Morningstar to pay $61 million in trade-secrets settlement

The investment research firm will pay Business Logic for the software company's intellectual property

Jul 18, 2014 @ 11:33 am

By Joyce Hanson

Morningstar Inc. will pay $61 million to settle a trade-secrets lawsuit filed by Business Logic Holding Corp., a 401(k) managed accounts software company, in order to secure a license for the intellectual property involved in the dispute.

A trial that had been scheduled to start July 7 in Chicago to determine if Morningstar illegally replicated software owned by Business Logic was called off a few days prior when the two sides announced a settlement had been reached.

Morningstar will record the expense in the second quarter of 2014, according to a news release issued by the investment research company. The settlement totals approximately $38.2 million after taxes, or 85 cents per share.

“We're pleased to settle this longstanding litigation with Business Logic,” Joe Mansueto, chairman and chief executive officer of Morningstar, said in a statement. “Although it's a meaningful payment, it removes the risk, distraction and uncertainty posed by the lawsuit. We look forward to continuing to invest in and expand our successful retirement offerings.”

Mr. Mansueto was unavailable for further comment.

Bill Patterson, general counsel and chief operating officer of NextCapital Group Inc., of which Business Logic is a part, said the $61 million settlement will help the firm remain competitive in the retirement market.

“The settlement will put us in a good position to continue to compete and focus on developing technology that will help investors,” Mr. Patterson said. “We've entered into a partnership with Russell Investments and will continue to compete against Morningstar in the market.”

Law firm Orrick Herrington & Sutcliffe's list of the top 10 disclosed trade secret settlements nationwide suggests the magnitude of the Morningstar settlement with Business Logic.

The $61 settlement would put Morningstar in ninth place on Orrick Herrington's list, behind the $65 million paid by Alnylam Pharmaceuticals Inc. to Tekmira Pharmaceuticals Corp. in a 2012 patent infringement case, and ahead of the $44.5 million paid by Grumman Systems Support Corp. to Data General Corp. in a 1995 trade secret and copyright action. The top spot belongs to a $1.1 billion settlement in 1997 between Volkswagen AG and General Motors Corp.

The lawsuit stems from a 2003 contract between Business Logic and Ibbotson Associates Inc., which is now a Morningstar subsidiary. Business Logic claimed that Morningstar and Ibbotson, which Morningstar acquired in 2006, misappropriated Business Logic's trade secrets over the course of two and a half years, starting in 2007.

According to the Morningstar release, Business Logic gave Ibbotson the right to embed and combine its software with Ibbotson's software to develop Advice by Ibbotson, the company's advice and managed account platform for retirement plan participants.

“When the contract between Ibbotson and Business Logic ended in 2009, Ibbotson replaced the Business Logic software with its own,” the Morningstar statement says. “Business Logic claimed that Morningstar and Ibbotson breached the contract and used Business Logic trade secrets to develop the new software.Business Logic filed suit against Morningstar and Ibbotson in 2009 and Morningstar and Ibbotson contested the claims.”


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