On Wednesday, June 29, Southern District of New York Judge Katherine Polk Failla, who has presided over the two class-action suits brought against Cusip Global Services (CGS) and its affiliates, denied the plaintiffs’ motion for a partial summary judgement on whether Cusip numbers are copyrightable and ordered the two suits be consolidated, which—if the plaintiffs and their lawyers can agree—will create a single, larger lawsuit against CGS, its owner FactSet Research Systems, and others.

In April, counsel for the plaintiffs in the initial suit—Dinosaur Financial Group, a New York-based broker-dealer, and Swiss Life Investment Management—requested a partial summary judgement on whether CGS, its former owner S&P, the American Bankers Association (on whose behalf CGS issues Cusip numbers), and FactSet (which acquired CGS from S&P at the end of last year), have a legal basis under the United States Copyright Act to charge licensing fees for use of the reference data codes that are necessary to buy, sell and settle equity or bond trades in the US and Canada.

Motioning for a partial summary judgement early in a case—before discovery and classification have occurred—was seen as “an aggressive maneuver” on the part of Dinosaur’s and Swiss Life’s counsel, said Patrick Ashby, a lawyer in law firm Linklaters’ US dispute resolution practice, to WatersTechnology in May.

The standard for a summary judgment is that the party filing for it must show there is no genuine dispute of any material fact and must prove that they are entitled to the judgment as a matter of law, which argues that no reasonable jury could side with the opposing party. However, Failla denied the motion, and instead ordered the two competing suits—the latter of which was brought by Connecticut-based asset manager Hildene Capital days after the first—be consolidated and that the parties file an amended joint complaint.

Depending on the forthcoming amended complaint, counsel for plaintiffs may still seek a new motion for partial judgement on copyrightability or other claims. If Failla were to find that Cusip numbers are not subject to copyright, it would be a huge win for the plaintiffs and the class they represent and would serve as a touchstone for the plaintiffs’ antitrust claims.

Counsel for Hildene Capital and the set of defendants supported consolidating the cases, while counsel for Dinosaur and Swiss Life opposed consolidating them.

In a pre-trial conference held on June 28, Gregory Arenson, counsel for Dinosaur and Swiss Life, said that the two suits should not be consolidated because they were “diametrically opposed.” Where the initial suit primarily challenged Cusip numbers’ copyrightability, the Hildene suit did not allege violations of the US Copyright Act, but instead alleged monopolistic behavior, violations of the Sherman Antitrust Act, and unfair business practices.

During the conference, counsel for the S&P Global, Eric Stock, said he and his co-counsel supported consolidation because they intend to file a motion to dismiss the suit altogether.

Following the conference, Failla said in a letter reviewed by WatersTechnology that the court did not find the opposing suits to be irreconcilable due to “substantial overlap” including: representation of the same class, financial institutions; naming of the same set of defendants; challenges to defendants’ subscription agreements and associated licensing fees; and allegations that the defendants’ practices represent an abuse of market power over Cusip data.

Failla also directed the parties to discuss the formation of a new complaint and to appoint an interim class counsel, which will see the several law firms contracted by the plaintiffs vie for the lead position, which will come with the possibility of a larger recovery for the chosen firm. They are expected to submit a letter outlining a proposed date by which they will file a consolidated pleading by July 8.

Poisoned chalice

In North American securities markets, particularly in the US, the nine-digit Cusip is the most widely used securities identifier of its kind. It acts as a kind of serial number for US and Canadian stocks, bonds, mutual funds and exchange-traded funds (ETFs), and underpins various functions across the front, middle, and back offices, from stock identification to trade reporting and settlement.

Its 12-digit counterpart serving the rest of the world—the International Securities Identification Number (Isin)—is owned by the International Organization for Standardization (ISO) but operated by more than 120 national number agencies, which are responsible for Isin assignments in their respective countries. In the US, CGS is responsible for assigning US Isins in addition to Cusips. In total, CGS manages a database of 60 different data elements uniquely identifying more than 50 million financial instruments.

The identifier has long ruffled market participants’ feathers by charging fees from institutions and data vendors alike, for each use of an individual nine-digit Cusip number. An end-user licensing the Cusip numbers of more than 40,000 securities throughout four or more business lines in three or more regions would potentially incur $477,750 in fees, annually, according to a fee calculator on the CGS website.

In a blockbuster deal announced in December 2021, data and research vendor FactSet acquired CGS from S&P, its operator for more than 50 years, for nearly $2 billion. The European Commission had previously stipulated that S&P divest Cusip as part of its ongoing merger with IHS Markit.

In January, a reference data professional at a tier-1 US bank that spends more than $1 million in fees on Cusip data annually, said they were “perplexed” by the deal and worried how CGS would be incorporated into FactSet, given the odd timing of the deal’s announcement during the holiday season on December 27.

“What this does do is wipe away any hint of CGS being a utility or even a market good that it enjoyed through the 1980s into the 2000s. Cusip was just there and part of the woven fabric of the market, and a vast majority never even knew about S&P’s role—and even less about the ABA role. For 50 years it was simply how things were done,” the senior executive said. “With a vendor buying it and the market knowing it paid $2 billion for it, the idea they can justify the licenses with added datasets should be challenged by every firm CGS works with.”

Since CGS was established in 1968, the majority of its revenue and fees had gone to S&P, while a minority royalty was paid back to the ABA on each Cusip contract inked. It is understood that the structure has not yet changed under FactSet, which closed on its acquisition on March 1.

The initial lawsuit was brought three days later.