As Brumfield rolls, his power in futures grows
Victories, marketshare piling up, but a crucial legal battle looms
A string of legal victories are increasing Trading Technologies International Inc.'s dominance over electronic futures trading as the company girds for a critical courtroom showdown in March.
That could prove the tipping point in the intellectual property dispute between Trading Technologies' CEO, Harris Brumfield, and nearly all of the futures industry.
Already, as many as 70% of all electronic futures trades come through trading software sold by Chicago-based Trading Technologies (TT), up from 50% two years ago, according to an antitrust lawsuit filed against the company last year.
A federal judge in December dismissed the antitrust allegation, one of several charges in the suit, brought by Chicago brokerage Rosenthal Collins Group LLC. The ruling marked another win for TT in the intellectual property dispute between the company and the futures industry. (The rest of the lawsuit is unresolved.)
Since 2004, TT has sued 16 trading and software firms, alleging the firms have violated two patents TT holds on its trading software. Ten of those firms have settled with Mr. Brumfield, agreeing to license his patents and pay TT about 10 cents per trade. That's double the five cents per trade Mr. Brumfield proposed in a settlement offer to futures exchanges in 2004.
Last fall, TT saw a major pocket of resistance cleaned out when its largest customer, Refco Inc., collapsed amid a corporate governance scandal. Refco had vowed to fight Mr. Brumfield tooth and nail, filing an antitrust and breach-of-contract suit against him and prompting Mr. Brumfield to yank TT screens from Refco traders and clearing customers pending a trial. Cutting off his biggest customer was a bold and costly move by Mr. Brumfield, but it paid off after Refco's futures operation was acquired by Man Financial Inc. — which settled with TT a few weeks later.
LEGAL WINS BOOST MARKETSHARE
Mr. Brumfield's thus-far perfect legal record has helped TT continue to rack up marketshare, as brokerages agree to stop using competing screens that Mr. Brumfield says are TT knockoffs.
"It's driven a lot of people to use TT instead of a competing platform," says John Lothian, a president at futures brokerage Price Group Inc. in Chicago.
The few remaining holdouts against TT, including Chicago futures broker Peregrine Financial Group Inc., are now pinning their hopes on a March hearing in TT's lawsuit against its fiercest competitor, eSpeed Inc.
That hearing will result in a federal court in Chicago issuing the first legal ruling on the scope of TT's patents. eSpeed, a unit of New York bond trading giant Cantor Fitzgerald L.P., has made the same claim as TT's other opponents: that the pricing display on TT screens was not a novel invention, and in fact was already widely used in the futures industry. Mr. Brumfield claims he invented the display as a floor trader at the Chicago Board of Trade in the 1990s, and that the rest of the industry copied his technology. He was issued a patent for the display in 2004.
An eSpeed victory would help level the futures playing field. If TT wins, traders fear there's no limit to Mr. Brumfield's already formidable pricing power.
Both TT and eSpeed decline to comment.
Mr. Brumfield, 41, who says he has invested $40 million in his company, is clearly betting on unconditional victory. After growing to 400 employees from 140 in three years, TT is looking to hire another 50 workers.
©2006 by Crain Communications Inc. |
