Schulte Roth Preserves Arbitration Award in Broker Trade Secrets Fight
Nearly two years ago, an arbitrator awarded the brokerage firm BGC Partners Inc. a tiny fraction of the damages it was seeking in a trade secrets case against its competitor Tullett Prebon plc. An appeals court upheld the arbitration award on Nov. 14, cementing a defense victory for Tullett's lawyers at Schulte Roth & Zabel.
In a brief ruling, New York's Appellate Division, First Department, determined that the arbitrator had a solid basis for ordering Tullett Prebon to pay just $790,000 for misusing BGC's trading data. BGC had demanded more than $200 million from the company.
Schulte Roth's Harry Davis argued for Tullett at the First Department, squaring off against Francis Riley of Saul Ewing. In the arbitration phase of the case, Williams & Connolly represented BGC.
The dispute grew out of an 2002 agreement between Tullett and BGC, which was then part of the financial services firm Cantor Fitzgerald. Under the agreement, Tullett was allowed to combine its swaps data with BGC's proprietary treasury bond data. Tullett packaged the data into a cobranded product that it sold to derivative traders.
BGC commenced an arbitration against Tullett in late 2010, alleging that Tullett improperly provided BGC's data to brokers after the data-sharing agreement expired. BGC also brought related claims in New York state court, as DealBook reported (that parallel litigation is ongoing). In an interview with the Litigation Daily, Schulte Roth's Davis said that BGC engaged in a "coordinated effort to bankrupt Tullett" through litigation.
As the arbitration unfolded, Tullett stipulated to liability, so the only issue in the case was damages. The 2002 agreement stated that if Tullett misused the data, the company would have to pay $500 per day per wrongful appropriation. Based on its estimate of the number of traders who accessed the data, BGC pegged damages at more than $200 million.
Tullett's lawyers argued that the $500 a day penalty was too punitive and should therefore be unenforceable. They presented evidence that the data at issue sold for between $10 and $23 a day.
The arbitrator affiliated with the American Arbitration Association agreed with Tullett's analysis in March 2012 and ruled that $790,000 would adequately compensate BGC. The arbitrator also held that the company isn't a "prevailing party," meaning they can't seek reimbursement of attorney fees. New York Supreme Court Justice O. Peter Sherwood affirmed the arbitrator's determination in November 2012.
In their appeal to the First Department, BGC's lawyers at Saul Ewing focused largely on the attorney fees issue. They argued that BGC was clearly the prevailing party and that Tullett's lawyers had admitted as much during the arbitration. The appeals court rejected that argument, writing that the "there was no stipulation as to which party was the prevailing party."
Saul Ewing's Riley declined to comment.