not stand. However, even if Illinois law applied, ISE argued Board of Trade was distinguishable and did not support the plaintiffs' summary judgment motion.

¶ 12 On July 8, 2010, Judge William O. Maki issued an opinion denying ISE's motion for summary judgment and granting summary judgment to the plaintiffs on counts I and III, while dismissing count II as moot. The circuit court held plaintiffs' claims were predicated on ISE's use of the index providers' “research efforts, skills, expertise, reputation and goodwill” and that [s]uch intangible...

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