Chi. Mercantile Exch. v. ICE Clear US, Inc.

CHICAGO MERCANTILE EXCHANGE INC., Plaintiff, v. ICE CLEAR US, INC. and ICE CLEAR EUROPE LIMITED, Defendants;

No. 18 C 1376

United States District Court, N.D. Illinois, Eastern Division

August 17, 2021

FINDINGS OF FACT AND CONCLUSIONS OF LAW

MATTHEW F. KENNELLY United States District Judge

Chicago Mercantile Exchange Inc. (CME) sued ICE Clear US, Inc. and ICE Clear Europe, Limited (collectively, the ICE Licensees) alleging trademark counterfeiting (count 1), trademark infringement (count 2), and unfair competition (count 3), all under the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a); breach of contract (count 4); violations of the Illinois Uniform Deceptive Trade Practices Act, 815 Ill Comp. Stat. 510/1 (count 5); and unfair competition under Illinois common law (count 6). CME argues that the ICE Licensees unlawfully infringed and counterfeited CME's registered trademark- SPAN, which stands for standard portfolio analysis of risk-in connection with their own services. CME contends that the ICE Licensees' use of CME's mark was governed by their licensing agreements with CME, which they breached. CME also contends that the ICE Licensees unlawfully continued to use the mark after the licensing agreements expired. The ICE Licensees asserted counterclaims for breach of contract against CME-based on the same licensing agreements-and several affirmative defenses to CME's claims.

Both parties moved for partial summary judgment. The Court granted summary judgment in favor of CME and against the ICE Licensees as to liability on CME's federal claims for trademark infringement (count 2) and unfair competition (count 3) and its state law claims for deceptive trade practices (count 5) and unfair competition (count 6) covering violations that occurred after CME's termination of the license agreements. The Court also granted summary judgment in CME's favor on the defendants' defenses of trademark misuse, fair use, and acquiescence for trademark violations occurring after February 23, 2018, the date CME filed this suit.

The Court denied CME's motion for summary judgment on its federal trademark counterfeiting claim (count 1) and breach of contract (count 4), and also on counts 2, 3, 5, and 6 with respect to violations that occurred during the licenses' terms. The Court also denied CME's request for summary judgment on the ICE Licensees' defense of implied license/acquiescence for violations occurring before February 23, 2018. See Chicago Mercantile Exch., Inc. v. ICE Clear US, Inc., No. 18 C 1376, 2020 WL 1905760 (N.D. Ill. Apr. 17, 2020) (CME I). Finally, the Court denied the defendants' motion for summary judgment on CME's claims and on the defendants' counterclaims relating to genericness and abandonment through naked licensing, their trademark misuse defense, and their defense of estoppel by implied license/acquiescence. See id.

The result of the Court's summary judgment decision was to leave for trial the issues of liability and damages on CME's claims for counterfeiting under the Lanham Act (count 1) and breach of contract (count 4), as well its requests for monetary and injunctive relief on CME's claims on which the Court made a finding of liability (counts 2, 3, 5, and 6). The Court's decision also left for trial the ICE Licensees' breach of contract counterclaims, as well as a single affirmative defense, specifically the defense of implied license/acquiescence during the period after expiration of ICE's license.

The Court conducted a bench trial from September 11, 2020 until October 1, 2020. This decision constitutes the Court's findings of fact and conclusions of law.

Facts

At trial, CME contended that the ICE Licensees are liable for trademark counterfeiting (count 1) under the Lanham Act. In connection with this claim, CME seeks the following relief (1) trebling of the ICE Licensees' profits, and (2) reasonable attorneys' fees, both under 15 U.S.C. § 1117(b). With respect to its trademark infringement claim (count 2), on which the Court made a finding of liability, CME seeks disgorgement of the ICE Licensees' profits and a permanent injunction against their continued use of the SPAN trademark and margining software and services. 15 U.S.C. §§ 1114(1), 1116, 1117(a).

As indicated, the ICE Licensees each asserted a counterclaim against CME for breach of contract, on which they seek damages. The ICE Licensees also asserted an implied license affirmative defense, which they contend covers the period between the expiration of their license agreements with CME (in June and July 2017) and the date CME filed the present lawsuit-February 23, 2018. The ICE Licensees proposed three additional affirmative defenses at trial-extenuating circumstances, nominative fair use, and unclean hands-but these defenses became moot, were improperly reasserted after having been dismissed, or were otherwise inapplicable. For these reasons, the Court does not address these defenses in this ruling.

