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District Judge Denies Reuters Crucial IM Technology

July 30, 2008

Beginning Friday, a federal court order earlier in the week is forcing Thomson Reuters Corp. to remove a crucial layer of software from its instant messaging service in a move that could disrupt communications within dozens of stock brokerages and banks.

U.S. District Judge Colleen McMahon made the decision on Tuesday that penalized Thomson Reuters for being two weeks late with its final licensing payment to Silicon Valley software maker FaceTime Communications Inc.

Reuters stitched FaceTime’s computer coding into an instant messaging service that has been sold to about 100 customers in the financial services industry.

Thomson Financial bought the news and information service earlier this year.

FaceTime’s technology provides Reuters’ instant messaging customers with two vital features – security against computer hackers and tools to comply with a variety of government regulations that include a mandate to store the electronic conversations of securities traders and brokers.

Banks and brokers that independently license FaceTime’s tools for their internal instant messaging systems won’t be affected by the decision.

Eran Barak, a company executive from Thomson Reuters, warned in a July 1 declaration that losing the FaceTime elements would have a “devastating impact on customer satisfaction and customer goodwill.”

Barak, Thomson Reuters’ head of strategy and collaboration services, estimated the New York-based company’s 2009 revenue could decline by millions of dollars if disillusioned customers seek other instant messaging alternatives. He also indicated switching might not be easy, warning some instant messaging users “would be crippled in their day-to-day operations” without access to FaceTime’s protections.

A Thomson Reuters spokesman and attorney have yet to comment publicly.

Attorney Jim Obrien said FaceTime remains willing to negotiate a new licensing agreement with Thomson Reuters.

Although Reuters’ instant messaging would still be able to relay electronic conversations without FaceTime’s technology, the service probably couldn’t be used by many brokers and banks without the security and compliance tools.

New York federal judge McMahon showed little sympathy for Reuters in what she called an “open-and-shut case.”

According to McMahon’s decision, after paying $1.3 million to FaceTime as part of a two-year contract, Reuters could have nailed down the permanent right to use the software by making a $150,000 payment by Jan. 31 this year.

However, the company didn’t wire the funds until Feb. 15 – two days after FaceTime’s Obrien sent a letter notifying the company that the previous deal had expired.

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