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Nasdaq sues ‘Flash Boys’ hero IEX for patent infringement

Nasdaq sued IEX Group for patent infringement, claiming the smaller firm stole aspects of its trading technology.

In a lawsuit filed Thursday, Nasdaq said seven of its patents were violated by IEX, which transformed itself from a private trading venue to a full-fledged stock exchange in 2016. The technology that IEX allegedly ripped off powers Nasdaq's trading systems, including its end-of-day closing auction, how orders are matched on its exchange and how its data feeds work. The patents represent "millions of dollars in investment over decades," Nasdaq said.

IEX hired several former Nasdaq employees with knowledge of the inner workings of its exchange, at least four of whom left to join IEX about the time it started up in 2012, the lawsuit said. The employees weren't identified.

"Similar to our exchange application process, this is yet another attempt by Nasdaq to obstruct an innovative new competitor," IEX spokesman Michael Russell said in an emailed statement.

It's not the first time Nasdaq has accused another exchange operator of patent infringement. Last year Nasdaq sued Miami International Technologies, alleging similar types of intellectual property theft involving former employees, but for options-trading technology. The company asked the court to toss the trade secrets case, saying it hired those workers six years ago, adding that Nasdaq "has chosen to serve its revenge not merely cold, but frozen to death."

New York-based Nasdaq holds more than 250 patents for the technology underpinning its exchanges.

IEX earned a contrarian reputation in the U.S. stock market, gaining fame from Michael Lewis's 2014 book "Flash Boys." Nasdaq and fellow incumbent NYSE Group, a unit of Intercontinental Exchange, were both vocal opponents of IEX's effort to turn itself into a public stock exchange, but U.S. regulators approved it anyway. IEX processes about 2.3% of U.S. equity trading volume, compared with about 19% handled by Nasdaq's three stock exchanges.

IEX is working to build a corporate listings business, an area where Nasdaq and NYSE reign. That business has yet to debut.