Interactive Brokers and ex-customer clash over access to source code materials

A lawsuit targeting online trading major Interactive Brokers Group, Inc. (IEX:IBKR) continues at the Connecticut District Court, with the plaintiff – a former client of the company, and the defendants disagreeing on the scope of a protective order set to determine the access that the plaintiff will have to the defendants’ source code and related materials.

Let’s recall that the lawsuit was brought in December 2015 by a former customer of the broker – Robert Scott Batchelar. The purported class action complaint targets Interactive Brokers LLC, IBG, Inc., and Thomas Frank, PhD, the Company’s Executive Vice President and Chief Information Officer. 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.

On June 14, 2019, the defendants – Interactive Brokers LLC, Interactive Brokers Group, Inc., and Thomas A. Frank asked the Court for entry of a supplemental protective order governing Robert Scott Batchelar’s access to the defendants’ source code and related materials. Specifically, the defendants request that the Court enter a supplemental protective order.

Batchelar has stated that he seeks access to the defendants’ Source Code so that his counsel and outside experts may have independent access to such materials for the purposes of this litigation. He is seeking discovery related to Interactive Brokers’ “Auto-Liquidation Software source code” and related explanations of its workings and explanations of related computer database inputs and outputs. The parties have made multiple good-faith efforts to eliminate the need for Court intervention but have failed to arrive at a mutually satisfactory resolution.

The main issues at dispute between the parties concerning the Supplemental Protective Order relate to the durability of the order’s protections in connection with future litigation by non-parties. The brokerage seek a Supplemental Protective Order that would limit Batchelar’s use of Interactive Brokers’ Source Code to the instant litigation (or a subsequent arbitration involving Mr. Batchelar in the event a class is not certified), and the protection of which would continue to apply after the final disposition of the instant action.

By contrast, Batchelar seeks a protective order allowing him, his outside counsel, and outside experts to use any information gleaned from their review of Interactive Brokers’ Source Code for purposes and litigation other than the instant action and with other potential claimants.

According to the defendants, allowing the plaintiff to use the information his counsel and experts may learn from reviewing Interactive Brokers’ Source Code in other unrelated proceedings would defeat much of the purpose of entering into a supplemental protective order. The Source Code, Interactive Brokers argues, is highly proprietary and any public disclosure of it would severely impact the brokerage’s closely guarded trade secrets.

Let’s recall that, 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.

In his Declaration, Lukazik stresses that 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 noted.

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, Mr Lukazik said.