Trials@uspto.gov
`571.272.7822
`
`
`
`Paper No. 53
`Filed: March 2, 2015
`
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`____________
`
`INTERNATIONAL SECURITIES EXCHANGE, LLC,
`Petitioner,
`
`v.
`
`CHICAGO BOARD OPTIONS EXCHANGE, INC.,
`Patent Owner.
`____________
`
`Case CBM2013-00049
`Patent 7,356,498 B2
`____________
`
`Before JUSTIN T. ARBES, RAMA G. ELLURU, and
`JAMES B. ARPIN, Administrative Patent Judges.
`
`ELLURU, Administrative Patent Judge.
`
`
`
`FINAL WRITTEN DECISION
`35 U.S.C. § 328(a) and 37 C.F.R. § 42.73
`
`
`
`
`
`
`
`
`
`571.272.7822
`
`
`
`Paper No. 53
`Filed: March 2, 2015
`
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`____________
`
`INTERNATIONAL SECURITIES EXCHANGE, LLC,
`Petitioner,
`
`v.
`
`CHICAGO BOARD OPTIONS EXCHANGE, INC.,
`Patent Owner.
`____________
`
`Case CBM2013-00049
`Patent 7,356,498 B2
`____________
`
`Before JUSTIN T. ARBES, RAMA G. ELLURU, and
`JAMES B. ARPIN, Administrative Patent Judges.
`
`ELLURU, Administrative Patent Judge.
`
`
`
`FINAL WRITTEN DECISION
`35 U.S.C. § 328(a) and 37 C.F.R. § 42.73
`
`
`
`
`
`
`
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`
`I. BACKGROUND
`Petitioner, International Securities Exchange, LLC, filed a second
`corrected Petition (Paper 9, “Pet.”) requesting review under the transitional
`program for covered business method patents of claims 1–28 of U.S. Patent
`No. 7,356,498 B2 (Ex. 1001, “the ’498 patent”). Patent Owner, Chicago
`Board Options Exchange, Inc., filed a Preliminary Response (Paper 16,
`“Prelim. Resp.”). On March 4, 2014, pursuant to 35 U.S.C. § 324, we
`instituted this trial as to claims 1–28 on one ground of unpatentability,
`35 U.S.C. § 101 (Paper 17, “Dec. to Inst.”).
`Subsequent to institution, Patent Owner filed a Patent Owner
`Response (Paper 26, “PO Resp.”), a First Supplemental Response (Paper 39,
`“PO First Supp. Resp.”), a Second Supplemental Response (Paper 51, “PO
`Second Supp. Resp.”), a Motion to Amend (Paper 25, “Mot.”), and a Reply
`in support of its Motion (Paper 42, “PO Reply”). Petitioner filed a Reply
`(Paper 36, “Pet. Reply”) to Patent Owner’s Response, a First Supplemental
`Reply (Paper 41, “Pet. First Supp. Reply”), a Second Supplemental Reply
`(Paper 52, “Pet. Second Supp. Reply”), and an Opposition to Patent Owner’s
`Motion to Amend (Paper 37, “Opp.”).
`An oral hearing was held on August 22, 2014, and a transcript of the
`hearing is included in the record (Paper 49, “Tr.”).
`We have jurisdiction under 35 U.S.C. § 6(c). This Final Written
`Decision is issued pursuant to 35 U.S.C. § 328(a) and 37 C.F.R. § 42.73.
`For the reasons that follow, we determine that Petitioner has shown by
`a preponderance of the evidence that claims 1–28 of the ’498 patent are
`unpatentable.
`
`
`
`2
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`The ’498 Patent
`A.
`
`The ’498 patent, titled “Automated Trading Exchange System Having
`Integrated Quote Risk Monitoring and Integrated Quote Modification
`Services,” issued on April 8, 2008, based on U.S. Patent Application No.
`09/475,534 (“the ’534 application”), filed on December 30, 1999.1
`The ’498 patent relates to automated trading systems for option
`contracts (“options”). Ex. 1001, 1:8–12, Abstract. Specifically, the claimed
`invention is directed to methods for managing the risk of a maker of an
`options market in an automated trading system. Id. at 1:8–12.
