Direxion Shares, ETF Trust v. Leveraged Innovations L.L.C.

November 18, 2014

Case Number: 1:14-cv-01777-KBF

On March 14, 2014, Direxion Shares, ETF Trust (“Direxion”) filed a declaratory judgment action against Leveraged Innovations L.L.C. (“Leveraged”) asserting that Leveraged’s claims of patent infringement were barred by a prior settlement agreement.  This was not the first time Leveraged filed suit for patent infringement of the same patents-in-suit, however. 

In its first bite at the apple, Leveraged sued ProShares for patent infringement arising from ProShares listing its ETF funds on the NYSE Arca.  In the prior settlement agreement, Mopex, a predecessor-in-interest of Leveraged, agreed not to sue “any AMEX-Listed ETF Fund.”  Because NYSE Arca was a successor of AMEX, this Court dismissed that case on summary judgment finding that ProShares ETFs listed on NYSE Arca were covered by the covenant not to sue contained in prior agreement.

Now, Leveraged took a second bite at the apple, this time arguing that the covenant not to sue extends only to ETFs that are “listed exclusively for trading on the Amex.”  Specifically, despite the fact that the Direxion ETFs “are in fact only listed on one exchange – NYSE Arca,” Leveraged argues that “listed exclusively” requires an affirmative obligation – an exclusive listing agreement – to list only on one exchange.

In rejecting Leveraged’s second bite at the apple, Judge Forrest found that the term “exclusively listed” is “unambiguous and does not require resort to any extrinsic source for interpretation.”  Judge Forrest analyzed (1) the plain meaning of the term; (2) the circumstances surrounding the prior agreement, and (3) industry custom and usage.  In granting Direxion’s motion for summary judgment, Judge Forrest found that none of the evidence presented by Leveraged supported the notion that “listed exclusively” required a contractual commitment not to list on another domestic exchange, or that the term “listed exclusively” was unambiguous and thus required the court to examine extrinsic evidence.