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The Nasdaq stock market has lost several claims in its bid to prevent a rival exchange from trading in an investment product bearing the Nasdaq name. Southern District of New York Judge Denise L. Cote ruled that Archipelago Exchange could not be stopped from listing and facilitating trading of the Nasdaq 100 Index Tracking Stock, which goes by the ticker symbol QQQ, at least not through Nasdaq’s claim of a property interest in the Index. Nasdaq claims to have spent $58 million promoting QQQ. It alleged that Archipelago, by trading in QQQ without a license, amounted to misappropriation, unfair competition, unjust enrichment and intentional interference with prospective economic advantage. But Judge Cote found in The Nasdaq Stock Market Inc. v. Archipelago Holdings LLC, 03 Civ. 8231, that Nasdaq “has no protectible property interest” in the QQQ shares held by investors and “since each of its common law claims is premised on such an interest, those claims must be dismissed.” However, the judge declined to dismiss Nasdaq’s claims for trademark infringement and false advertising under the Lanham Act. Two years after Nasdaq launched QQQ, the Securities and Exchange Commission approved the proposal of Pacific Exchange to establish Archipelago Exchange (ArcaEx) as its new electronic trading exchange. While Pacific canceled its own license to trade the QQQ product in March 2002, it still facilitated the trading of QQQ shares on ArcaEx and QQQ is its most actively traded product. Nasdaq claimed that ArcaEx is the only exchange that has refused to obtain a license for QQQ, even though it obtains licenses for other products offered by other exchanges, and it therefore has unfair advantage in the market. On its claims under the Lanham Act, Nasdaq alleged that ArcaEx was creating the false impression that it had the greatest trading volume in QQQ through an ad campaign that included such statements as “We’ve Got QQQ Out the Wazoo” and “There Goes That Home-Court Advantage Theory” followed by the line “#1 Exchange For Trading Nasdaq Stocks.” Cote said that Congress in 1975 amended the Securities and Exchange Act of 1934 to facilitate a national market system for securities hoping to protect investors by “promoting economically efficient securities markets, fair competition, and execution of investors’ orders in the best market.” It amended the act again to promote a national market system with the Unlisted Trading Privileges Act of 1994, 15 U.S.C. �781(f), which Cote said provides that any national security exchange may immediately extend unlisted trading privileges … i.e. allow trading in a security that is not listed or registered on that exchange, to a security on another exchange, other than an initial public offering.” The defendants argued that all of Nasdaq’s claims were preempted by the Unlisted Trading Privileges Act. Cote sought the opinion of the SEC, and she said the commission “opines that the facts of this case do not present grounds to find implied preemption of Nasdaq’s state law or Lanham Act claims.” The judge said the SEC’s amicus brief “argues there is no apparent conflict between the protection of intellectual property rights under state law and the objectives of the [national market system for securities] … and therefore no basis for implied preemption of Nasdaq’s state law claims absent SEC rule-making in this area.” But the judge said the “SEC does not squarely address the argument that requiring a national securities exchange to pay a licensing fee before listing a security is analogous to requiring and exchange to obtain permission to extend [the Unlisted Trading Privileges Act] to a given security.” Cote said it is premature to decide whether Nasdaq’s state claims are preempted, but that “there is no basis to find that the securities laws immunize the defendants against claims such as these brought under the Lanham Act.” Turning to the issue of whether Nasdaq has the type of interest in QQQ that “is capable of being protected by a license,” Cote said Nasdaq “asserts that prices in a secondary market for QQQ shares cannot be set without reference to the Index.” “That is certainly so, but the Index is publicly available information and those who use it to set the price for QQQ shares they trade are investors and not the defendants,” she said. And it is of no matter that ArcaEx profits from the trading of QQQ shares, she said, because “those profits come from providing a marketplace for the trading of shares and not from any direct or improper use of the Index.” Douglass B. Maynard, Abid Qureshi, Cheryl A. Falvey, Karol A. Kepchar and Michael Oakes of Akin Gump Strauss Hauer & Feld represented Nasdaq. Andrew L. Deutsch and Monica L. Thompson of Piper Rudnick represented the Archipelago defendants. Susan J. Kohlmann, Rodney R. Peck and Carolina A. Fornos of Pillsbury Winthrop represented the Pacific defendants.

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