`Options are traded publicly on exchanges. Id. at 1:17. Each option
`covers certain rights to buy or sell an underlying security at a fixed price for
`a specified period of time. Id. at 1:18–21. The potential loss to the buyer of
`an option is no greater than the initial premium paid for the option,
`regardless of the performance of the underlying security. Id. at 1:27–29. On
`the contrary, in exchange for the premium, the seller of the option (“the
`market-maker”) assumes the risk of being assigned the obligation to buy or
`sell the underlying security, according to the option terms, if the contract is
`exercised. Id. at 1:30–34. Thus, writing options may entail large risks to the
`market-maker. Id. at 1:34–35.
`
`
`1 U.S. Patent Application No. 12/035,996 (“the ’996 application”) is a
`continuation of the ’534 application, and issued as U.S. Patent No. 7,980,457
`B2 (“the ’457 patent”). U.S. Patent Application No. 13/178,289 (“the ’289
`application”) is a continuation of the ’996 application and issued as U.S.
`Patent No. 8,266,044 B2 (“the ’044 patent”). The ’498 patent also is the
`subject of IPR2014-00097. The ’457 patent is the subject of CBM2013-
`00050 and IPR2014-00098. The ’044 patent is the subject of CBM2013-
`00051. Final Written Decisions are entered in these cases concurrently with
`this Decision.
`
`
`
`3
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`Many option trading systems utilize an “open outcry” method. Id. at
`1:43–44. In such systems, market-makers are required to make a two-sided
`market by providing an order and an offer quote. Id. at 1:44–46. In a non-
`automated open outcry system, a market-maker communicates verbally with
`traders indicating their willingness to buy and sell various quantities of
`securities. Id. at 1:46–49. Because a market-maker in such systems has
`personal control over the types and number of options traded, the market-
`maker can manage risk associated with his or her options portfolio. Id. at
`1:49–53. A market-maker manages risk by adjusting quotes for options to
`favor trades that tend to hedge against unwanted risk. Id. at 1:52–55.
`The ’498 patent Specification states that an automated trading
`environment already was known in the art. Id. at 1:56–58, 61–65. An
`automated, computer-based trading system typically records quotes and
`automatically matches them with orders that enter the system. Id. at 1:58–
`61. One disadvantage of known automated trading systems is that the
`systems execute trades so rapidly that a market-maker may be unable to
`withdraw or modify his quotes in a timely manner. Id. at 1:61–2:5.
`Software tools that assess trading option portfolio risk and recommend quote
`modifications also were known. Id. at 2:6–12. An automated trading
`system, however, processes transactions in the order received. Id. at 2:16–
`19. Thus, even if a market-maker uses such software tools to modify quotes,
`those tools may be unable to act in time, given the speed at which the
`automated trading exchange system executes orders. Id. at 2:12–16. For
`example, an automated trading exchange may have a message queue
`containing additional orders that must be processed before the automated
`exchange receives and processes the market-maker’s quote modification
`
`
`
`4
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`request. Id. at 2:19–23. These known, automated trading exchange systems,
`therefore, limit a market-maker’s ability to manage risk. Id. at 2:24–32. The
`’498 patent Specification recognizes the need for a method that
`automatically modifies quotes under certain trading conditions in an
`automated trading exchange system. Id. at 2:33–35.
`The invention of the ’498 patent is directed to methods for modifying
`quotes in an automated exchange trading system, where the system provides
`integrated quote risk monitoring and quote modification services. Id. at
`2:39–41. Thus, one aspect of the invention is an apparatus that implements
`the method using a computer having memory, a processor, and a
`communication port. Id. at 2:41–44.
`The computer receives orders and quotes, wherein a quote has
`associated trading parameters, such as a risk threshold. Id. at 2:44–47. The
`computer then may generate a trade by matching the received orders and
`quotes to previously received orders and quotes. Id. at 2:54–56. If a trade is
`not generated, the computer stores each of the received orders and quotes.
