Interactive Brokers refuses to produce source code materials in lawsuit brought by former customer
If access to Interactive’s source code were made public, the brokerage’s competitors would potentially be able to replicate aspects of Interactive’s margin liquidation system, Software Engineering Department Head says.
As previously reported, online trading major Interactive Brokers Group, Inc. (IEX:IBKR) continues to defend itself in a civil case brought by one of its former customers.
On December 18, 2015, a former individual customer – Robert Scott Batchelar, filed a purported class action complaint against Interactive Brokers LLC, IBG, Inc., and Thomas Frank, PhD, the Company’s Executive Vice President and Chief Information Officer, in the U.S. District Court for the District of Connecticut. The complaint alleges that the former customer and members of the purported class of IB LLC’s customers were harmed by alleged “flaws” in the computerized system used by the Company to close out (i.e., liquidate) positions in customer brokerage accounts that have margin deficiencies.
The plaintiff is pursuing a class action alleging that he suffered losses arising from an unspecified flaw allegedly contained in Interactive’s algorithm system and therefore seeks civil liability in negligence against the defendants, based on the purported “negligence in the design, coding, testing and maintenance” of the system.
The plaintiff has not identified any specific programming flaw. The plaintiff seeks discovery concerning how Interactive’s software and system work on different types of securities, and how, if applicable, the software and system have changed over time.
On May 1, 2019, Albert Lukazik, a Software Engineering Department Head, Senior Technology Manager, and Information Security Officer for Interactive Brokers LLC and Interactive Brokers Group, Inc., filed a Declaration in support of defendants’ objection to produce source code materials.
He submitted the Declaration after being informed that plaintiff Robert Scott Batchelar has requested that the brokerage produces certain “source code” materials to the plaintiff’s counsel so that counsel and experts can have independent access to it.
In his Declaration, Lukazik stresses that one of Interactive Brokers’ most valuable assets is their proprietary trading system. This system includes the margin liquidation system. (For purposes of this Declaration, the proprietary computer code underlying Interactive’s margin liquidation system is referred to as “source code”).
The source code is one of Interactive’s foundational assets and incorporates its trade secrets and know-how accumulated over a period of more than 20 years. The source code is comprised of approximately 600,000 lines of code and it refers to various subsystems within Interactive’s trading system.
If access to Interactive’s source code were made public, the brokerage’s competitors would potentially be able to replicate aspects of Interactive’s margin liquidation system, Mr Lukazik notes.
Such access could potentially also allow customers to improperly utilize Interactive’s trading platform in a manner that may result in heightened trading and liquidity risks to IB LLC and IBG, based on their improperly-gained knowledge of the source code.
Based on the breadth of allegations, producing the source code would be incredibly burdensome to defendants, Lukazik says. Furthermore, due to the interconnected nature of the source code underlying Interactive’s margin liquidation system, the source code would be difficult (if even possible) to segregate from the rest of Interactive’s trading system. In addition to that, the plaintiff’s request threatens Interactive’s trade secrets.
The case continues at the Connecticut District Court.
