There was a time, not long ago, when the titans of the US financial world ran away from patents. During the Bilski case, big banks filed an amicus brief (PDF) on the same side as Google, asking the Supreme Court to disallow so-called "business method" patents to no avail.

However, a few key financial institutions have embraced patents enthusiastically. This week, the Chicago Board Options Exchange has taken finance-patent wars to a new level. CBOE filed a lawsuit against a competing options exchange, International Securities Exchange (ISE), demanding $525 million for the infringement of three patents: US Patent Nos. 7,356,498, 7,980,457 and 8,266,044. The board asked for the first patent in 1999, at the height of the patent-everything craze, and the patents were issued between 2008 and 2011.

In its complaint, the Chicago board says the patents cover its Quote Risk Monitor system. That lets traders "actively control their risk exposure" by telling CBOE the "risk threshold" they want to take on.

The bad blood and litigation between these two exchanges goes back years. The European-owned ISE was the first US all-electronic exchange when it opened in 2000. The Chicago Board Options Exchange was the first options exchange, period, when it was founded in 1973.

ISE first sued the Chicago board back in 2006, claiming infringement on its own patent—filed in 1999, just two months before CBOE's first patent filing. CBOE beat that lawsuit at the district court level, but this May, it was revived (PDF) by the nation's top patent appeals court. Now it looks like the lawsuit against Chicago is going to go forward, whether the exchange likes it or not—and filing their own "defensive" patent suit is the best way to get leverage.

The high-stakes suit-and-countersuit between two major options exchanges raises the question: will patent disputes infect the world of corporate finance like they have the tech world? A few years ago, tech companies had a sense that throwing patent suits at each other would simply result in massive lawyers' fees and a state of "mutually assured destruction." But with Apple and Microsoft seeking to gain an edge over competitors in the smartphone business, the detente has collapsed. High-stakes lawsuits are everywhere.

From a licensing dispute over "index options" to big-time patent battles

The patent suits seem to have grown out of an earlier dispute over licensing, which also reached a head this year. ISE had long wanted to offer "index options" tied to the Dow Jones Industrial Average and the S&P 500. Dow Jones & Co. had maintained that was a use of its intellectual property rights and required a license; McGraw-Hill Companies, which owns the S&P 500 Index, held the same position.

ISE tried to negotiate licenses for those but eventually gave up. In 2006, it went to court, saying it could sell options on those indexes even without negotiating the rights. "Competition among exchanges improves market efficiency and, ultimately, benefits investors,” said ISE CEO David Krell at the time.

Chicago Board Options Exchange, which is the only authorized dealer in DJIA and S&P 500 options, was also a party to that long-running lawsuit.

ISE tried to take that case to federal court, saying it was a copyright issue. The court sided with CBOE and the index owners, however, saying the claims for misappropriation and unfair competition weren't about "authorship."

That left the case in Illinois state courts, which sided with the Chicago exchange and its allies. The courts said that ISE shouldn't be allowed to "profit for free from the efforts, skill, and reputation of the Index Providers." ISE appealed that to a higher state court, but in May it lost there as well. In that case, Illinois judges allowed the index owners to lean on the controversial "hot news" doctrine, first enunciated in a 1918 case brought by The Associated Press against a competitor.