`Id. at 2:56–57. The computer determines whether a market-maker’s quote
`has been filled as a result of the generated trade, and, if so, determines a risk
`level and aggregate risk level associated with the trade. Id. at 2:57–61. The
`computer then compares the aggregate risk level with the market-maker’s
`risk threshold for a quote; if the threshold is exceeded, the computer
`automatically modifies at least one of the market-maker’s remaining quotes.
`Id. at 2:61–64.
`
`
`
`5
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`Illustrative Claim
`B.
`Of the challenged claims, claims 1 and 8 are independent claims.
`Claim 1 of the ’498 patent, reproduced below, is illustrative of the
`challenged claims.
`
`1. A method of modifying quotes in an automated exchange trading
`system comprising the steps of:
`receiving orders and quotes, wherein specified ones of
`
`said quotes belong to a quote group, and wherein said specified ones of said
`quotes have associated trading parameters comprising a risk threshold;
`
`generating a trade by matching said received orders and quotes to
`previously received orders and quotes;
`
`storing each of said orders and quotes when a trade is not generated;
`
`determining whether a quote having associated trading parameters has
`been filled as a result of the generated trade, and if so, determining a risk
`level and an aggregate risk level associated with said trade;
`
`comparing said aggregate risk level with said risk threshold; and,
`automatically modifying at least one of the remaining said specified ones of
`said quotes in the quote group if said threshold is exceeded.
`
`II. ANALYSIS
`Claim Construction
`A.
`Consistent with the statute and the legislative history of the AIA,2 the
`Patent Trial and Appeal Board (“Board”) interprets claims of an unexpired
`patent using the broadest reasonable construction in light of the specification
`of the challenged patent. See Office Patent Trial Practice Guide, 77 Fed.
`Reg. 48,756, 48,766 (Aug. 14, 2012); 37 C.F.R. § 42.300(b); In re Cuozzo
`Speed Techs., LLC, No. 2014-1301, 2015 WL 448667, at *5–8 (Fed. Cir.
`Feb. 4, 2015). There is a “‘heavy presumption’ that a claim term carries its
`
`2 Leahy-Smith America Invents Act, Pub. L. No. 11229, 125 Stat. 284
`(2011) (“AIA”).
`
`
`
`6
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`ordinary and customary meaning.” CCS Fitness, Inc. v. Brunswick Corp.,
`288 F.3d 1359, 1366 (Fed. Cir. 2002) (internal citation omitted). In our
`Decision to Institute, we determined that our analysis did not require an
`express interpretation of any term. Dec. to Inst. 7. The parties do not
`contest that determination. See, e.g., Tr. 61:6–17, 102:12–103:18. We
`likewise determine that, for purposes of this Final Written Decision, our
`analysis does not require us to provide an express interpretation for any
`claim term. Nevertheless, to the extent any claim construction is applicable,
`that construction is consistent with the constructions presented in the
`contemporaneously issued Decisions in related inter partes reviews
`IPR2014-00097 and IPR2014-00098. Those constructions are as follows.
`Claim Term
`Construction
`“risk level . . .
`“a calculated, measured, or otherwise
`associated with said
`obtained value of exposure to the possibility of
`trade”
`loss related to said trade”
`“aggregate risk
`“a calculated, measured, or otherwise
`level associated with
`obtained aggregate value (e.g., combination, sum,
`said trade”
`weighed sum, difference) of exposure to the
`possibility of loss related to such trade”
`“automatically cancelling or revising a price
`or quantity of at least one of the received specified
`quotes still available for execution”
`
`“automatically
`modifying at least one
`of the remaining said
`specified ones of said
`quotes in the quote
`group if said threshold
`is exceeded”
`
`B. Claims 1–28 of the ’498 Patent are Unpatentable as Directed
`to Non-Statutory Subject Matter
`
`Petitioner challenges claims 1–28 of the ’498 patent under 35 U.S.C.
