Articles By Topic
By Topic: Intellectual Property
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From Vol. 5 No.11 (Mar. 16, 2012)
Hedge Fund Names: What a Hedge Fund Manager Should Do Before It Starts Using a Name
Although the pace of new hedge fund formation these days is nowhere near that of several years ago, new funds are still being formed at a fairly healthy clip. Whether as a result of investment banks spinning off their proprietary trading operations due to the Dodd-Frank regime or as a result of successful traders leaving funds that are stuck below their high-water marks, new funds are being formed and new managers will need to come up with names for their management companies and funds. In the wake of last decade’s exponential growth in the industry, they will find that most of the obvious sources of names (e.g., trees, birds, constellations and mythological entities) are already being used. Other names, although no longer in use, have been so tarnished by their past use in the investment management field (whether due to scandal or simply poor performance) that they are no longer viable candidates for a new manager. This makes selecting a name for a new management company or fund increasingly difficult and presents a greater risk now than ever before. It also makes obtaining trademark protection for a name increasingly important. Complicating the name selection issue is the fact that trademark rights exist on a country-by-country basis, which means that a given name might be available for use and registration in one country but not in another. With the globalization of financial markets and the rise of multi-jurisdictional hedge fund managers, new managers must consider name rights outside the United States and may have to devise intricate use and registration strategies internationally to ensure their ability to use their name and prevent others from adopting similar names across many countries. In a guest article, David Nissenbaum and Scott Kareff, Partner and Special Counsel, respectively, at Schulte Roth & Zabel LLP, discuss various topics related to hedge fund name selection, including: the importance of trademark registration for hedge funds; specific disputes that can arise as a result of name selection; ten lessons that can be learned from prior name disputes; and the value of name searches, including a discussion of the name search process and its inherent limitations.
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From Vol. 3 No.45 (Nov. 19, 2010)
U.K. Chancery Court Holds That, Under European Union Intellectual Property Law, Financial Services Company “OCH Capital” Infringed the Trademarks of European Hedge Fund Manager Och-Ziff Capital Management
On October 20, 2010, a Judge of the United Kingdom High Court of Justice, Chancery Division, ruled that OCH Capital, LLP infringed two trademarks, “OCH-ZIFF” and “OCH” registered by hedge fund Och-Ziff Management Europe, Ltd. and its manager, OZ Management LP (collectively Och-Ziff or Claimants), and that OCH Capital committed “passing off,” the European equivalent of “unfair competition.” Specifically, it found that, by using the sign “OCH Capital,” and derivations thereof, in the course of its trade in the financial services industry, OCH Capital created confusion in the marketplace with the Och-Ziff trademarks, and caused damage to, and took unfair advantage of, the Och-Ziff Group’s established reputation in the same industry. The Court also held OCH Capital, its founder, Thomas Tadeus Antoni Ochocki, and its management firm, Union Investment Management Ltd. jointly liable. We detail the background of the action and the Court’s legal analysis.
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From Vol. 3 No.27 (Jul. 8, 2010)
Supreme Court Invalidates Patent on Hedging Risk But Leaves Door Open for Less “Abstract” Business Methods
On June 28, 2010, the U.S. Supreme Court, in Bilski v. Kappos, held a patent directed to a series of steps for hedging risk in commodities trading invalid as not being drawn to statutory subject matter. While the Supreme Court affirmed the Federal Circuit Court of Appeals’ decision that the patent was invalid, the Supreme Court did instruct the Federal Circuit to fashion additional tests for patentable subject matter based on the Supreme Court’s broad and somewhat antiquated principles. In a guest article, Mark Scarsi and Blake Reese, Partner and Associate, respectively, in the Intellectual Property Litigation & Technology Department of Milbank, Tweed, Hadley & McCloy LLP, explain the facts, holding and legal analysis in Bilski. The Bilski opinion is complex, but Scarsi and Reese convey the key legal and business points in a manner that is comprehensible to hedge fund industry participants who may not be intellectual property experts. The case is particularly relevant to hedge fund managers that develop and use proprietary technology, such as managers with high-frequency or algorithm-driven strategies.
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From Vol. 2 No.33 (Aug. 19, 2009)
How Can Hedge Fund Managers Prevent Theft of Proprietary Trading Technology and Other Intellectual Property?
Hedge fund managers who have made or are contemplating significant investments in proprietary technology, such as trading technology, face at least three major issues: (1) whether to develop such technology internally or buy or lease it from a third party; (2) whether to seek to patent it; and (3) how to prevent theft. The relevance of these issues has been highlighted recently by at least two developments: the debate surrounding flash trading, and the implicit recognition in that debate that sophisticated trading technology has become central to the investment strategies of many hedge funds; and Citadel Investment Group’s recent lawsuit against three former employees and their new firm for alleged theft of Citadel’s trading technology. On flash orders, see “What Are Flash Orders, and How Might Regulation Curtail the Ability of Hedge Funds Employing High-Frequency Trading Strategies to Profit from Such Orders?,” The Hedge Fund Law Report, Vol. 2, No. 32 (Aug. 12, 2009); and on the Citadel suit, see “Citadel Investment Group Sues Former Employees Alleging Violations of Non-Disclosure, Non-Solicitation and Non-Compete Agreements,” The Hedge Fund Law Report, Vol. 2, No. 28 (Jul. 16, 2009). Based on interviews with specialists working at the intersection of technology and hedge fund investments and operations, the consensus answers to these questions appears to be: while every situation is unique and it is difficult to generalize with any reliability, more often than not, hedge funds would be better served by building their own technology than by licensing it, in cases where that technology is central to their trading strategy or operational infrastructure. Among other things, building versus buying vests more control in the manager over its technology and changes and revisions thereto, and it increases the value of the advisory entity and the case for investors to invest with the manager as opposed to any other licensee of a third-party technology. As for whether to seek patent protection, the answer, with exceptions, is often no because the process is long, the protection is uncertain, seeking patent protection may require disclosure of information that can undermine the proprietary value of the technology and most hedge fund technology is intended for use only by the manager; it is not intended to generate revenue via licensing. And as for how to prevent theft, techniques involve confidentiality agreements and similar contractual protections, robust pre-employment (or pre-independent contracting) screening and security measures embedded in the technology itself. Though as the Citadel case demonstrates, even with carefully thought-out protections, intellectual property (IP) remains uniquely susceptible to theft. This article explores the three issues identified above – build versus buy; whether to seek to patent; and how to protect; includes an update on and analysis of the Citadel case; and discusses “soft” IP (copyright and trademark) in the hedge fund context.
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From Vol. 1 No.2 (Mar. 11, 2008)
One hedge fund manager sues another for alleged theft of intellectual property
- Elliott Management Corporation, a major structured credit manager, developed proprietary software and alleges that Cedar Hill Capital Partners hired an employee and contractor of Elliott to steal the underlying source code and executable code.
- TRO issued in state action based on same allegations.