Opinion
No. 82 Civ. 2545(MP).
May 13, 1982.
Darby Darby, P.C., New York City, for plaintiff; William F. Dudine, Jr., Maxim H. Waldbaum, Ethan Horwitz, Adda C. Gogoris, New York City, of counsel.
Baer, Marks Upham, New York City, for defendant; Eugene R. Scheiman, Barry J. Mandel, Allan Dinkoff, New York City, of counsel.
DECISION
General Findings of Fact
The plaintiff seeks a preliminary injunction pursuant to Rule 65 Federal Rules of Civil Procedure against defendant's use (or misuse) of plaintiff's carefully calculated 500 equity stock index in respect of futures contracts based thereon and traded on defendant's commodity exchange and against defendant's misuse of plaintiff's trade name, trademarks and reputation.
The jurisdiction of the Court over the subject matter is based on 15 U.S.C. § 1051 et seq., 28 U.S.C. §§ 1331 and 1338. This district is the proper venue for this action, 28 U.S.C. §§ 1391 and 1400, and the Court has personal jurisdiction over the defendant.
The defendant ("Comex") had unsuccessfully over a long period of time commencing in 1979 sought to obtain a license from the plaintiff (SP) to use the latter's SP 500 Stock Index for futures contracts to be traded on defendant's commodity exchange. Its efforts having failed to yield it either an exclusive or non-exclusive license, Comex decided ultimately to attempt to market a "Comex 500 Stock Index" for futures contracts and to link it with plaintiff's name and with the SP 500 Stock Index without SP's permission or consent and over SP's objection.
On or about December 19, 1980, Comex applied to the Commodities Futures Trading Commission (CFTC) for a designation as a contract market for futures contracts based upon a so-called "Comex 500 Stock Index". In its application, Comex referred interchangeably to the SP's 500 and the Comex 500 Stock Price Index. Comex further emphasized that the Comex Index would use the same 500 stocks and the same method of computation as the Standard Poor's 500 Stock Index.
On learning of this application, SP promptly filed a lengthy opposition thereto with the CFTC objecting to all reference by Comex to SP and to its calculated SP 500 Stock Index. SP told the Commission that its position was that:
"Comex is free to exercise its own initiative in the creation of an index without free-riding on SP's research, efforts, expense, quality, integrity, name, reputation and trademarks."
During the pendency of the CFTC application Comex finding itself unable or unwilling to calculate a reliable and acceptable Stock Index, among other reasons, decided to abandon the creation and use of its own 500 stock index. Consequently, it filed an amendment to its application before the CFTC, and issued a brochure in equivocal language but nonetheless linking SP with Comex stating confusingly that Comex futures contracts were to be quoted in terms of the Comex 500 Stock Index and a settlement thereof to be based upon the Comex 500 Stock Index "at a price equal to that day's closing quotation of the Standard Poor's 500 Stock Price Index."
Thereupon, SP promptly instituted this suit to restrain Comex from trading a futures contract based on the use of SP's name or the SP 500 Stock Index. The complaint charged trade name and trademark infringement, likelihood of confusion, misappropriation of property rights, copyright and Lanham Act violations, and sought injunctive relief and damages.
Knowing that it would be sued, Comex nonetheless on April 27, 1982 published and disseminated in advance of having been designated as a market to trade in futures on a stock index, a large quantity of brochures linking Comex futures contracts with an alleged Comex 500 Stock Index which was nonexistent and adding confusingly that settlement of such contracts was to be based on the SP 500 Stock Index. The brochures featured SP's name prominently and repetitively implying to the reasonable reader that there was some tie, some sort of affiliation between Comex and SP in respect to the subject matter.
On the following day, April 28, 1982, before any meeting by the CFTC to consider and pass on the Comex application for a designation as a market, the financial press carried full scale advertisements placed by Comex announcing the futures market for trading in the Comex 500 Stock Index. Sometime that morning, the CFTC did take up the Comex application on its calendar and did issue a designation to Comex as a futures market to trade contracts on a Comex 500 Stock Index; it did not authorize trading by Comex of a futures contract based on SP's 500 Stock Index, the contract described in the Comex brochures and public relations materials.
SP applied to this Court for a Temporary Restraining Order against Comex pending a hearing of an application for a preliminary injunction. The TRO was granted and an early trial date was set. The Court found probability of irreparable damage to SP and likelihood of success or at least substantial questions going to the merits with the balance of the equities favoring SP. Comex attempted by immediate appeal to obtain an order from the Second Circuit setting aside the TRO; that was denied by the appellate court. The hearings on the preliminary injunction commenced within a week and good cause being shown, the TRO was extended for another ten-day period.