`§ 101, as directed to patent-ineligible subject matter. Pet. 24–33. Patent
`
`
`
`7
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`Owner maintains that its claims are directed to patent-eligible processes
`because, for example, the claims include specific meaningful limitations that
`must be performed on programmed computers, electronic exchanges that
`incorporate the claimed features were an improvement over systems without
`them, the claimed steps cannot be performed manually, the claims are not
`directed to similar or substantially similar methods of managing risk market-
`makers previously used, and the claims do not preempt hedging risk
`management techniques. PO Resp. 35–79.
`1.
`35 U.S.C. § 101 Patentability Analysis
`Under 35 U.S.C. § 101, we must first identify whether an invention
`fits within one of the four statutorily provided categories of patent-
`eligibility: “processes, machines, manufactures, and compositions of
`matter.” Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 713–714 (Fed. Cir.
`2014). Here, each of the challenged claims recites a “process,” e.g., a
`method, under § 101.
`Section 101 of the Patent Act defines subject matter eligibility, and
`the Supreme Court has “long held that this provision contains an important
`implicit exception: Laws of nature, natural phenomena, and abstract ideas
`are not patentable.” Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347,
`2354 (2014) (citing Assoc. for Molecular Pathology v. Myriad Genetics,
`Inc., 133 S.Ct. 2107, 2116 (2013) (internal quotation marks and brackets
`omitted)). “The ‘abstract ideas’ category embodies the longstanding rule
`that ‘[a]n idea of itself is not patentable.’” Alice Corp., 134 S.Ct. at 2355
`(citing Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (quotations omitted)).
`In Alice Corp., the Supreme Court emphasized the “Mayo
`framework,” which provides “a framework for distinguishing patents that
`
`
`
`8
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`claim laws of nature, natural phenomena, and abstract ideas from those that
`claim patent-eligible applications of those concepts.” Id. (citing Mayo
`Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1298
`(2012)). Under the Mayo framework, “[w]e must first determine whether
`the claims at issue are directed to a patent-ineligible concept.” Id. Next,
`“we consider the elements of each claim both individually and ‘as an
`ordered combination’ to determine whether the additional elements
`‘transform the nature of the claim’ into a patent-eligible application.” Id.
`(citing Mayo, 132 S.Ct. at 1297–98). To be patentable, a claim must do
`more than simply state the law of nature or abstract idea and add the words
`“apply it.” Mayo, 132 S.Ct. at 1294; see Benson, 409 U.S. at 67.
`Furthermore, “the mere recitation of a generic computer cannot transform a
`patent-ineligible abstract idea into a patent-eligible invention.” Alice Corp.,
`134 S.Ct. at 2358; DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245,
`1256 (Fed. Cir. 2014) (“And after Alice, there can remain no doubt:
`recitation of generic computer limitations does not make an otherwise
`ineligible claim patent-eligible.”) (citation omitted). “Thus, if a patent’s
`recitation of a computer amounts to a mere instruction to ‘implemen[t]’ an
`abstract idea ‘on . . . a computer,’ that addition cannot impart patent
`eligibility.” Alice Corp., 134 S.Ct. at 2358 (internal citation omitted).
`A challenged claim must incorporate sufficient meaningful limitations
`to ensure that it claims more than just an abstract idea and is not merely a
`“‘drafting effort designed to monopolize the [abstract idea].’” Id. at 2357
`(quoting Mayo, 132 S.Ct. at 1297). “Simply appending conventional steps,
`specified at a high level of generality,” is not “enough” for patent eligibility.
`Id. (quoting Mayo, 132 S.Ct. at 1292). Further, the “prohibition against
`
`
`
`9
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`patenting abstract ideas ‘cannot be circumvented by attempting to limit the
`use of the formula to a particular technological environment’ or adding
`‘insignificant postsolution activity.’” Bilski v. Kappos, 561 U.S. 593, 610–
`11 (2010) (quoting Diamond v. Diehr, 450 U.S. 175, 191–92 (1981)).
`Thus, we analyze the claims to determine whether the claims embody
`a patent-eligible application of an abstract idea or are directed merely to
`nothing more than the abstract idea itself.
`2. Claims 1–28 of the ’498 Patent Are Unpatentably
`Abstract
`In accordance with the Supreme Court’s framework, we must first
`“determine whether the claims at issue are directed to” an abstract idea.
