FTIL faces Rs3,190 crore copyright case over its trading software
Mumbai: Arizona, US-based Modulus Financial Engineering Inc. has slapped a copyright infringement lawsuit against Financial Technologies (India) Ltd (FTIL), renamed as 63 Moons Technologies Ltd, in the Bombay high court. The company has alleged that FTIL redeveloped its copyrighted work and sold it to brokers, breaching the terms of a licence agreement.
FTIL has denied these allegations.
Mint has reviewed a copy of Modulus’s petition, filed last month, which claims similarities between its product and ODIN, FTIL’s flagship offering targeted at brokers and traders.
An FTIL spokesperson rubbished the claims, terming them “baseless”, and said the company would reply to Modulus’s claims in court.
The case is the latest controversy to hit FTIL, which had its headquarters and other assets seized this month by Mumbai police’s Economic Offences Wing following the arrest of its chief Jignesh Shah on money laundering charges in connection with a Rs.5,574.35 crore fraud at National Spot Exchange Ltd (NSEL) in 2013. The Bombay high court is hearing a challenge to a government order for FTIL and NSEL to merge.
According to Modulus, FTIL purchased a licence meant for brokers and their end users.
Such a licence does not allow FTIL to redistribute its copyrighted works to brokerages, the petition said.
“Further, this is not a licence meant for use by software technology solution providers or exchanges to commercially exploit the same,” said the petition. “The defendant (FTIL) did not disclose that to the plaintiff (Modulus) that it was actually a technology solution provider or stock exchange on which brokers operate.”
Modulus estimates that it has incurred losses to the tune of $480 million, or Rs.3,190 crore, which it is seeking in damages.
Founded in 1997, Modulus provides software and consulting services to professional traders, brokers and trading firms, and serves 3 million users across the world, its website says.
“Modulus has been making baseless allegations for some time, but we have vehemently and constantly denied it...it does not hold any merit... Please note that FTIL has been given an opportunity by the Bombay High Court to reply to the plea and we will do so,” an FTIL spokesperson in an emailed statement.
“As far as monetary claim is concerned, at this juncture, the plea submitted in the Bombay High Court by Modulus does not seek any claim,” the spokesperson added.
FTIL originally acquired a licence from Modulus in 2008 and extended it in 2011. In 2015, suspecting foul play, Modulus conducted a forensic analysis of FTIL’s own software offerings.
“An examination of the defendant’s program reveals that the source code contained within ODIN is identical,” said the petition copy. ODIN, or Open Dealer Integrated Network, is FTIL’s flagship product. The suit seems to refer to certain tools that come with ODIN, such as those used for stock alerts, technical analysis, charting and pattern tools, said the heads of two domestic brokerages on condition of anonymity.
Modulus is not only seeking financial damages but also destruction of data and servers containing its copyrighted work.
The petition wants FTIL to “deliver up to the plaintiff (Modulus) for destruction and/or deletion of all of defendants programs, computer diskettes, hard drives and other storage media containing the defendants programs viz ODIN and ODIN Diet and otherwise the plaintiff’s copyrighted works.”
Modulus also wants a “recall from third parties/brokers and /or other entities using the defendant’s programs inter alia the defendant’s programs and/or software viz. ODIN and ODIN Diet and all other devices and things containing the plaintiff’s copyright”.
That has larger ramifications for India’s market infrastructure since six out of every 10 brokers are likely using FTIL’s trading platform.
While the lawsuit may not pertain to the ODIN order routing and risk management software, the charting and decision support tools are an integral part of the platform and come bundled with the trading platform.
“These offerings were used by FTIL as a key selling point to all the brokers over the past years,” said the head of a leading brokerage requesting anonymity.
In January 2015, Modulus tried to settle the issue with FTIL, but the attempt failed, the petition said. In November 2015, the firm filed a copyright infringement case in Arizona. FTIL responded to Modulus’s notice, denying the allegations on 18 December, the petition added, but the company didn’t inform shareholders about this.
“Modulus Financial Engineering, on filing a petition in the US against FTIL, had not served the notice to us as per the procedures laid down under the international convention. So, the question of informing exchanges didn’t arise,” FTIL’s spokesperson said. On 4 July, FTIL issued a notice to the stock exchanges informing them about the suit in the Bombay high court while denying the allegations.
The Rs.3,190 crore liability will further burden the Jignesh Shah-founded firm, which is already battling a liability of Rs.5,574.35 crore that will fall on it if the merger with NSEL goes through. NSEL is 99.99% owned by FTIL.
On 12 February, the ministry of corporate affairs passed an order under a provision of Companies Act 1956 to merge NSEL with FTIL, which challenged it in court.
The National Stock Exchange didn’t respond to an e-mail asking whether it will seek an explanation from FTIL on behalf of brokers. Multi-Commodity Exchange Ltd declined comment and BSE referred to FTIL’s 4 July disclosure without going into the specifics. A Modulus spokesperson did not respond to an email seeking comment.