GRQ Investment Management LLC filed a lawsuit Aug. 8 against Financial Engines Inc. and Financial Engines Advisors in U.S. District Court in Marshall, Texas, claiming Financial Engines infringed on a pair of patents belonging to GRQ Investment.
Financial Engines provides personalized fiduciary advice to employees of the plan sponsors with which it works.
Per the lawsuit, GRQ owns two patents listed as “Systems and Methods for Improving Investment Performance,” filed in October 2006 and July 2012.
GRQ claims Financial Engines violated the patents in a variety of ways, including by providing a system for discretionary asset allocation and providing a method for distribution suggestions for investors.
GRQ describes itself as a firm “formed to monetize the inventions of the late Brian Tarbox and Mark Greenstein.” Both of these men are listed as inventors of the two patents, according to GRQ.
GRQ alleges that in 1996 Mr. Tarbox helped Financial Engines founder William Sharpe secure funding for Financial Engines “by providing him an initial business model and explaining this model to at least one third party,” according to the lawsuit.
The plaintiffs requested the court enjoin Financial Engines from providing its services.
As of Monday afternoon, Financial Engines hadn't been served with the lawsuit, company spokesman David Weiskopf said.
“We haven't been contacted in any way,” Mr. Weiskopf said. “Our legal counsel has checked repeatedly.”
That said, 401(k) experts say plan executives and managers working with Financial Engines ought to keep an eye on the case.
“Larger Fortune 500 companies should be quite aware of the issues concerning the vendors, especially the product that the vendor is selling,” said Marcia Wagner, an attorney at The Wagner Law Group. “Ask if Financial Engines has a defense: Are they going to negotiate with these people? Will they be enjoined, and if so, what do we tell our participants?”
The Department of Labor has made it clear that plan sponsors are expected to examine a provider for disciplinary and litigation activity as part of the due diligence process, said Jason C. Roberts, CEO of Pension Resource Institute.
“This isn't one of those situations where harm is caused to the plan,” Mr. Roberts said. “This relates more to the viability of service and the ability of the provider to provide that service than it does some kind of harm that could be realized by the plan and participants.”