`Alice Corp., 134 S.Ct. at 2355. The patents at issue in Alice claimed “a
`method of exchanging financial obligations between two parties using a
`third-party intermediary to mitigate settlement risk.” Id. at 2356. Like the
`method of hedging risk in Bilski, 130 S.Ct. at 3240—which the Court
`deemed “a method of organizing human activity”—Alice’s “concept of
`intermediated settlement” was held to be “‘a fundamental economic practice
`long prevalent in our system of commerce.’” Alice Corp., 134 S.Ct. at 2356
`(citations omitted). With respect to the first step of the “Mayo framework,”
`the Supreme Court concluded in Alice Corp. that “there is no meaningful
`distinction between the concept of risk hedging in Bilski and the concept of
`intermediated settlement” in Alice Corp. and that “[b]oth are squarely within
`the realm of ‘abstract ideas’ as we have used that term.” Id. at 2357.
`Here, Petitioner argues that Patent Owner’s claims are directed to the
`abstract concept of “managing trading risk expressed in the claims as
`automatically modifying pending quotes so that market makers do not
`accumulate unacceptable amounts of risk,” similar to the “hedging risk”
`10
`
`
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`claims in Bilski. Pet. 26; Pet. Reply 1, 3–4. Patent Owner does not dispute
`that the ’498 patent claims are directed to an abstract idea. See PO Resp. 41
`(“Patent Owner respectfully submits that the claims are not merely to an
`abstract idea, but rather provide a specific application of risk management
`with many specific, meaningful limitations.” (emphasis added)); Ex. 1001,
`1:8–12. Similar to the concept of intermediated settlement in Alice Corp.
`and the concept of risk hedging in Bilski, we conclude that the concept of
`managing trading risk (“risk management”) is an economic practice long
`prevalent in our system of commerce and squarely within the realm of
`abstract ideas. As the ’498 patent itself explains, in the prior art “open
`outcry” exchanges, market-makers adjusted their trading strategies in order
`to manage their exposure, or risk, associated with their holdings by adjusting
`their quotes to favor trades that would tend to hedge away unwanted
`exposure. Ex. 1001, 1:42–55. Furthermore, the claims recite, for example,
`“receiving orders and quotes,” “generating a trade,” “determining a risk
`level and an aggregate risk level associated with said trade,” “comparing
`said aggregate risk level” with a risk threshold, and “automatically
`modifying” one of the remaining quotes if the threshold is exceeded (claim
`1). Accordingly, we analyze the ’498 patent claims to determine whether
`they incorporate sufficient meaningful limitations to ensure that the claims
`are more than just an abstract idea. Mayo, 132 S.Ct. at 1297.
`3. Claims 1–28 of the ’498 Patent Are Not Meaningfully
`Limited Under 35 U.S.C. § 101
`Step two of the Supreme Court’s “Mayo framework” requires that we
`consider the elements of the claim and determine whether there is “an
`element or combination of elements that is ‘sufficient to ensure that the
`patent in practice amounts to significantly more than a patent upon the
`11
`
`
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`[ineligible concept] itself.’” Alice Corp., 134 S.Ct. at 2355 (quoting Mayo,
`132 S.Ct. at 1294).
`The relevant inquiry here is whether “additional substantive
`limitations . . . narrow, confine, or otherwise tie down the claim so that, in
`practical terms, it does not cover the full abstract idea itself.” Accenture
`Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1344–45
`(Fed. Cir. 2013) (internal quotations and citation omitted). As we noted
`above, the Supreme Court in Alice Corp. cautioned that merely limiting the
`use of an abstract idea “to a particular technological environment” or
`implementing the abstract idea on a “wholly generic computer” is not
`sufficient as an additional feature to provide “practical assurance that the
`process is more than a drafting effort designed to monopolize the [abstract
`idea] itself.” Alice Corp., 134 S.Ct. at 2358 (citations omitted).
