As legal letters fly, Cusip licensing debate rolls on

In May, a US broker-dealer received a letter from FactSet threatening to turn off its access to Cusips—nine-digit alphanumeric codes that uniquely identify nearly all North American stocks and bonds.

The broker-dealer wasn’t the first to receive such a letter, which demanded that it sign a license agreement with Cusip Global Services (which is owned by FactSet) in order to keep its access to Cusip data—despite the firm not receiving any data directly from CGS but through other third-party data providers, known as ISPs.

The letter, seen by WatersTechnology, continued that CGS would instruct any ISPs used by the broker-dealer to cease providing CGS data to the firm in bulk, by datafeed and downloadable format, or through managed or outsourced solutions within five business days.

“Our agreements with ISPs includes [sic] provisions that restrict distribution of CGS Data to end users without a valid CGS license,” the letter stated. “We have no further recourse but to take the steps necessary to protect the ABA’s [American Bankers Association] valuable intellectual property and ensure a level playing field for all firms who benefit through the receipt and use of CGS Data from CGS’s authorized ISPs.”

The ABA is the Cusip system’s creator and patent holder. The question of the ABA’s intellectual property—and what that IP includes—has run like blood through the veins of the dispute. In a series of legal letters, the parties went back and forth on whether Cusip codes are copyrightable, which they are not, before establishing that the ABA’s patent applies only to the Cusip database, meaning the entire universe of 60 data elements identifying more than 50 million financial instruments. An open question in this debate is how CGS justifies charging fees and enforcing subscriptions for usage of the database’s parts. On the other hand, because practically no user is receiving the entirety of the Cusip database, should CGS be expected to provide its data for free in nearly all instances?

The firm was eventually notified by a vendor that CGS had instructed it to cease providing access to Cusips, forcing the broker-dealer to back down and begin discussing a subscription agreement with CGS.

“[We] don’t really have a choice,” a source at the broker-dealer says.

CGS was purchased by FactSet from S&P Global in March 2022, three days before all three parties, along with the ABA, were hit with an antitrust lawsuit. Since then, the defendants and plaintiffs—broker-dealer Dinosaur Financial, Hildene Capital Management, and Swiss Life Investment Management—have attempted to prove and disprove claims that the quartet of companies violated various laws, including the Sherman Antitrust Act.

Last July, Katherine Polk Failla, a judge in New York’s Southern District, declined to throw out the case, allowing a specific complaint related to Section 2 of the Sherman Act to proceed.

In her opinion and order, Failla wrote that the antitrust concerns in this case hinge on CGS’s “restrictive agreements” with third-party data vendors, which stipulate that CGS maintains the right to instruct its ISPs to cut off access to Cusip data for ISP clients that do not sign a licensing agreement with CGS itself.

CGS has long enforced these contracts—which come with high licensing fees—much to the chagrin of the industry, which relies on Cusip numbers for necessary operations like regulatory reporting, recordkeeping, clearing, and settlement. Though FactSet became CGS’s operator on behalf of the ABA in 2022, this licensing structure dates back to S&P’s 53-year operation of CGS, which ended only when the European Commission ruled S&P must divest the identifier company as part of its merger with IHS Markit.

In part, it was the receipt of similar threatening letters, then sent by S&P, that kicked off this entire saga. As detailed in court filings, CGS and S&P sent a letter to Swiss Life in 2012, which stated CGS would cease delivery of Cusip numbers and CSB Isins if CGS did not receive a re-signed statement of use and signed contract by certain dates in June of that year. S&P also sent an email to Dinosaur, which received Cusip numbers from a third-party data vendor, claiming that a subscription agreement was required because “proprietary Cusip data is being utilized within [Dinosaur’s] firm.”

A spokesperson for CGS declined to comment.

“The Court is not concerned, from an antitrust perspective, that Plaintiffs must pay for access to CGS data,” the judge wrote in her July opinion. “Rather, the issue is that Defendants arguably have no legitimate purpose in forcing Plaintiffs to sign Subscription Agreements” when Dinosaur, Swiss Life, and Hildene receive CGS data from third parties, not the defendants; and they do not receive the full, copyrighted database from their vendors, but instead datafeeds containing individual Cusip codes that are otherwise non-protectable.

The plaintiffs argued earlier that the Cusip database was subject to the same copyright protections as a phonebook, but the individual codes were as free to use as phone numbers.

A source with knowledge of Cusip’s licensing policy says that enforcement actions like these letters are triggered when end-users are found to be bulk downloading Cusips, typically to the tune of 1,000 Cusips or more. ISPs provide usage metrics to CGS on a periodic basis, at which point Cusip assesses the data consumption and use-cases of firms that both do and do not have signed contracts with itself.

The source adds that in some cases, CGS finds that users are accessing more data than their license allows, and sometimes it finds they are using less. In both cases, CGS aims to adjust licensing fees accordingly.

The broker-dealer who received the May enforcement letter says the threshold of 1,000 may be what put the firm in CGS’s crosshairs. “We trade a lot of bonds on any given day, [so] depending how and when they count, we could be over 1,000 at any point during a given month,” they say.

This is the question at the heart of the long-running dispute—at what point between one individual Cusip and the entire universe of Cusips does the data consumed by a firm become the ABA’s intellectual property? The jury is out.