Instinet Incorporated et al v. Ariel (UK) Limited
Filing
64
OPINION AND ORDER granting re: 54 MOTION for Summary Judgment filed by Instinet Holdings Incorporated, Instinet, LLC, Instinet Group, LLC, Instinet Incorporated. For the above stated reasons and for the reasons set forth in the Courts Opinion and O rder dated March 5, 2010, the Court holds that Plaintiffs are entitled to summary judgment with respect to their third and fourth claims for declaratory relief. The Court GRANTS declaratory judgment in favor of Plaintiffs, and DECLARES that (1) Ariel has no rights in or to Instinet's current technology or software; and (2) Ariel does not have any of the rights claimed in the Demand Letter, whether pursuant to the 1972 Agreement, the 1975 Cable Agreement, the 1975 Agreement, or otherwise. Be cause the grant of summary judgment in favor of Plaintiffs forecloses the relief requested by Defendant in its Answer, the Court denies Defendants' claims for relief. The Clerk of Court is directed to close this case. (Signed by Judge John F. Keenan on 9/20/2012) (cd)
Case 1:09-md-02013-PAC Document 57
Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED:Sept. 20, 2012
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
--------------------------------------------------------------- X
SOUTHERN DISTRICT OF INSTINET :
INSTINET INCORPORATED,NEW YORK
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HOLDINGS INCORPORATED, INSTINET :
In re LLC, and INSTINET, LLC,
08 Civ. 7831 (PAC)
GROUP, FANNIE MAE 2008 SECURITIES
: :
LITIGATION
:
09 MD 2013 (PAC)
:
No. 08 Civ. 7141 (JFK)
:
Plaintiffs,
:
OPINION & ORDER
: :
OPINION ANDORDER
-----------------------------------------------------------x
– against –
:
:
ARIEL (UK) LIMITED,
:
:
HONORABLE PAUL A. CROTTY, United States District Judge:
Defendant.
:
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BACKGROUND1
APPEARANCES
The early years of this decade saw a boom in home financing which was fueled, among
For Plaintiffs Instinet Incorporated, Instinet Holdings Incorporated, Instinet
Group, LLC, and Instinet, and lax
other things, by low interest ratesLLC: credit conditions. New lending instruments, such as
ORRICK, HERRINGTON & SUTCLIFFE LLP
subprime By: Robert L. Sills
mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
kept the boom going. Borrowers Limited:
For Defendants Ariel (UK) played a role too; they took on unmanageable risks on the
Michael J. Little
assumption that the market would continue to rise and that refinancing options would always be
available in the United States District Judge:
John F. Keenan, future. Lending discipline was lacking in the system. Mortgage originators did
not holddeclaratory judgment action arises than carry the rising risk on their books, the
This these high-risk mortgage loans. Rather from a dispute regarding the scope of
originators sold their loans into the secondary mortgage market, often as securitized packages
defendant Ariel (UK) Limited’s (“Ariel”) rights in the computerized securities
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
trading software developed by Plaintiffs Instinet Incorporated, Instinet Holdings
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
Incorporated, Instinet Group, LLC, and Instinet, LLC (collectively, “Instinet”),
and home prices began to fall. In light of the changing housing market, banks modified their
pursuant to a series of licensing agreements signed in the 1970s. The Court
lending practices and became unwilling to refinance home mortgages without refinancing.
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
1
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
respect to its third and fourth claims for declaratory judgment because the parties
1
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
–2–
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.)
–3–
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[,]
documentation[,]
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,
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[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 Instinet 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.)
–5–
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
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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.”) ¶ 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 the 1976 Software could be run on modern computer systems
through software emulation of the PDP-II computer system. (Df.’s Nov. 2011 56.1 S.
¶ 4.) Ariel, however, does not contend that 1976 Software itself is in use by Instinet
at the present time.
–7–
D.
LITIGATION CONCERNING ARIEL’S RIGHTS IN THE CURRENT
INSTINET SYSTEM AND THE 2005 SOFTWARE
1.
ARIEL’S DEMAND LETTERS AND PRIOR LITIGATION IN THIS
COURT
In 1996, 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. (Decl. of Robert L. Sills (“Sills Decl.”) Ex. K at 4, September 2, 2009,
ECF No. 17.)
Representatives for Instinet and Reuters again rejected Ariel’s
demand.
Ariel subsequently brought an action in this Court against Instinet and
others, seeking declaratory relief as well as money damages for copyright
infringement and breach of contract, based on Instinet’s alleged use of Ariel’s
technology pursuant to the 1975 Agreement.
