Update on the CUSIP Case: The verdict is in – NOT.


The following is a guest article written by Tim Baker, CFA principal of Blue Sky Thinking, LLC which provides management consulting, project management and strategic business consulting in the big data, financial services, and FinTech industries.

Going into the 28th June hearing in the Class Action lawsuit by Dinosaur Financial Group, LLC and Swiss Life Investment Management Holding AG , the plaintiffs had made the ballsy move seeking a partial summary judgement on the lack of applicability of copyright protection for the CUSIP. 

Meanwhile, one of the defendants, S&P had requested that this suit be merged with another suit filed in the same court on behalf of Hildene Capital Management.  Other defendants are: CUSIP Global Services/CGS – previously part of S&P before it was sold to Factset in December 2021), the American Bankers Association – who license the CUSIP to CGS, as well as Factset itself  – the current operator of the service. 

Hildene’s suit overlaps Dinosaur’s, but their complaint leans more into infringement of anti-trust rules (Section 2 of the Sherman Act).  Hildene is looking for a more radical regime change and the creation of an alternative numbering standard.

On 29th June, Judge Failla took the rational approach and issued a ruling that prior to consideration of the partial summary judgement, the two plaintiff groups would need to consolidate their complaints.  She would then hear out the defendants’ motions to dismiss before considering any pre-emptive ruling on copyright.  Bottom-line is that if she sees general agreement from both sides in the copyright piece, that will make for a more efficient process from there.

The first step – the 2 classes need to work together and come up with a joint complaint by July 8th and so we should have sight of that next week!

Tim’s Take

The stakes are high – both financially, legally and potentially personally.  Factset paid nearly $2bn for the rights to operate the CUSIP franchise – one which will substantially expand the reach of the firm.  A negative ruling on the copyright (Copyright Act 1976) would almost certainly trigger a change in the deal terms.  The licensing regime would have to change substantially, but I’m pretty sure Factset will still want to own and operate the service despite the change to operating model, Profitability etc.

A ruling on copyright could have knock on effects in other parts of the industry – for example as it relates to the licensing of end of day prices by exchanges, the calculation of index constituents (which in many cases is formulaic) etc etc.

However, a Sherman Act ruling (Section 2 relating to Monopolistic activities) could have more serious repercussions.  The Antitrust Division of the Department of Justice has recently indicated their intention to criminally prosecute Section 2 violations for the first time in decades.  See https://www.cooley.com/news/insight/2022/2022-03-08-is-doj-looking-to-bring-criminal-charges-under.

I’m no legal expert – so I am not going to guess the possible outcome – but what I can say is that legal teams across the industry must be tracking this closely – and if they are smart, they will be issuing updated guidance to their execs and sales teams on how they operate in the field.  They may also want to review the wording in their license agreements.

Finally, all of this could spur the European Commission (EC) to get involved again. Back in 2012 the EC ruled against CGS requiring them to reduce prices for European based customers — and they are thought to have been preparing another case prior to the sale of the business. It seems plausible they are sitting on the sidelines to see how things proceed.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email: Michael.Mayhew@integrity-research.com

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