Can a company and an industry group copyright a set of security identifiers and, in the process, restrict government financial transparency? This is one of the questions judges in the Southern District of New York will have to decide as they consider two class-action lawsuits against the parties that own and operate CUSIP Global Services.
The most widely known security identifiers are the ticker symbols used to denote publicly traded corporations. For example, the National Association of Securities Dealers (NASD) uses the symbol AAPL to identify shares of Apple, Inc., while the New York Stock Exchange (NYSE) uses the symbol XOM for Exxon Mobil Corporation.
These symbols can be used by anyone for any purpose without charge; NASD and NYSE do not claim copyrights over these descriptors. The fact that these symbols can be freely reused helps make it possible for dozens of companies to provide free websites containing information about stocks.
But the situation is quite different for bonds, including the municipal bonds issued by state and local governments mainly to finance infrastructure. In the United States, bonds are identified by CUSIP numbers, a nine-position alphanumeric identifier provided by CUSIP Global Services, which was created by the American Bankers Association (ABA), and, until recently, was operated by Standard & Poor’s (S&P), a major credit rating agency.
On March 1, 2022, S&P sold its CUSIP Global Services (CGS) unit to FactSet Research Systems, a financial data provider, for $1.925 billion in cash. FactSet now operates CGS on behalf of ABA, which is the titular owner and retains a portion of its revenue.
CGS makes money in two ways. First, it charges governments and corporations for new identifiers whenever they issue bonds. Second, it sells CUSIP licenses to market participants who need to use and distribute its identifiers. If CGS finds out that a company is using CUSIP numbers without permission, it demands that the firm cease and desist or purchase a license, which can cost tens of thousands or even hundreds of thousands of dollars annually.
CGS compels organizations that display CUSIP numbers on their websites to impose restrictive terms of use for site visitors. For example, the Municipal Securities Rulemaking Board provides a public information site for municipal bonds known as Electronic Municipal Market Access (EMMA). This website is widely used both by municipal market participants and other individuals tracking government finance. But it is hard to download and redistribute data from EMMA. This is partially because of CGS, which has required MSRB to include the following language in its Terms of Use.
CUSIP Numbers and CUSIP standard securities descriptions are provided to the MSRB by the CUSIP Global Services. CUSIP Global Services and the ABA assert that the CUSIP Numbers and CUSIP standard securities descriptions are and shall remain valuable intellectual property of CUSIP Global Services and the ABA, and you acknowledge and agree that no proprietary rights are being transferred to you in such information…You agree that you will not use the CUSIP Numbers and Securities Descriptions contained on the Website for any other purpose. You may not download CUSIP Numbers and Securities Descriptions from the Website. Such information obtained from the Website shall not be re-disseminated other than as provided in these Terms and, to the extent such information is re-disseminated by you to other parties, you will take all necessary and reasonable precautions to ensure that recipients who obtain the information directly or indirectly from you do not use CUSIP Numbers or Securities Descriptions for any other purpose.
MSRB displays nine position CUSIP numbers as images, rendering them impossible to copy and paste into spreadsheets. Compiling lists of all the outstanding bonds issued by any large government entity is tedious and time-consuming. As a result, it is difficult for taxpayers to see all the debt their governments have assumed, undermining government financial transparency.
The financial firms suing FactSet and ABA are not necessarily concerned about government transparency and are more focused on their ability to do business in the corporate bond market. But the arguments they make in opposition to CUSIP’s intellectual property claims and monopolistic practices resonate across the world of fixed income securities.
The first suit was filed on March 4, 2022, by Dinosaur Financial Group, an investment bank, and Swiss Life Investment Management, an asset management firm. The two companies allege that CUSIP Global Services obliged them to pay excessive licensing fees. With respect to CGS copyright claims, the plaintiffs state:
Copyright protection in the United States subsists over creative works—such as sonnets, movies, and paintings—that result from human creativity. It may also extend to other works, such as compilations, evincing creativity through subjective selection and arrangement of components. By contrast, the content of each individual CUSIP results not from artistic, literary, or any other esthetic or subjective consideration. Instead, a convention established more than 50 years ago strictly determines the format of the CUSIP and each digit within it…This structure is so rigid and predictable that an issuer knows the CUSIP number of its next issue before it receives the CUSIP and with no need to hear from CGS. Indeed, injecting novelty, creativity, or subjectivity into the CUSIP would destroy its utility because electronic trading systems could no longer identify financial instruments from the CUSIP. This consideration exerts decisive force over Defendants’ putative claim of copyright.
Four days later, Hildene Capital Management, another asset management firm, filed a similar lawsuit. Unlike the original plaintiffs, Hildene was not required to purchase a CUSIP license. Instead, it has to pay an additional $10,500 annual fee to its data provider, Bloomberg, to receive CUSIP numbers in its data feed. Hildene’s view of CGS’ copyright claim is as follows:
The ABA’s purported copyright over the CUSIP numbers themselves is thin as it covers purely factual information (i.e., strings of numbers and letters) that identify specific financial instruments, no different than a license plate serves to identify a vehicle someone else produced. The CUSIPs are trivial and nothing more than a random string of letters and numbers. Anyone can generate random numbers and letters in a string. Plaintiff’s use of CUSIPs is also reasonable and fair as its use is proportional to the need to accurately identify specific financial instruments in connection with its analysis, purchase, sale, and monitoring of such securities.
While there are valid arguments to be made on behalf of intellectual property, the concept is subject to abuse. For example, patent trolls use litigation or the threat of litigation to extract money from firms attempting to offer innovative solutions. If extended too far, intellectual property claims can stifle innovation and handicap the economy. In the case of CUSIP numbers, a strong intellectual property claim hinders our ability to monitor state and local debt. If the copyright restriction is lifted, those of us who monitor government finance will be able to create and distribute government debt data sets at little or no cost. It will now be up to the courts to decide whether CGS’s intellectual property claims are justified.