Trials@uspto.gov
`571.272.7822
`
`
`
`Paper No. 51
`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 CBM2013-00050
`Patent 7,980,457 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. 51
`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 CBM2013-00050
`Patent 7,980,457 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
`
`
`
`
`
`
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`CBM2013-00050
`Patent 7,980,457 B2
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`I. BACKGROUND
`Petitioner, International Securities Exchange, LLC, filed a second
`corrected Petition (Paper 8, “Pet.”) requesting review under the transitional
`program for covered business method patents of claims 1–7 of U.S. Patent
`No. 7,980,457 B2 (Ex. 1001, “the ’457 patent”). Patent Owner, Chicago
`Board Options Exchange, Inc., filed a Preliminary Response (Paper 15,
`“Prelim. Resp.”). On March 4, 2014, pursuant to 35 U.S.C. § 324, we
`instituted this trial as to claims 1–7 on one ground of unpatentability,
`35 U.S.C. § 101 (Paper 16, “Dec. to Inst.”).
`Subsequent to institution, Patent Owner filed a Patent Owner
`Response (Paper 25, “PO Resp.”), a First Supplemental Response (Paper 37,
`“PO First Supp. Resp.”), a Second Supplemental Response (Paper 49, “PO
`Second Supp. Resp.”), a Motion to Amend (Paper 24, “Mot.”), and a Reply
`in support of its Motion (Paper 40, “PO Reply”). Petitioner filed a Reply
`(Paper 34, “Pet. Reply”) to Patent Owner’s Response, a First Supplemental
`Reply (Paper 39, “Pet. First Supp. Reply”), a Second Supplemental Reply
`(Paper 50, “Pet. Second Supp. Reply”), and an Opposition to Patent Owner’s
`Motion to Amend (Paper 35, “Opp.”).
`An oral hearing was held on August 22, 2014, and a transcript of the
`hearing is included in the record (Paper 47, “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 1–7 of the ’457 patent are
`unpatentable.
`
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`2
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`The ’457 Patent
`A.
`
`The ’457 patent, titled “Automated Trading Exchange System Having
`Integrated Quote Risk Monitoring and Integrated Quote Modification
`Services,” issued on July 19, 2011, based on U.S. Patent Application
`12/035,996 (“the ’966 application”), filed February 22, 2008.1
`The ’457 patent relates to automated trading systems for option
`contracts (“options”). Ex. 1001, 1:15–19, Abstract. Specifically, the
`claimed invention is directed to systems for managing the risk of a maker of
`an options market in an automated trading system. Id. at 1:15–19.
`Options are traded publicly on exchanges. Id. at 1:24. Each option
`covers certain rights to buy or sell an underlying security at a fixed price for
`a specified period of time. Id. at 1:25–28. 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 1:34–36. 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 1:37–41. Thus, writing options may entail large risks to the
`market-maker. Id. at 1:41–42.
`
`
`1 The ’996 application is a continuation of U.S. Patent Application No.
`09/475,534 (“the ’534 application), which issued as U.S. Patent No.
`7,356,498 B2 (“the ’498 patent”). U.S. Patent Application No. 13/178,289
`B2 is a continuation of the ’996 application and issued as U.S. Patent No.
`8,266,044 B2 (“the ’044 patent”). The ’457 patent is also the subject of
`IPR2014-00098. The ’498 patent is the subject of CBM2013-00049 and
`IPR2014-00097. The ’044 patent is the subject of CBM2013-00051. Final
`Written Decisions are entered in these cases concurrently with this Decision.
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`Many option trading systems utilize an “open outcry” method. Id. at
`1:50–51. In such systems, market-makers are required to make a two-sided
`market by providing an order and offer quote. Id. at 1:51–53. 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 1:53–56. 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
`1:56–58. A market-maker manages risk by modifying quotes for options to
`favor trades that tend to hedge against unwanted risk. Id. at 1:58–62.