On the basis of the evidence adduced, including the demeanor evidence and resolving the issues of credibility presented, the Court finds and decides that:
Plaintiff has established by a preponderance of the evidence worthy of belief and the reasonable inferences therefrom that the defendant intended improperly (i) to link SP with Comex as a commercial prop for futures contracts based on a 500 stock index; (ii) to misappropriate the property of the plaintiff and to trade directly on plaintiff's name and the SP 500 Stock Index; that this was without authority from SP and over its objection; that defendant's acts have caused and will, unless restrained, continue to cause irreparable injury to plaintiff in the sense that it may not be fully or fairly compensable in damages; that defendant's acts involve a high probability of confusion of what Comex is offering or has proposed to offer to the public and traders in futures as well as a high probability of confusion of the relationship (or lack of it) between the parties and of the source of the 500 stock index tied to the futures contract offered by Comex; and that defendant's acts will result in dilution of plaintiff's name and reputation and involve infringement on plaintiff's trade name and trademarks.
The evidence establishes that defendant has used and intends to use the SP 500 Stock Index and the SP name and reputation in a manner to produce a high probability of confusion as to the source of the 500 stock index and SP's affiliation therewith and with Comex among persons using ordinary care and prudence in entering into futures contracts based on a 500 stock index. Ordinary traders exercising ordinary care would be likely to enter into a Comex futures contract in the belief that it was linked with and backed by SP and the highly probable consequences of the repetitive references to SP in the selling materials issued by Comex and the use of SP's 500 Stock Index and the SP name, complained of, in all reasonable probability would be to confuse the public and traders as to the source, sponsorship, approval or affiliation of the SP 500 Stock Index and SP with Comex.
It has been admitted by defendant's expert that there is no impediment or reason why Comex could not immediately trade in futures contracts based on a stock index without the use of the name of SP or reference to SP's 500 Stock Index. The fact that the index could be focused solely on the figure thereof appearing on the settlement date of the contract by careful or discriminating traders is not enough to lead the Court to conclude that there is no likelihood of confusion of linkage or affiliation.
The Findings in More Detail
Plaintiff, Standard Poor's Corporation, Inc., ("SP") is a corporation organized under the laws of the State of New York, and is a wholly owned subsidiary of McGraw Hill, Inc. SP is engaged inter alia in the business of preparing, selling and providing informational services to and for the financial community. SP and its predecessor companies have been engaged in this business since 1860. During the period from 1860 to present, SP has developed a reputation in the financial community for reliability and veracity.
Defendant Commodity Exchange, Inc. ("Comex") is a not-for-profit membership corporation organized under the laws of the State of New York. Comex was organized under the laws of the State of New York. Comex was organized in 1933 to provide, and does now provide a centralized marketplace for the trading of various Commodity Futures Trading Commission ("CFTC") granted Comex's application for designation as a contract market for the Comex 500 Stock Index future contract ("Comex 500"). The CFTC stated that the grant "should not be viewed as a legal determination by the Commission with respect to the validity of any copyrighted or related claims."
Plaintiff has registered "The Standard `500'," "Standard Poor's Daily Stock Prices Indexes," and "Standard Poor's Hourly Stock Price Indexes" in the United States Patent and Trademark Office as trademarks. SP was not required to disclaim "500" in its registration number 756,133 of THE STANDARD "500". Although plaintiff has not registered the terms "500" and "500 Index" by themselves, these terms as used herein by SP and Comex have acquired trademark significance indicative of SP in the market-place and among the investing public ( i.e., secondary meaning). Comex's own brochure notes that "The Standard Poor's 500" is an SP trademark. Likewise, Comex internal correspondence uses "SP 500" and "500 Stock Index" to refer to the SP 500 Stock Index. The SP 500 is the only stock index which uses 500 stocks and which includes the numeral "500" in its name. People familiar with stock indexes would know that "the 500" refers to the SP 500.
Plaintiff has protected its publications which disseminate the SP 500 Index data by applying copyright notices thereto, and by registering such publications with the United States Copyright Office.
In 1923, SP pioneered the issuance of a scientifically constructed stock price index. In 1957 the index was revised to be based on the prices of 500 common stocks and a base period of 1941-43 was adopted. Since that time the index has been known to the industry as the 500 index. The SP 500 Stock Price Index is a broad-based, weighted, composite index based on the prices of 500 selected stocks. The index is designed to accurately portray a pattern of common stock price movement. Due to its broad base, the 500 Index is less susceptible to manipulation than an index based on a small number of stocks, and it also provides a more accurate barometer of market performance. Of the broad-based stock indexes, the SP 500 is the best known, the most widely used, and the most accurate indicator of market conditions. The 500 is the most popular stock price index used by institutional investors and investment advisors.
The index was developed and is maintained by SP at considerable expense and effort. The stocks that comprise the SP 500 Index are changed by SP from time to time when, based on SP's research and expertise, a change is required to take account of changes in a constituent company or the relevant industry. Such changes do not alter the index number itself, but are designed to insure the continuity and accuracy of the SP 500 Index.
The SP 500 index is now being calculated for SP by General Telephone and Electronic ("GTE") on a minute to minute basis. The calculations are made by GTE as the prices of each stock in the index change throughout the day. In addition, SP calculates the index on a daily basis as an accuracy check on GTE. Furthermore, SP is working with another company, Bridge Data, to calculate the Index on a minute to minute basis as a further check on accuracy of the 500 index values. SP has hired Arthur Young Co. as consultants to insure that calculation of the 500 index is proper.
