(CN) - A state appeals court upheld a judgment barring the International Securities Exchange (ISE) from operating an exchange market for trading Dow Industrial Average and S&P 500 index options.
The Dow is owned by CME Group Index Services, while McGraw Hill owns the S&P 500. The Chicago Board Options Exchange Inc. (CBOE) pays both companies an exclusive license to trade the index options.
In late 2006, those entities sued ISE after it announced a plan to run a market trading Dow and S&P 500 options without a license.
Cook County circuit court judge William Maki ruled against ISE, rejecting its argument that state law claims of misappropriation and unfair competition were preempted under federal copyright law.
In a unanimous decision, the 6th Division of the First District Illinois Appeals Court upheld the injunction against ISE, ruling that unauthorized use of the licenses is prohibited under state 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," Judge Rodolfo Garcia wrote in the court's 32-page opinion. "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."
The court also found no conflict between New York and Illinois law on the CBOE's misappropriation claim.
Chicago's Options Clearing House Corp. is also barred from clearing unlicensed trades.
"We are obviously gratified that the court has ruled in CBOE's favor," CBOE Chairman and CEO William J. Brodsky said in a news release. "No third party should be able to interfere with contractual licensing agreements. Nor should any exchange have a free ride on the enormous investment CBOE made in creating options on these indexes and in developing and marketing them for over two decades."
Judge Robert Gordon and Judge Bertina Lampkin concurred with opinion.
ISE did not immediately respond to a request for comment.