- Posted by Jeff Carter on May 22nd, 2015 at 8:39 am
Yesterday, a jury ruled that Quantlab, and HFT firm in Houston was entitled to $12.2M in damages from two traders that took their code and set up their own firm. It’s an interesting case in more ways than one. I am not a lawyer, so it’s really difficult for me to understand the legal precedent that comes with the case.
When I was on the floor, there was no such thing as proprietary technology. If you saw a trader that had a good system, you simply copied them. As traders started to back other traders, they began using non-compete agreements to stop successful traders from negotiating better deals with other shops.
When it came to spreading, I don’t think there was much proprietary knowledge. Options trading might be a bit different, but the math is all there for everyone to see.
The reason I am interested in the legal ramifications of this case is because it involves code. High speed traders use code, but so do startups. Is code patentable? Especially trading code?
Given my experience trading, I am not sure code for markets is patentable-but I am open to the argument. In the old days, if I was a trader working for a firm, I took that intellectual property with me when I left. Isn’t the code I right the same as the intellectual property I had when it was floor based trading? On the other hand, I might not have been able to write the code, and have access to resources to write the code if I wasn’t a part of the firm. So, maybe the firm owns the intellectual property?
If I transfer this logic to a startup, is code proprietary? Does the code a startup write create the barrier to entry or are other factors afoot? I think the answer is it depends. Certainly, customer lists are proprietary and part of the intellectual property of the firm. In many highly technical startups, investors highly value intellectual property. I am thinking of medical startups. They won’t invest without it. IP creates a barrier to entry.
To be clear, I don’t have a hard and fast position on it. I am not a lawyer, but I am paying attention. Would love for some lawyers to weigh in.
- Intellectual property: The driving force for growth and funding (life-sciences.blognotions.com)
- Big Law Firms Winning More of Intellectual Property Work (nytimes.com)
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Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)