Magazine article American Banker

Court Rules against Patent on 'Hub-and-Spoke' Funds

Magazine article American Banker

Court Rules against Patent on 'Hub-and-Spoke' Funds

Article excerpt

A U.S. district court in Boston has invalidated Signature Financial Group's patent on "hub-and-spoke" mutual fund structures, paving the way for more competitors to market the unusual approach to fund administration.

On March 26, Judge Patricia B. Saris of U.S. District Court for the District of Massachusetts ruled that Signature's exclusive claim to set up hub-and-spoke mutual funds was "invalid and unenforceable."

In a hub-and-spoke structure, an investment company, acting as the "hub," manages a pool of mutual funds assets for various "spoke" banks and other companies which are allowed to market these funds under their own names.

In recent years, Signature has received fees for setting up hub-and spoke funds and providing accounting and administrative services.

The judge also dismissed Signature's claims of patent infringement and unfair trade practices by its chief rival, State Street Boston Corp.

James Hoolahan, a Signature senior vice president, said the company would appeal the ruling.

Even so, the decision is a victory for State Street, which had sued Signature in 1994 after failing to negotiate a licensing agreement for the hub-and-spoke structure.

"As far as we're concerned, it's over," said Ronald E. Logue, a State Street executive vice president. "We will continue to aggressively market our product."

State Street, along with a handful of other companies, such as PNC Bank Corp. and KPMG Peat Marwick, market their own fund structures similar to Signature's. …

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