`Patent Owner argues that the challenged independent claims “do not
`merely incorporate a general purpose computer to perform standard
`computing functions” (PO Resp. 55), but rather require “specific
`programming in exchange trading system computers” (id. at 45). Patent
`Owner acknowledges that “[w]hile the specific hardware and software
`modules that interact to perform each of the claimed steps are not expressly
`recited in the claims, the need for involved specific electronic interactions
`between computer systems over a computer network are plainly present in
`the claims.” Id. In support, Patent Owner refers extensively to the
`Declaration of Dr. Tuomas Sandholm (Ex. 2017). See e.g., id. at 46, 56, 63
`(citing Ex. 2017). Petitioner disagrees and argues that the claims “do
`nothing but ‘apply’ an abstract idea of risk management using generic
`functions of a generic computer.” Pet. Reply 9; see CyberSource Corp. v.
`
`
`
`12
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`Retail Decisions, Inc., 654 F.3d 1366, 1373 (Fed. Cir. 2011) (Section 101
`does not embrace a process defined by using a computer to perform a series
`of mental steps). We are persuaded by Petitioner’s argument.
`The challenged claims do not require any specialized hardware. As
`Petitioner contends, the challenged independent claims do not recite any
`computer-related limitations, such as a computer, processing unit, etc., and
`the term “automated exchange trading system” only appears in the
`preambles as the environment where the claimed method is performed. Pet.
`Reply 2. “[A] preamble does not limit claim scope if it ‘merely states the
`purpose or intended use of an invention.’” Digitech Image Techs., LLC v.
`Elecs. for Imaging, Inc., 758 F.3d 1344, 1351(Fed. Cir. 2014) (affirming a
`finding that the recitation of “in a digital image reproduction system” in the
`preamble of the claims did not limit the claims and that the claims were
`directed to a patent ineligible abstract idea) (quoting Bicon, Inc. v.
`Straumann Co., 441 F.3d 945, 952 (Fed. Cir. 2006)). Here, the recitation “in
`an automated exchange trading system” in the preamble of claims 1 and 8
`merely states the intended use of the claimed invention and does not provide
`any antecedent basis for limitations in the body of the claim. Catalina Mktg.
`Int’l, Inc. v. Coolsavings.com, Inc., 289 F.3d 801, 808 (Fed. Cir. 2002)
`(preamble is not limiting “where a patentee defines a structurally complete
`invention in the claim body and uses the preamble only to state a purpose or
`intended use for the invention”) (quotation omitted). Therefore, we
`determine that the recitation of “automated exchange trading system” in the
`preambles of claims 1 and 8 does not meaningfully limit the claims.
`Further, even if the term was limiting, the ’498 patent Specification
`discloses that the claimed methods can be performed by a generic purpose
`
`
`
`13
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`computer in a generic programming and processing environment. For
`example, the ’498 patent Specification states: “In accordance with a first
`aspect of the invention, an apparatus is implemented using at least one
`computer, having memory, a processor, and a communication port.” Ex.
`1001, 2:41–44. The Specification also makes clear that “[v]arious types of
`general purpose or specialized computer apparatus or computing device may
`be used with or perform operations in accordance with the teachings
`described herein.” Id. at 17:35–38 (emphasis added). The ’498 patent
`Specification likewise explains that “system 100 . . . includes a plurality of
`computers, which may be one or more work-stations, servers, mainframes,
`or other computer hardware platforms that provides sufficient resources to
`meet the desired trading volume and desired transaction-processing rate.”
`Id. at 3:22–28 (emphasis added). Thus, the Specification indicates that the
`automated trading system can be built using a general purpose computer and
`that the complexity of the system depends only on the volume and rate of
`trading desired.
`Furthermore, the Specification explains that the claimed methods can
`be performed using known off-the-shelf computer hardware. For example,
`the Specification states that preferable servers are off-the-shelf “SUN
`EnterpriseTM” or “StarfireTM” servers. Id. at 3:34–37; Tr. 37:13–17. Our
`review of the patent does not indicate that specialized computer hardware is
`necessary to implement the claimed methods, similar to the claims at issue in
`Alice Corp. See Alice Corp., 134 S.Ct. at 2360 (determining that the
`hardware recited in the claims was “purely functional and generic,” and did
`not “offer[] a meaningful limitation beyond generally linking the use of the
`
`
`
`14
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`[method] to a particular technological environment, that is, implementation
`via computers”) (citations and internal quotation marks omitted).