The action was dismissed with
prejudice on the grounds that defendant held licenses to use Ariel’s 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.
–8–
In June 2008, Ariel sent another demand letter (the “2008 Demand Letter”)
to Instinet, claiming that it has a “right of ingress” in the Current Instinet System
based on the 1975 Agreement. (Sills Decl. Ex O at 1.) Ariel asserted that this “right
of ingress” in the technology used by Instinet in June 2008 was “contemplated in
the perpetual reciprocal license Agreements . . . envisioned in the 1972 Agreement
and imputed explicitly and implicitly into the 1975 Agreement by manner of the
Cable Agreement.” (Id. at 1–2.) Additionally, Ariel demanded that Instinet “supply
a list of patents, extant and applied for that relate in any way to the Instinet II
technology and that Instinet . . . execute short form agreements enabling Ariel to
commercially sub-license [the Current Instinet System] to companies operating in
the matching technology space.” (Id. at 2.)
On August 11, 2008, Instinet commenced this action seeking a declaratory
judgment addressing the rights and obligations of the parties. Instinet petitioned
the Court to declare that:
(1)
(2)
(3)
(4)
“the 1975 Agreement terminated the 1972 Agreement in its
entirety;”
“pursuant to the 1975 Agreement, the technology and software
being licensed to Ariel is limited to such technology and software
as it existed no later than June 30, 1976;”
“Ariel has no rights in or to Instinet’s current technology or
software;” and
“Ariel does not have any of the rights claimed in the Demand
Letter, whether pursuant to the 1972 Agreement, the 1975
Cable Agreement, the 1975 Agreement, or otherwise.”
(Compl. ¶ 26(a)–(d), Aug. 11, 2008, ECF No. 1.) On November 5, 2008, Ariel filed an
action in Supreme Court, New York County, asserting similar claims to those made
in the June 2008 demand letter. See Ariel (UK) Limited v. Thompson Reuters Corp.,
–9–
Index No. 08603190 (N.Y. Sup. Ct. filed Nov. 5, 2008). That action has been stayed,
upon consent, pending the resolution of the instant matter. (See Sills Decl. Ex. Q.)
2.
INSTINET’S FIRST MOTION FOR SUMMARY JUDGMENT
On September 9, 2009, Instinet filed its first motion for summary judgment,
asserting that the 1975 Agreement is both integrated and unambiguous, and thus it
is entitled to all four claims for declaratory relief as a matter of law. Instinet also
argued that Ariel’s claims would be barred under the doctrine of laches. The Court
held that Instinet was entitled to summary judgment with respect to the first and
second claims for declaratory relief and that the parties had not adequately
addressed whether there were genuine issues of fact material to Instinet’s third and
fourth claims for declaratory relief. Instinet, 2010 WL 779324, at *6–9.
3.
ARIEL’S MOTION TO AMEND
In July 2010, Ariel demanded that Instinet produce the source code and
documentation for the 1976 Software as it existed on June 30, 1976.
Instinet
admitted that it did not have a copy of the 1976 Software as it existed on June 30,
1976, or documentation “in its possession, custody, or control.” (Bainton Decl. Exs.
D, F, Jan. 12, 2011, ECF No. 47.) Thereafter, Ariel moved for leave to amend its
answer to assert a defense of rescission with respect to the 1975 Agreement. On
September 26, 2011, the Court denied Ariel’s motion on the grounds of undue delay
and futility. Instinet Inc. v. Ariel (UK) Ltd., No. 08 Civ. 7141 (JFK) (RLE), 2011 WL
4444086, at *3–4 (S.D.N.Y. Sept. 26, 2011). Nearly two months later, Instinet filed
its renewed motion for summary judgment.
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II. DISCUSSION
A.
SUMMARY JUDGMENT STANDARD
Under Rule 56 of the Federal Rules of Civil Procedure, a movant is entitled to
summary judgment where the evidence, viewed in the light most favorable to the
non-movant, shows that “there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.” Vacold LLC v.
Cerami, 545 F.3d 114, 121 (2d Cir. 2010) (citing Allianz Ins. Co. v. Lerner, 416 F.3d
109, 113 (2d Cir. 2005)). The movant bears the initial burden of demonstrating “the
absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986). Where the moving party meets that burden, the opposing party must
then come forward with specific evidence demonstrating the existence of a genuine
dispute of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
“[T]he substantive law of the action [determines] which facts are material,” and
“‘[o]nly disputes over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment.’” Golden Pac.
Bancorp. v. FDIC, 375 F. 3d 196, 200 (2d Cir. 2004) (quoting Anderson, 477 U.S. at
248).
