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CBOE keeps index franchise as justices stay out of dispute

People line up for admission at the U.S. Supreme Court in Washington October 1, 2012. REUTERS/Gary Cameron
People line up for admission at the U.S. Supreme Court in Washington October 1, 2012. REUTERS/Gary Cameron

By Lawrence Hurley

WASHINGTON (Reuters) - CBOE Holdings Inc won a long-running legal battle to prevent rival International Securities Exchange from listing options on two key U.S. stock-market indexes, after the U.S. Supreme Court on Monday declined to consider their dispute.

The court's refusal to intervene leaves intact a lower court ruling that allows CBOE, the operator of the oldest and biggest U.S. stock market, to remain the sole market for options on the Standard & Poor's 500 Index and the Dow Jones Industrial Average.

CBOE's exclusive franchise on stock-index options is a lucrative one, generating 60 percent of CBOE's transaction fees, although they account for less than 40 percent of its trading volume.

"We are vindicated after more than six years of lengthy and unnecessary litigation that the highest court in the land has validated our position and the intellectual property rights of index providers," CBOE's chief executive and chairman, William Brodsky, said in a statement.

An ISE spokeswoman had no immediate comment. CBOE shares were up about 0.7 percent on the Nasdaq stock market, to $39.57, after earlier touching an all-time high.

International Securities Exchange LLC (ISE) was fighting an injunction that prevented it from listing S&P 500 and Dow Jones options, which are licensed exclusively to S&P Dow Jones Indices LLC, a joint venture of McGraw-Hill Companies Inc. and CME Group Inc. .

S&P Dow Jones has exclusive licensing agreements with the Chicago Board Options Exchange. In March this year, CBOE extended its contract until 2033.

ISE, a unit of Deutsche Boerse AG , claimed that CBOE effectively had a monopoly on what ISE's lawyers describe as "widely disseminated facts and ideas" that are not protected under the Copyright Act.

In 2006, ISE said it would start offering its own index options based on the two indexes without obtaining a license, prompting CBOE, CME and McGraw-Hill to sue.

In a 2012 decision, an Illinois appeals court upheld a lower court ruling against ISE.

The appeals court decided the case under Illinois state law, rejecting ISE's claims that the dispute should be decided under the federal Copyright Act.

The case is International Securities Exchange v. Chicago Board Options Exchange, U.S. Supreme Court, No. 12-940.

(With reporting by Ann Saphir in San Francisco; Editing by Howard Goller and Chris Reese)

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