'Godfather' of Fundamental Indexing Faces Challenge

One year after the challenge from WisdomTree, Research Affiliates' patent is still pending, and no lawsuit has been filed. And variations on his trademark "Fundamental Index" are quickly becoming the way to describe this new movement in indexing.

Realizing it may be a long and difficult fight, Arnott is playing it cool.

"We're swimming upstream on protecting our brand name, but I leave this in the hands of our 'intellectual property' team and don't devote much time or attention to it," he says in an interview. "And competition is fine. But I'm less comfortable when people can't come up with their own ideas or their own brand name for a product. But we aren't trying to get into fights. My goal is to reach amicable agreement with those who want to pursue similar ideas."

Bruce Lavine, president and chief operating officer of WisdomTree, counters that the concept of fundamental weighting has been around for 20 years. "There are many people who did this prior to Rob Arnott getting involved," he says. "This goes back to the late 1980s with Robert Jones at Goldman Sachs(GS Quote) and David Morris in the United Kingdom. Barclay's iShares developed a dividend fund in 2003 that is clearly not a cap-weighted fund. We feel very comfortable that there is prior art here in many areas."