While the formula used by GTE and Bridge Data in calculating the SP 500 Index is known to the public, the actual minute to minute and day-to-day calculations depend upon certain inputs determined solely and exclusively by SP based on special calculations and determinations known only to SP. Only SP knows the exact values of these inputs and the timing of their introduction into the SP 500 Index. They are based upon SP's research and are arrived at by SP's application of its expertise and skill. Hence, the exact numerical values of the Index cannot be calculated by Comex or any other third party without SP's direct participation.
SP publishes and disseminates the list of constituent stocks in the index. Update announcements are made on the day a stock is introduced or deleted from the index. In addition, the number of shares of each constituent stock is calculated by SP. SP decides according to its own expertise which additions or deletions of shares outstanding are taken into consideration in calculating the index. These decisions are only made known to the public well after the decision is made. Without timely knowledge of both these type decisions, no one could accurately calculate the 500 Index.
SP disseminates its SP 500 Index data in various ways including selling the information for stock comparison purposes in copyrighted publications. SP's publications using the 500 Index are advertised and promoted by SP by the use of direct mail advertising, advertising in newspapers and television, a sales force of 16 persons, a telephone sales force of four or five people and a national accountants sales force of five people. In 1981 SP spent over $3,179,000.00 on such advertising and promotion and in 1980 it spent over $2,827,000.00 and in 1979 it spent over $2,460,000.00. Its revenues for its lead publication, OUTLOOK, were $5,179,000.00 in 1981. The 500 Index is generally used by the public and by institutions as a barometer; that is, the 500 Index is a measure of how well a stock or a portfolio of stocks is performing in comparison to the market.
SP also licenses use of the 500 Index to data disseminating organizations for royalties. Likewise it has also licensed the Chicago Mercantile Exchange ("CME") to use the 500 Index for index futures trading. SP exercises further control over the dissemination of its 500 Index information through a permission review system, i.e., requests by third parties for use of the index are screened by SP to determine whether such use is permissible and if permissible, whether or not for a royalty. The criteria for deciding whether or not to allow such use is how the use will affect SP's reputation (id.).
In addition, SP allows dissemination of its 500 Index data through press, wire, and quote services which SP determines to be consistent with SP's interests in the index. SP may discontinue (and has discontinued) these special services if and when the use of the SP information in the services reflects adversely on SP. To the degree that such uses are supportive of SP's reputation, they are beneficial to SP and form a part of SP's advertising and promotion of its image. SP receives benefits in such publications in that its name and reputation and the level of confidence that people have in subscribing to SP's services and publications are tied to its 500 Index. SP is recognized by its 500 Index.
SP has also controlled the uses to which others put its 500 Index.
A futures contract based on the SP 500 Index is an agreement between the "long" (buyer) on the "short" (seller) positions. The "long" has the right and the obligation to receive on the settlement date a contract value of 500 times the then current SP 500 Index value. The "short" has the right and the obligation to deliver on the settlement date a contract value of 500 times the SP 500 Index value. Instead of requiring delivery and receipt of the stocks then in the SP index (which would be impractical if not impossible), delivery and receipt of the cash equivalent is required for settlement.
In 1978, SP was approached by the Chicago Mercantile Exchange (hereinafter "CME") to obtain rights to use the SP 500 Index in connection with a securities index futures market. CME is the second largest commodity exchange in the country and is highly regarded in the market. In 1979, CME and SP entered into an agreement whereby (among other things) CME was granted a pilot program of an 18-month period of exclusivity to develop a futures contract market using the SP 500. In return, SP was to receive $300,000. After the 18-month pilot program, SP is to receive $100,000 per year plus a royalty of ten cents per contract. It is estimated that this license will produce an annual income of $300,000 to $500,000 or more to SP. SP has the right to terminate the license to CME and will do so if publicity is unfavorable.
On February 28, 1980 SP entered into a license agreement with the CME.
The license agreement permits CME to use SP's name and 500 Index for the CME futures contracts and provides for SP assistance to CME in marketing the contract under rigid controls and for substantial royalties and provides for SP assistance to CME in marketing the contract: The license provides for an initial pilot project period and further provides that either party can cancel the agreement if "there has been any material damage or harm suffered by it by reason of performance thereunder."
In May 1979, Comex developed a proposal to use SP's 500 Index as the basis of a futures contract as it believed it would be the best index to use for such a contract. In order to proceed, Comex decided it had to begin speaking with SP for a license to use the 500 Index. In developing the contract, Comex's management consultants recommended that Comex's primary objectives be:
" — First, to establish the SP contract as the premier equities index futures contract and
" — Second, assuming non-exclusivity, to establish Comex as the dominant market for the contract. . . ."
Comex management agreed with this opinion of its consultants to first establish SP's index.