`Patent Owner refers extensively to the declaration of its witness,
`Dr. Sandholm, in support of its position that the claimed methods require
`specialized and customized hardware and software. PO Resp. 55–64 (citing
`Ex. 2017 ¶¶ 25–36, 38–39, 41, 44). We do not find Dr. Sandholm’s
`testimony persuasive, however, because it generally relates to commercial
`embodiments and is not supported by the ’498 patent Specification. See,
`e.g., Ex. 2017 ¶ 26. For example, Dr. Sandholm states that “[a]utomated
`exchange trading systems include extremely large server networks with
`extensive processing capabilities” (Ex. 2017 ¶ 25), but the claims do not
`require any particular network size or extent of processing capability.
`Further, the ’498 patent Specification explains otherwise. According to the
`Specification, the preferred embodiment of the invention “includes a
`plurality of computers, which may be one or more work-stations, servers,
`mainframes, or other computer hardware platforms that provide sufficient
`resources to meet the desired trading volume and desired transaction-
`processing rate.” Ex. 1001, 3:20–28 (emphasis added), 3:28–37.
`Patent Owner also argues that, although the ’498 patent Specification
`recognizes that generic hardware can provide the starting materials needed
`to implement the claimed methods, the hardware must be programmed
`specifically to perform the claimed methods. PO Resp. 77–78. The
`Supreme Court, however, has stated expressly that simply executing an
`abstract concept on a computer does not render a computer “specialized,”
`nor does it automatically transform a patent-ineligible claim into a patent-
`eligible one. See Alice Corp., 134 S.Ct. at 2358 (“[T]he mere recitation of a
`
`
`
`15
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`generic computer cannot transform a patent-ineligible abstract idea into a
`patent-eligible invention. . . . Given the ubiquity of computers, wholly
`generic computer implementation is not generally the sort of additional
`featur[e] that provides any practical assurance that the process is more than a
`drafting effort designed to monopolize the [abstract idea] itself.”) (citations
`and quotation marks omitted); Bancorp Servs., L.L.C. v. Sun Life Assurance
`Co., 687 F.3d 1266, 1280 (Fed. Cir. 2012). Consequently, we determine that
`the challenged claims’ purported use of a generic computer, programmed to
`perform the steps of the methods, does not confer patent eligibility, similar
`to the claims at issue in Alice Corp. See Dealertrack, Inc. v. Huber, 674
`F.3d 1315, 1334 (Fed. Cir. 2012) (“In considering patent eligibility under
`§ 101, one must focus on the claims.”).
`Patent Owner further argues that the challenged claims include many
`steps that define the relationship of the various limitations and how the
`claimed processes are accomplished within the automated exchange,
`demonstrating that those claims are directed to an application of an abstract
`idea. PO Resp. 42–49. Patent Owner emphasizes that the claims require at
`least 13 specific steps and sub-steps. Id. at 44. Patent Owner notes, for
`example, the claims are limited to an “‘automated exchange trading system,’
`wherein a ‘risk threshold’ is associated with quotes and used by the
`exchange trading system to ‘automatically modify[] at least one of the
`remaining [quotes] if said threshold is exceeded.’” PO First Supp. Resp. 3;
`PO Resp. 42, 46. Patent Owner contends that “there was nothing routine or
`conventional about an exchange trading system adapted to determine an
`aggregate risk level, compare that risk level with a risk threshold, and then
`
`
`
`16
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`automatically modify one or more quotes.” PO Resp. 47. We are not
`persuaded by Patent Owner’s argument.
