Exegy Sues Activ Financial: The Problem with Patents

St. Louis-based hardware ticker plant and feed handler vendor Exegy is no stranger to lawsuits: no sooner had it launched the industry’s first hardware ticker plant and announced plans to merge with HyperFeed Technologies in 2006, than the deal fell through and HyperFeed sued, claiming that Exegy misrepresented its intentions and tried to change the agreement.

That was 13 years ago—ancient history, by modern standards, though I still remember it like yesterday. Another old story that I remember well is that of the Wagner Patent—a patent covering electronic futures trading acquired by electronic bond trading platform eSpeed, which it then used to sue many others across the industry whose business involved electronic futures trading, from exchanges like CME and the New York Mercantile Exchange to execution software vendors like Trading Technologies. In its first-quarter 2003 revenues, eSpeed collected $2.1 million in “fees from unrelated parties,” largely as a result of the patent, and said that it expected to raise $40 million from royalties over time.

Why am I suddenly thinking about the Wagner Patent? Because Exegy is back in court—but this time as plaintiff, suing market data vendor Activ Financial for infringement, citing “unauthorized use of patented technology” to protect Exegy’s “significant investment in innovative technology.”

Exegy’s bone of contention is the use of specialist microprocessors called Field-Programmable Gate Arrays (FPGAs) for processing of high-speed market data. The process of using these to speed up tasks previously performed in software is known as “hardware acceleration”—hardware can perform simple, repetitive tasks faster and more efficiently than software, which is better for tasks that require more flexibility and “thought.” Exegy has been using FPGAs as a core component of its hardware ticker plant since 2006—as has Activ in its MPU appliance since 2007.

Exegy’s suit lists 17 patents that the vendor believes Activ has infringed—all of which were issued after both vendors began using FPGA technologies, and three of which were issued within the last 12 months. In total, the US Patent and Trademark Office has issued 90 patents to Exegy. Activ, meanwhile, holds 31 patents, 12 of which specifically relate to FPGA devices. Exegy does not assert that Activ has stolen its technology, or deliberately copied anything; only that—at least, it would appear—by pursuing its own FPGA developments, the vendor has infringed its patents.

Other vendors that have developed hardware-accelerated solutions for high-speed data processing include NovaSparks, Enyx, Celoxica, xCelor (now owned by Metamako), Solarflare (which is in the process of being acquired by Xilinx), and Fixnetix, all of which use FPGAs to build solutions ranging from hardware appliance ticker plants and feed handlers, to network adapters and high-speed pre-trade risk checks. It’s not known whether any of these competitors have been approached by Exegy citing patent violations, though an initial search did not reveal any other lawsuits.

Exegy initially declined to comment and did not respond to specific questions by press time. Activ also declined to comment.

On the one hand, Exegy’s desire to protect its hard-earned intellectual property is completely understandable—and no doubt its customers who have invested in its technology also want to protect the advantage they perceive from using it. And let me be clear: I like the Exegy folks. But it will be equally understandable if other elements of the industry see a lawsuit that doesn’t cite examples of deliberate and malicious theft as an attempt to stifle competition, or—as in the case of the Wagner Patent—to collect royalties from others engaged in the same activities.

The problem with lawsuits is that they don’t just stifle competition; they also stifle innovation, because the industry becomes wary of adopting any new technology that might attract the attention of so-called “patent trolls,” firms that file or acquire patents for the sole purpose of suing others to make money from others’ “infringements.” Exactly a decade ago, a company called IXO/Realtime Data forced the industry to drop the FIX/FAST data compression standard like a scalding hot potato after suing every bank, broker, exchange and vendor known to be using it.

If an unknown entity could scare the industry into abandoning its money-saving compression efforts, who knows what damages Exegy may be able to extract, and by doing so force rivals to use less-efficient, alternative technologies instead of FPGAs.