Leverage Shares has renamed its nine exchange-traded products (ETPs) offering exposure to three of Cathie Wood’s popular thematic ETFs amid a “legal tussle” over intellectual property.
The short, leveraged and one-to-one trackers were the first of their kind to offer European investors wrapped exposure to the $10.7bn Ark Innovation ETF (ARKK), $3.3bn ARK Genomic Revolution ETF (ARKG) and $2.1bn ARK Next Generation Internet ETF (ARKW) when they launched last December.
Little over four months later, on 30 March, Leverage Shares removed the ARK Investment Management ETFs’ US tickers from the names of its ETPs in anticipation of further trademark disputes.
This saga began before the products launched, when ARK reacted “aggressively” to the news the trackers were coming to market, José Poncela, head of product at Leverage Shares told ETF Stream.
“We had a few calls with them, we thought they were going to be friendly calls where they would want to find out more about our plans or find a way to cooperate.
“Obviously that was not the case. They said, ‘how dare you launch ETPs on our ETFs, our strategies are our IP and you are free-riding on our IP and how dare you use our tickers’.
“We did try many times to reach ARK many months before we launched. Nobody responded at ARK. We reached out to their marketing department, we called, left voice notes, we even messaged them on LinkedIn – nobody responded. They were also annoyed we did not try to speak to them when actually, we did.”
On 2 December last year, ARK filed UK and EU trademark applications on ‘ARK’, ‘ARKK’ and ‘ARKG’ wording, respectively.
“Then they threw their UK counsel at us,” Poncela continued. “We started getting threatening letters from their lawyers, saying they would take action if we did not stop the listing – and they were going to claim passing off rights against us, they would claim trademark infringement.”
At this point, ARK had not secured trademark protection in the UK or EU but believed Leverage Shares’ new ETPs would create confusion or the false belief the products were the result of sponsorship or a partnership between the two firms.
ARK’s next move was to contact the London Stock Exchange – including a letter to the CEO of the LSE – about Leverage Shares using the tickers for its tracker ETPs.
Following discussions with their lawyers, Leverage Shares decided to alter its tickers but initially keep the ARK tickers in the titles of its ETPs at launch.
Subsequently, the ‘ARKK’ trademark has been registered in the UK but four of the remaining applications have been opposed by the likes of Kaiju Capital Management, ARK Life Assurance and Arquia Bank – meaning either potentially long delays or only partial or refused registration altogether.
Regardless, Leverage Shares decided to remove all reference to ARK’s US ETF tickers as these are the only subject currently undergoing trademark consideration.
In the US, a similar situation was faced by the $385m Tuttle Capital Short Innovation ETF (SARK) which now makes no reference to ARK tickers or the issuer’s brand name.
In contrast, Leverage Shares’ lawyers said it “was not only fine but advisable” to refer to ARK ETF names in its tracker ETPs to clearly identify the exposures being offered.
Poncela said ARK’s claim of trademark infringement on tickers will “go away” and its second claim on passing off – where one party represents their goods as those of somebody else – is “meritless”.
“Obviously we do not want to get to court with these guys, they have deep pockets, we do not. We are the small guys. If they want to take us to court to bully us into changing the names, we will see what happens.”
Interestingly, the firm’s nine trackers are not the first products in Europe to track and short the returns of ARK’s ETF range.
There were already “plenty” of contracts for difference (CFD) and structured products doing similar things, Poncela added.
However, ARK likely makes a distinction for two reasons. First, it already has a formal partnership to partner on funds in Europe – in the shape of Nikko Asset Management’s disruptive innovation mutual fund.
Second, as Poncela explained: “ARK said they have plans for Europe. I think they took issue with us because we are in the ETF industry. So, if they want to bring something to Europe, we already have ETPs listed in more than three markets.”
While stating the recent name change puts Leverage Shares in a better position to more proactively market its ETPs, Poncela said the outlook remains unclear for its ARK ETPs.
“The reality is if we do not get any traction, we might even consider delisting them. [ARK] are not as popular as they think in Europe. Maybe we still need more time and marketing but it is not like people are piling into these strategies yet.”
While further developments are likely to unfold, the dispute between the two firms already raises interesting questions around the limits of trademarking and the intellectual property rights on actively-managed ETF baskets versus licenced indices.
ARK Investment Management did not respond when approached for comment.