B.
THE PARTIES’ EVIDENTIARY OBJECTIONS
In deciding a motion for summary judgment, the Court may consider only
evidence that can be “presented in a form that would be admissible in evidence.”
Fed. R. Civ. P. 56(c)(2). “[W]here a party relies on affidavits or deposition testimony
to establish facts, the statements ‘must be made on personal knowledge, set out
facts that would be admissible in evidence, and show that the affiant or declarant is
– 11 –
competent to testify on the matters stated.’” DiStiso v. Cook, --- F.3d ----, 2012 WL
3570755, at *2 (2d Cir. Aug. 21, 2012) (quoting Fed. R. Civ. P. 56(c)(4)). Therefore,
the Court must resolve two evidentiary objections raised in the parties’ moving
papers before considering the merits of the instant motion.
1.
INSTINET’S OBJECTION TO ARIEL’S RELIANCE ON PUBLIC
STATEMENTS OF CHRIS ROGERS AS “INADMISSIBLE
HEARSAY”
Instinet argues that the quotations taken from online news sources by Ariel
are inadmissible hearsay that the Court may not consider. These articles are taken
from two business news websites:
streetandtech.com,
and
Advanced
Wall Street & Technology, http://www.wallTrading,
http://www.advancedtrading.com/.
Because these articles are statements by declarants while not “testifying at the
current trial or hearing,” and are offered “to prove the truth of the matter asserted
in those articles” (i.e., that Instinet employees made the statements quoted in the
articles), these articles are hearsay. Fed. R. Evid. 801(c). None of the exceptions to
the rule against admissibility of hearsay apply to these articles, and therefore these
articles are inadmissible. See Fed. R. Evid. 802; Tokio Marine & Fire Ins. Co. v.
Rosner, 206 F. App’x 90, 95 (2d Cir. 2006).
Because the news articles are inadmissible, the quotations contained therein
are not admissible even if they might independently fall within an exception to the
hearsay rule. See Fed. R. Evid. 805; United States v. Payne, 437 F.3d 540 (6th Cir.
2006) (“In order to admit an out-of-court statement that is nested within another,
Rule 805 requires that both statements be admissible.”). Therefore, Ariel may not
– 12 –
rely on these quotations as independent evidence that there is a genuine dispute as
to an issue of material fact.
2.
DEFENDANT’S OBJECTION TO THE DECLARATION OF CHRIS
ROGERS AS LACKING A BASIS IN PERSONAL KNOWLEDGE
Ariel objects to the admissibility of portions of the Rogers Declaration under
Federal Rule of Evidence 602, arguing that these portions are not based on Rogers’s
personal knowledge because he attests that he never worked directly with the 1976
Software that formed the core of the Original Instinet II System. (Df.’s Nov. 2011
56.1 S. ¶ 3.) Instinet contends that Rogers was directly involved in the development
of the Current Instinet System and therefore is competent to give testimony that
the Current Instinet System was “built from the ground up” and integrates none of
the technology from the Original Instinet II System. (Pls.’ Reply Mem. Mot. Summ.
J. 8–9, Nov. 29, 2011, ECF No. 61.)
According to the Rogers Declaration, Rogers has served as Instinet’s Chief
Technology Officer since 2007. (Rogers Decl. ¶ 2.) Between 2003 and 2007, Rogers
worked as Instinet’s Chief Software Architect. (Id. ¶¶ 2, 6.)
When he originally
began working at Instinet, Rogers “worked on the software and technology for a
newly-acquired subsidiary of Instinet known as [Island], which, like Instinet,
operated an electronic trading platform for securities,” but which had developed its
competing software platform independently. (Id. ¶ 6.) Rogers admits that he has
not worked directly with the 1976 Software that formed the basis of the Original
Instinet II System and that he has “never examined the code of any version of the
1976 Software in the course of [his] work.” (Id. ¶¶ 7, 13.)
– 13 –
Ariel urges the Court to reject Rogers’s testimony that the Current Instinet
System contains no components of the 1976 Software on the grounds that Rogers
has no personal knowledge about the code that comprised the 1976 Software.
However, Ariel does not argue that Rogers lacks personal knowledge about the
development of Current Instinet System in a “clean room” environment, or that he
lacks personal knowledge to testify that the Current Instinet System “is an original
work and is not a modification of the code of any other system.” (See Rogers Decl.
