Euronext pays CME $7.5m to settle Wagner patent dispute

Pan-European exchange Euronext will pay the Chicago Mercantile Exchange (CME) $7.5 million related to settlement of an indemnification dispute. The dispute revolves around the CME’s $15 million deal in August last year with electronic brokerage eSpeed over use of its Wagner patent.

The deal represents the end of the CME’s outstanding issues related to the Wagner patent, which covers the use of an auction model for the online trading of futures contracts, said CME chairman Terry Duffy.

Cantor Fitzgerald subsidiary eSpeed purchased the Wagner patent in April 2001 from Electronic Trading Systems for a reported $1.75 million. Susan Wagner, a co-founder of Dallas-based Electronic Trading Systems, created the Wagner patented auction system while working as an executive director of the Commodity Futures Commission in the late 70s and early 80s.

The CME, which on December 6 last year became the first major traditional US derivatives exchange to list its shares on the public market, said it would recognise the $7.5 million in its Q4 2002 results, representing a dividend enhancement of $0.14 per diluted share.

The CME also expanded its licence rights to use Euronext’s electronic trading software that is incorporated into the CME’s Globex electronic trading platform. This allows the CME to offer the trade-matching services on Globex to third parties.

The CME and the Chicago Board of Trade each agreed to pay eSpeed $15 million in instalments over the next five years in August last year. In April 2002, eSpeed reached an agreement with the IntercontinentalExchange, an online electronic market-place particularly strong in energy and metals contracts, to license the Wagner patent technology for $2 million per year and $0.20 per trade.

Meanwhile, a lawsuit between eSpeed and the New York Mercantile Exchange over the same technology is ongoing.