(April 26) – “A federal judge dealt a blow to Vanguard Group’s efforts to offer exchange-traded mutual funds based on the Standard & Poor’s 500-stock index and two other S&P indexes,” writes Tom Lauricella in today’s Wall Street Journal.

“Judge Alvin K. Hellerstein of the Southern District of New York granted a request by McGraw-Hill Cos., the parent of Standard & Poor’s, for a permanent injunction to bar Vanguard from launching the ETF products, to be called Vipers, based on the S&P indexes.”

“ETFs, which unlike regular mutual funds trade throughout the day on a stock exchange, are one of the hottest investment products recently. Vanguard, the nation’s second-biggest mutual-fund group, has been anxious to enter the ETF field with offerings based on its S&P 500 index fund, the largest mutual fund in operation based on assets of all the fund’s share classes.”

“McGraw-Hill had argued that Vanguard didn’t have the right under existing license agreements to use the S&P name and underlying data on the new products. Vanguard’s licensing deals with S&P date to 1988 and are believed to be considerably less lucrative to S&P than more recently negotiated licensing pacts.”

“Judge Hellerstein agreed with McGraw-Hill in granting the injunction. The issuance of Vipers by Vanguard would go “beyond the terms and scope of the McGraw-Hill license, thereby breaching the contract and infringing McGraw-Hill’s trademark rights,” Judge Hellerstein wrote.”

” ‘This is a total vindication of Standard & Poor’s,’ said Kenneth Vittor, general counsel for McGraw-Hill.”

“Vanguard spokesman John Demming said: ‘We disagree with the judge’s ruling and it is our intent to file an appeal at the earliest opportunity.’ “

“The case could have a significant impact on other fund companies that are planning to roll out ETFs, since the decision casts doubt on whether a fund company can add an exchange-traded share class to an existing mutual fund without the approval of the index provider. Such approvals are likely to require renegotiating licensing deals and possibly higher fees paid by the money manager to the index provider.”