DAC Sues Texas MAC Over CPO

Orlando-based Digital Assurance Certification LLC has filed a lawsuit against the Municipal Advisory Council of Texas, charging that the Texas MAC’s Central Post Office disclosure facility infringes on the patent that DAC recently obtained for its disclosure system.

The suit, which was filed Friday in the U.S. District Court for the Middle District of Florida in Orlando, seeks injunctive relief, triple damages, as well as payment of attorneys’ fees.

The CPO, which the Texas MAC began operating for the Muni Council in September 2004, collects secondary market disclosure documents from issuers on a voluntary basis and almost simultaneously sends them to four existing repositories that have been designed by the Securities and Exchange Commission as nationally recognized municipal securities information repositories.

The Muni Council and SEC pushed to create the CPO to both serve as a one-stop filing place for issuers’ secondary market disclosure documents and to eliminate the inconsistencies in the way the documents have been filed and stored at the NRMSIRs. The Muni Council is a group of about 20 muni market groups working to improve secondary market disclosure.

In addition, Martha Mahan Haines, chief of the SEC’s municipal securities office, has been working to draft an amendment to the commission’s Rule 15c2-12 on disclosure that would make use of the CPO facility mandatory for muni issuers.

But DAC’s lawsuit could derail CPO operations and Haines’ efforts to require issuers to use it.

DAC, which created a disclosure collection and dissemination system about three years before the CPO started up, obtained a patent for its system on Dec. 26 from the U.S. Trademark and Patent Office.

In its lawsuit DAC claims its system is designed to be a “one-stop filing system” for issuers. DAC says its system provides “web-based, real-time disclosure and information dissemination services to the municipal market on behalf of over 800 issuers of municipal securities, including many of the largest issuers in the market.”

“We invested millions of dollars in designing, building, testing, and marketing this system, which provides broker-dealers and investors with timely and accurate information at no cost to them,” Paula Stuart, DAC’s founder and chief executive officer, said yesterday. “We believe that the market deserves the best technological solutions, and that our product provides that.”

“Unfortunately, [the Texas MAC] decided to copy features of our innovative system and commercial dissemination services are unjustly benefiting from this infringement at DAC’s expense,” she said. “Despite our repeated attempts to resolve this matter amicably with a business resolution, past efforts have not been successful.”

In its complaint, DAC said Texas MAC has turned down repeated offers to obtain a license from DAC.

But Stuart suggested the dispute could be resolved outside of court. “While we need to protect our investment in our valuable intellectual property, and are committed to doing so, we remain open to finding a business resolution that eliminates the inequities but ensures that this vital information remains freely available,” she said.

James G. Gatto, a partner at Pillsbury Winthrop Shaw Pittman, which is representing DAC, said: “The pioneering patent recently awarded to DAC is recognition by the government of the novelty of DAC’s technology and a validation of its entitlement to the exclusive intellectual property rights for this technology. By filing suit, DAC is protecting its intellectual property rights, but it remains open to an amicable business resolution.”

Texas MAC officials and Muni Council members declined to comment on the lawsuit. Haines could not be reached for comment.

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