¶¶ 13, 14.) This testimony is sufficient to establish that Rogers based his statement
that the “algorithms and programming logic” utilized in the Current Instinet
System is “in no way derived from . . . the 1976 Software” on his own personal
knowledge, especially in light of the undisputed evidence on the record that the
1976 Software was written in an entirely different programming language. (Rogers
Decl. ¶¶ 8, 14; Df.’s Nov. 2011 56.1 S. ¶ 6.)
C.
APPLICATION TO PLAINTIFFS’ MOTION
In ruling on Plaintiffs’ prior motion for summary judgment, this Court held
that “the 1975 Agreement is integrated, unambiguous, and terminated the parties’
prior agreement in its entirety.” Instinet, 2010 WL 779324, at *8. Under the terms
of the 1975 Agreement, “Ariel’s rights in the computerized trading technology
developed by [Instinet were] limit[ed] to the technology developed on or before June
30, 1976, the date the working relationship between Ariel and [Instinet] ceased.” Id.
In its third claim for declaratory relief, Instinet seeks a declaration that Ariel
has no rights in or to Instinet’s current technology or software. In its fourth claim
for declaratory relief, Instinet seeks a declaration that Ariel does not have any of
– 14 –
the rights claimed in the 2008 Demand Letter, “whether pursuant to the 1972
Agreement, the 1975 Cable Agreement, the 1975 Agreement, or otherwise.” (Compl.
¶ 26(d).) The 2008 Demand Letter contains two distinct demands. Ariel claims that
that it is entitled to a “right of ingress” in the Current Instinet System, and that
Instinet is obligated to “supply a list of patents, extant and applied for, that relate
in any way to the Instinet II technology” and “execute short form agreements
enabling Ariel to commercially sub-license [these patents] to companies operating in
the matching technology space.” (Sills Decl. Ex. O at 2.)
Instinet contends—and Ariel agrees—that the question whether the Current
Instinet System continues to employ technology from the Original Instinet II
System is determinative of whether Instinet is entitled to summary judgment with
respect to the third and fourth claims for declaratory relief.
In support of its claim, Instinet offers undisputed evidence from Rogers that
the code forming the Current Instinet System was built from the “ground up” in a
clean-room environment, and that this overhaul of Instinet’s trading platform was
necessary in light of the dramatic technological changes that had occurred in the
three decades that followed the 1975 Agreement. In support of its position that the
Current Instinet System contains no components of the Original Instinet II System,
Instinet also relies on deposition testimony from Michael J. Little, Ariel’s current
owner, and David Mann. At his Civil Rule 30(b)(6) deposition, Little testified that
he had no “basis upon which to testify that as a technical matter the current
Instinet system and the [1976 Software] have any features in common.” (Sills Decl.,
– 15 –
Ex. D at 211, 216.) The evidence marshaled by Instinet clearly establishes that,
though its purpose is to match securities trades (a purpose shared with all
predecessor systems of Instinet systems), the Current Instinet System utilizes no
software or other technology developed for use in the Original Instinet II System.
Ariel speculates about Rogers’s motivation and credibility in giving testimony
about the development of the Current Instinet System, but provides no evidence to
refute Rogers’s assertion that the technology employed in implementing the
Original Instinet II System is no longer used in the Current Instinet System. Ariel
relies heavily on the online news articles discussed above to call Rogers’s credibility
into question, but even if Ariel could present admissible evidence establishing that
Instinet’s employees made the statements quoted in those articles, the quotations
would neither call into question the veracity of the Rogers Declaration, nor support
Ariel’s contention that the Current Instinet System incorporates elements of the
Instinet II System as it existed prior to June 30, 1976. In the first article to which
Defendant refers, Rogers is reported to have said that:
[Instinet’s] primary project, which should be completed soon, is a
rewrite of what we call the “Core,” which is the fundamental
technology that touches pretty much everything Instinet does. With
this new Core we will be a much more efficient technology
organization, as it will serve as the underpinning of our global
matching engines, algorithms and front ends.
(Df.’s Mem. Opp. 2.) Defendant argues that this statement “cannot be reconciled”
with Rogers’s statement that the Current Instinet System “is a new system
designed and built from the ground up.” (Id. (quoting Rogers Decl. ¶ 11).)
Defendant’s argument that these two statements are irreconcilable is conclusory.
– 16 –
In fact, Plaintiffs’ development of a rewritten or rebuilt “Core” in 2007 would
support, rather than weaken, Plaintiffs’ argument that the Current Instinet System
contains no computer code or other technology developed for the 1976 Software.
Additionally, from the assertion that Rogers’s “primary project” as of 2007 was a
rewrite of the prior “Core,” it does not follow that this was the only difference
between the Instinet II System and the Current Instinet System, the development
of which Rogers began in 2005.
