Battle over the CMA Clones

In the beginning was the Merrill Lynch Cash Management Account (CMA). Started in 1977, the CMA is an all-purpose account that combines traditional banking services with brokerage ones and pays high money-market rates. The CMA is widely regarded as one of the most innovative consumer financial products in the past decade and now has 1 million customers. Merrill Lynch was so proud of the CMA that it patented the account and began demanding a $10 annual licensing fee for each similar account that competitors opened.

Rival financiers originally laughed at the proposal, but last week they stopped abruptly. Dean Witter Reynolds paid Merrill Lynch $1 million in an out-of-court settlement in a case involving patent rights for the CMA. The legal battles over the CMA, though, have only begun. Paine Webber has gone into federal court in Delaware questioning the validity of the patent, and Merrill Lynch reportedly is considering suits against Prudential-Bache and Shearson/American Express, which also have CMA clones.