I. CME

CME is headquartered in Chicago, Illinois. It operates a clearinghouse and provides financial and risk management services to commodity traders. Clearinghouses act as intermediaries between buyers and sellers of commodities, thereby reducing the risk that parties will default on a trade and providing stability to markets. Clearinghouses are highly regulated entities-in both the United States and abroad. One way that clearinghouses ensure against default is by setting requirements for initial margins, which are upfront payments that a member of a clearinghouse must make to use its services.

In 1988, CME developed the SPAN framework, which is an initial margining methodology used by financial institutions to assess the risk of portfolios. As stated earlier, SPAN is an acronym for the phrase standard portfolio analysis of risk, and it is the name under which CME offers margin services and products. CME owns four trademarks related to the SPAN framework.

SPAN enables clearinghouses to set initial margins by determining how various hypothetical scenarios or market conditions might affect an individual portfolio's profits or losses. Dhiraj Bawadhankar, CME's executive director of clearing solutions who oversees SPAN licensing, testified at trial that CME uses the SPAN methodology to compute initial margin for futures and options products within CME. The SPAN methodology includes sixteen different scenarios. John Pietrowicz, CME's chief financial officer, testified that the SPAN trademark is a valuable CME asset because it is the "gold standard" for margining methodology in the industry.

After CME developed the SPAN framework, it began licensing the SPAN trademark and framework to end customers, service providers, and other clearinghouses. Suzanne Sprague, a managing director at CME, testified that clearinghouses and exchanges asked to license SPAN in the early 1990's because it saved them time and enabled them to avoid expending funds on developing their own margin methodology to perform portfolio margining for products. The SPAN license CME offered had a baseline fee of $50, 000. Sprague testified that the SPAN license enables licensees to build the SPAN methodology into their systems themselves rather than using CME's software.

Sprague explained that when CME licenses the use of its SPAN mark to a third party, it makes available the licensees' daily risk array files, which contain data relating to their calculations of initial margins, on its FTP (file sharing) site. Bawadhankar testified that CME offers the SPAN trademark, the SPAN framework, and a suite of SPAN-related software to other exchanges as part of this licensing scheme and estimated that there are 200 currently active licenses for the SPAN trademark. Bawadhankar further testified that upon execution of a licensing agreement, CME sends the licensee technical information for implementation of the SPAN methodology, which is the product attached to the SPAN trademark.

In June and July 2007, CME entered into SPAN license agreements with the individual ICE Licensees for a term of ten years. Pursuant to these agreements, CME permitted the ICE Licensees "to use the SPAN Framework . . . and to use the SPAN Mark on and in connection with [their] use of the SPAN Framework and in the marketing and advertising of [their] performance bond system or related risk-based calculations." Pl.'s Trial Ex. 59 & 60, SPAN License Agreement ¶ 1(a). Bawadhankar testified that the license agreements include a license for the SPAN trademark, but not the software. The agreements also included a provision requiring licensees to include a disclaimer that stated "SPAN is a registered trademark of Chicago Mercantile Exchange, Inc., used herein under license." Id. ¶ 7(e). The purpose of this required disclaimer was to make clear to the public that SPAN is owned by CME. The license agreements also prohibited the ICE Licensees from using any mark that was "confusingly similar" to the SPAN mark during the terms of the agreements. Id. ¶ 7(f). Upon termination of the license agreements with CME, the ICE Licensees agreed "not to use any mark that is confusingly similar to the SPAN Mark in connection with any other margining system or similar risk calculation." Id. ¶ 5(a).

Internal e-mails from CME regarding the ICE Licensees' implementation of the SPAN framework and another licensee, London Clearing House, reflected that some licensees had made changes to the SPAN algorithm which led to deviations in calculations in their variant SPAN methodologies as compared to CME's SPAN.

II. ICE Licensees

The ICE Licensees, which are indirect subsidiaries of ICE, operate clearinghouses and clear trades at ICE-related exchanges. ICE U.S. is a New York corporation; ICE Clear Europe is a United Kingdom private limited company....