Finally, even if the Current Instinet System
incorporated some features that had been integrated into the Instinet II System as
it existed when Instinet made the decision to deploy new technology, Defendant
does not claim that any of these features were components of the Instinet II System
as it existed prior to June 30, 1976. For all these reasons, Defendant’s contention
that the above quotation contradicts the Rogers Declaration is unsound.
The other quotations upon which Defendant relies also do not contradict
Rogers’s statements about the creation of the Current Instinet System. In opposing
the Plaintiffs’ current motion for summary judgment, Defendant refers to Rogers’s
2008 statement that Instinet had combined the technology of one competing
platform “with Instinet’s algorithms and smart routing capability.” (Df.’s Mem. Opp.
3.)
This statement would support Defendant’s position only if there was some
evidence that the “algorithms and smart routing capability” to which Rogers
allegedly referred were components of the Instinet II System as it existed prior to
June 30, 1976. Defendant also refers to Instinet Group employee Brian Nigito’s
2011 statement that the Current Instinet System contains a matching engine based
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on another competing trading platform, which was combined with a “text based
terminal” similar to one used previously. (Id.) This statement would contradict the
evidence adduced by Plaintiffs only if the use of a “text-based terminal” could be
considered as part of the “technology and software” unique to the Instinet II System
or, more specifically, the 1976 Software. Defendant provides no explanation for how
the use of a “text-based” terminal undermines Plaintiffs’ position that the
technology underlying the Current Instinet System was built “from the ground up.”
Much of the evidence marshaled by Ariel to support its argument that there
is a genuine dispute on this point is equivocal at best, and at worst damaging to
Ariel’s position. For example, at the time of his April 2009 deposition, the last time
Mann had examined the source code for any Instinet system was in August 2006,
and he admitted having no personal knowledge about the source code used in the
Current Instinet System, or about the hardware on which it runs. (2009 Little Decl.,
Ex. E (“Manns Dep.”) 45:7–15, 46:10–14.) Though Ariel’s counsel had represented
that, at this deposition, Manns would testify regarding “the alleged similarities
between the current Instinet system” and the Original Instinet II System, Mann
was unable to identify any similarities and in fact agreed that it “certainly is true”
that the 1976 Software had been “rewritten completely” in the years between 1976
and 2006. (Id. 47:14–21.)
Ariel’s argument that the Current Instinet System shares certain common
features with the Original Instinet II System, such as the use of a securities trading
engine, a backbone network, and a display system (including the “look and feel” of a
– 18 –
display system), does not change this result. Ariel’s rights in the Original Instinet
II System are limited to:
(1)
“a license to use and grant sublicenses to the “Know-how” and
“Patents” underlying the [Original Instinet II System];”
(2)
“the right to exploit the patents obtained by Instinet from applications
pending at the time the 1975 Agreement was executed—of which there
are none;” and
(3)
“the right to exploit the patents obtained by Instinet from applications
filed after the execution of the 1975 Agreement that cover the
technology developed by Ariel in conjunction with Instinet and
Datasyntecks, which does not include technology developed after June
30, 1976 based on the undisputed facts”
Instinet, 2010 WL 779324, at *7.
Therefore, assuming Ariel is correct in its
contention that the Current Instinet System shares high-level structural features
with the Original Instinet II System, it has not shown that any of these features
were “Know-how” or patented technology in which Ariel has a right under the 1975
Agreement.
Based on the facts discussed above, and drawing all reasonable inferences in
favor of Ariel, the Court holds that Instinet is entitled to a declaration that Ariel
has no rights in or to Instinet’s current technology or software.
III. CONCLUSION
For the above stated reasons and for the reasons set forth in the Court’s
Opinion and Order dated March 5, 2010, the Court holds that Plaintiffs are entitled
to summary judgment with respect to their third and fourth claims for declaratory
relief.
The Court GRANTS declaratory judgment in favor of Plaintiffs, and
DECLARES that:
– 19 –
(1)
(2)
Ariel has no rights in or to Instinet's current technology or
software; and
Ariel does not have any of the rights claimed in the Demand
Letter, whether pursuant to the 1972 Agreement, the 1975
Cable Agreement, the 1975 Agreement, or otherwise.
Because the grant of summary judgment in favor of Plaintiffs forecloses the relief
requested by Defendant in its Answer, the Court denies Defendants' claims for
relief. The Clerk of Court is directed to close this case .
SO ORDERED.
Dated:
New York, New York
September:; 0 , 2012
~)
United States District Judge
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