Merrill Lynch, Pierce Fenner & Smith Inc. insisted today that it has an exclusive patent on its popular Cash Management Account and other brokers must pay Merrill Lynch a fee to offer similar services.
"We feel it is our process and our system," said Daniel P. Tully, president of the Individual Services Group of Merrill Lynch. "We will do whatever we have to do to protect" the patent.
Officials of several securities firms said they had developed their own accounts independently. They suggested they might mount a court challenge to the patent, which was awarded last month.
The Cash Management Account, which Merrill Lynch pioneered five years ago, permits a customer with at least $20,000 in cash or securities deposited with the brokerage firm to earn interest or write checks on the funds. The customer also can use a bank debit card to draw on those funds.
Customers often have money on deposit with their brokers as a result of sales of stock or because they want to be in a position to buy stock without having to transfer funds from elsewhere. Merrill Lynch automatically invests those funds now in its own money market fund.
As this service's popularity grew, other brokers, such as Dean Witter Reynolds Inc., Bache Halsey Stuart Shields Inc., and Shearson/American Express, began to introduce their own versions.
Nevertheless, according to industry estimates Merrill Lynch still has more than 750,000, or 90 percent, of these investment accounts.
Tully made clear that after study of the situation Merrill Lynch had decided to "offer licenses to all users in the very near future."
"We are saying, 'Here it is, folks, come in and apply,' " he said.
Late last month, the U.S. Patent Office granted a Merrill Lynch staff member, Thomas E. Musmanno, a patent for the Cash Management Account system more than two years after the firm submitted its application.
Although Tully said the firm is still studying how it will license other brokers, he anticipated Merrill Lynch would charge its competitors $10 for each Cash Management-type account.
Merrill Lynch has begun notifiying brokerage firms informally of its plans to license the patent.
"All we can say is that it's hard to believe," said James E. Howard, first vice-president, Active Assets Account, at Dean Witter, a fund with 68,000 clients. "We developed our own system, we made up this account. So, it seems strange to us."
Peter Costiglio, a spokesman for Bache, said attorneys for his firm were looking at the patent. "We are not convinced," he said, "their product is properly patentable."
The Merrill Lynch patent covers the types of transactions consumers make with the brokerage account, as well as the investment mechanism the firm uses in handling the funds.
Meanwhile, Merrill Lynch announced it will offer its Cash Management Account overseas, starting this week in London.