Antitrust complaint against Cusip can go forward, SDNY judge rules

After much anticipation, federal judge Katherine Polk Failla in the Southern District of New York is allowing Dinosaur Financial Group, Hildene Capital Management, and Swiss Life Investment Management to continue with their joint complaint that Cusip Global Services (CGS) and its affiliates violated Section 2 of the Sherman Antitrust Act, the federal law passed in 1890 that outlaws monopolistic behavior.

At the heart of the new filing, and indeed the case at this juncture, sits CGS’s oft-maligned data licensing model and subscription agreements.

The saga began in March of last year when New York-based broker-dealer Dinosaur and Swiss Life, and then Connecticut-based asset manager Hildene, filed two class actions days apart from each other against CGS and S&P Global, CGS’s long-time operator; the American Bankers Association (ABA), CGS’s patent holder and creator; and FactSet, the data and research provider that purchased CGS from S&P in 2022 for nearly $2 billion. The European Commission had previously stipulated that S&P divest CGS as part of its merger with IHS Markit, ending a 53-year operation of CGS by S&P on behalf of the ABA.

In addition to their claims that the quartet of companies had violated sections 1 and 2 of the Sherman Act, the plaintiffs also alleged—in a combined complaint—breach of contract and state business law violations after also seeking a ruling on whether individual Cusip codes are copyrightable. In the latest court filing, Failla has dismissed all claims except for the complaint related to Section 2 of the Sherman Act, which will be allowed to proceed to discovery.

Failla wrote in her response that there are two elements for making out a Sherman Act Section 2 claim for monopolization: the possession of monopoly power in the relevant market and the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident. To prove such a claim, the plaintiffs must show proof of a concerted action deliberately entered and specifically intended to achieve an unlawful monopoly, and the commission of an overt act in furthering the conspiracy.

“The antitrust concerns of this case instead arise because defendants, through their restrictive agreements with third-party data vendors, have created a system designed to prevent any competitive uses of Cusip numbers,” she wrote in the filing.

S&P, and now FactSet, maintain contractual relationships with third-party data vendors through which vendors obtain access to part or all of the Cusip database, the entire universe of 60 data elements identifying more than 50 million financial instruments. But these agreements also contain a unique provision, said Failla, which prohibits the data vendors from providing data in bulk from CGS to Cusip users—effectively all financial firms—that have not signed license deals with S&P.

In examples cited in the court document, Dinosaur received an email from CGS claiming that a subscription agreement was required after it received Cusip numbers from a third-party data vendor because “proprietary Cusip data is being utilized within [Dinosaur’s] firm.” An email to Swiss Life suggested that “Swiss Life could not use the Cusip numbers in its business if it failed to execute a license agreement,” and contract negotiations between Swiss Life and S&P appeared to suggest that Cusip numbers in Isins, a separate securities identifier owned by the International Organization for Standards, were S&P’s intellectual property.

“The court is not concerned, from an antitrust perspective, that plaintiffs must pay for access to CGS data,” she wrote. “Rather, the issue is that defendants arguably have no legitimate purpose in forcing the plaintiffs to sign subscription agreements” when the trio receives CGS data from third parties, not the defendants; and they do not receive the full, copyrighted database from their vendors, but instead datafeeds containing individual Cusip codes that are otherwise non-protectable. The plaintiffs argued earlier that the Cusip database was subject to the same copyright protections as a phonebook, but the individual codes were as free to use as phone numbers.

In a response to a request for comment, CGS, S&P, and FactSet provided the same statement to WatersTechnology: “We are pleased that the Court dismissed all of the plaintiff’s claims relating to Section 1 of the Sherman Act, copyright, and breach of contract claims. We believe that the remaining claims are without merit, and we will continue to defend our position vigorously.”

S&P, CGS, the ABA, and FactSet are directed to respond on or before August 7, and the parties are directed to submit a proposed case management plan by August 14.