S&P Prevails in Vanguard ETF License Case

April 25, 2001 (PLANSPONSOR.com) - The US District Court in Manhattan has upheld claims by McGraw-Hill stopping Vanguard from using the S&P 500 and other Standard & Poor's trademarks in connection with Vanguard's proposed launch of new exchange traded funds (ETFs).

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.

License Expiration

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.