`The claims contemplate using a generic computer to perform “‘well-
`understood, routine, conventional activit[ies]’ previously known to the
`industry.” Alice Corp., 134 S.Ct. at 2359 (quoting Mayo, 132 S.Ct. at 1294);
`see Mayo, 132 S.Ct. at 1300 (“simply appending conventional steps,
`specified at a high level of generality, to laws of nature, natural phenomena,
`and abstract ideas cannot make those laws, phenomena, and ideas
`patentable”). The ’498 patent explains that, in the known open outcry
`method of trading, market-makers had personal control over the types and
`number of contracts traded, and could “adjust their trading strategies” as
`their positions changed. Ex. 1001, 1:43–52. Thus, they managed their
`exposure, or risk, associated with their holdings by “adjusting their quotes”
`to favor trades that would tend to hedge away unwanted exposure. Id. at
`1:52–55. The ’498 patent Specification also recognizes that software
`analysis tools were available in the prior art to evaluate the “risk associated
`with stock and option portfolios.” Id. at 2:6–12. That it was well known to
`manage trading risk is supported by the testimony of Dr. Maureen O’Hara,
`Petitioner’s witness. Ex. 1004 ¶ 45 (stating that the challenged claimed
`methods of claims 1 and 8 are “exactly the same method of managing risk
`that market makers have been performing manually for years prior to the
`December 1999 filing date of the ’498 patent . . . selectively accounting for
`past trades and current holdings and/or evaluating greek values”) (internal
`footnote omitted). Also, the claimed “risk threshold” of claims 1 and 8 is
`recited at a high level of generality, and as Petitioner argues, emulates the
`personal behavior and risk tolerance level of a market-maker with respect to
`
`
`
`17
`
`
`
`CBM2013-00049
`Patent 7,356,498 B2
`
`
`a type of risk. Pet. Reply 5, 7. Lastly, there is no dispute that the prior art
`included “automated and computer-based trading system[s].” Ex. 1001,
`1:59–60. The claimed methods integrate an automated exchange trading
`system, already known in the art, with methods that mitigate the risks of a
`market-maker, also already known in the art. Id. at 2:39–41. In sum, the
`claims amount to nothing more than instructions to apply previously known
`methods of electronic trading and trade risk management using a generic
`computer to perform generic computer functions—calculating a risk and
`determining if that risk exceeds a threshold, and, if so, automatically
`modifying a quote. See Alice Corp., 134 S.Ct. at 2359.
`Moreover, we agree with Petitioner that the challenged claims are
`patent ineligible because the claims “do nothing more than automate an
`abstract and mental risk management technique used by market makers in
`open outcry exchanges for decades.” Pet. Reply 4 (citing Bancorp, 687 F.3d
`at 1279 (“[u]sing a computer to accelerate an ineligible mental process does
`not make that process patent-eligible”)). As discussed above, in the prior art
`outcry options trading systems, market-makers determined and hedged their
`risks mentally. Ex. 1001, 1:42–55; Ex. 1004 ¶ 45; Ex. 1005, 244:24–245:20.
`We do not find persuasive Patent Owner’s arguments that the claimed
`methods cannot be performed manually because a human “cannot perform
`the functions of an exchange trading system,” and that the claims include
`limitations that “must be performed on the exchange-side.” PO Resp. 72
`(emphasis omitted). Patent Owner’s argument that a human cannot handle
`mil
Accessing this document will incur an additional charge of $.
After purchase, you can access this document again without charge.
Accept $ Charge
Still Working On It
This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.
Give it another minute or two to complete, and then try the refresh button.
A few More Minutes ... Still Working
It can take up to 5 minutes for us to download a document if the court servers are running slowly.
Thank you for your continued patience.
This document could not be displayed.
We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.
Your account does not support viewing this document.
You need a Paid Account to view this document. Click here to change your account type.
Your account does not support viewing this document.
Set your membership
status to view this document.
With a Docket Alarm membership, you'll
get a whole lot more, including:
- Up-to-date information for this case.
- Email alerts whenever there is an update.
- Full text search for other cases.
- Get email alerts whenever a new case matches your search.
One Moment Please
The filing “” is large (MB) and is being downloaded.
Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.
Your document is on its way!
If you do not receive the document in five minutes, contact support at support@docketalarm.com.
Sealed Document
We are unable to display this document, it may be under a court ordered seal.
If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.
Access Government Site
