Judge Hellerstein ruled that Vanguard’s proposed VIPERS product (Vanguard Index Participation Equity Receipts) was not authorized under the terms of Vanguard’s license with Standard & Poor’s.
VIPERS indexed to the S&P 500, S&P 500/BARRA Growth Index and S&P 500/BARRA Value Index would have traded on the American Stock Exchange.
The Vanguard Group distinguished the proposed Vanguard offerings from other exchange-traded shares, noting that these exchange-traded shares were merely a different form of distributing shares of existing funds (see S&P 500 Parent Sues Vanguard).
However, the Court held that Vanguard had no right to use Standard & Poor’s intellectual property and trademarks in connection with VIPERS under the terms of Vanguard’s license with Standard & Poor’s, a division of McGraw-Hill.
According to McGraw-Hill, the license with Vanguard was entered into in the 1980’s, well before the concept of ETFs had been conceived, and gave Vanguard rights only to offer conventional shares of its S&P index-based funds.
Vanguard had argued that its VIPERS were simply another type of mutual fund.
ETFs are different from traditional mutual funds in a number of ways, including the ability to:
- trade shares intra-day, as with stocks
- engage in transactions on margin and to sell short.
ETFs usually must be bought and sold through a broker.