`The ’457 patent Specification states that an automated trading
`environment already was known in the art. Id. at 1:63–65, 2:1–2. An
`automated computer-based trading system typically records quotes and
`automatically matches them with orders that enter the system. Id. at 1:65–
`2:1. 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 2:7–12. Software
`tools that assess trading option portfolio risk and recommend quote
`modifications also were known. Id. at 2:13–18. An automated trading
`system, however, processes transactions in the order received. Id. at 2:23–
`25. 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 2:18–23. 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
`
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`request. Id. at 2:25–30. These known automated trading exchange systems,
`therefore, limit a market-maker’s ability to manage risk. Id. at 2:31–39. The
`’457 patent Specification recognizes the need for a method that
`automatically modifies quotes under certain trading conditions in an
`automated trading exchange system. Id. at 2:40–42.
`The invention of the ’457 patent is directed to systems for an
`automated trading exchange that modify quotes, where the system provides
`integrated quote risk monitoring and quote modification services. Id. at
`2:46–48. 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 2:48–51.
`The computer receives orders and quotes, wherein a quote has
`associated trading parameters, such as a risk threshold. Id. at 2:51–54. The
`computer then may generate a trade by matching the received orders and
`quotes to previously received orders and quotes. Id. at 2:61–63. If a trade is
`not generated, the computer stores each of the received orders and quotes.
`Id. at 2:63–64. 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 2:64–3:1. 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 3:1–4.
`
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`5
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`Illustrative Claim
`B.
`Of the challenged claims, only claim 1 is an independent claim.
`Claim 1 of the ’457 patent, reproduced below, is illustrative of the
`challenged claims:
`
`A system for processing trades of securitized
`1.
`instruments based on security orders and quotes received from
`client computers, comprising:
`
`at least one server computer comprising a memory, and a
`processor, said server computer configured to perform 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
`specified ones of said quotes in the quote group if said
`threshold is exceeded.
`
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`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
`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. 8. 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
`“a calculated, measured, or otherwise
`“risk level . . .
`obtained value of exposure to the possibility of
`associated with said
`loss related to said trade”
`trade”
`
`
`2 Leahy-Smith America Invents Act, Pub. L. No. 112–29, 125 Stat. 284
`(2011) (“AIA”).
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`“aggregate risk
`level associated with
`said trade”
`
`“a calculated, measured, or otherwise
`obtained aggregate value (e.g., combination, sum,
`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 []
`specified ones of said
`quotes in the quote
`group if said threshold
`is exceeded”
`
`B. Claims 1–7 of the ’457 Patent are Unpatentable as Directed to
`Non-Statutory Subject Matter
`
`Petitioner challenges claims 1–7 of the ’457 patent under 35 U.S.C.
`§ 101, as directed to patent-ineligible subject matter. Pet. 25–33. Patent
`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. 39–75.
`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.
`
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`2014). Here, each of the challenged claims recites a “machine,” e.g., a
`system, 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
`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.,
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`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
`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 1–7 of the ’457 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
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`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”
`claims in Bilski. Pet. 27; Pet. Reply 1, 3–4. Patent Owner does not dispute
`that the ’457 patent claims are directed to an abstract idea. See PO Resp. 45
`(“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,
`1:15–19. 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 ’457 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
`
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`exposure. Ex. 1001, 1:50–62. Furthermore, the claims recite, for example, a
`server computer configured to perform the steps of “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 ’457
`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 1–7 of the ’457 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
`[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
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`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. 58–59), but rather require “specific
`programming in the system computer” (id. at 48). Patent Owner contends
`“the challenged claims include meaningful limitations that narrow the claims
`to a specific implementation of risk management, executed on a new
`automated exchange trading system.” Id. at 49. In support, Patent Owner
`refers extensively to the Declaration of Dr. Tuomas Sandholm. See e.g., id.
`at 59–60, 62, 64, 66 (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. 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 recite only common
`computer elements, e.g., “server computer” comprising a “memory” and
`“processor,” recognized as generic computer technology by the Supreme
`Court in Alice Corp. Pet. Reply 2; see Alice Corp., 134 S. Ct. at 2357;
`Ultramercial, 772 F.3d at 713, 722–23. The ’457 patent Specification
`affirms that the claimed systems can be a general purpose computer with a
`generic programming and processing environment. For example, the ’457
`patent Specification states: “In accordance with a first aspect of the
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`invention, an apparatus is implemented using at least one computer, having
`memory, a processor, and a communication port.” Ex. 1001, 2:48–51. 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 17:29–31 (emphasis added). The ’457 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 3:30–35
`(emphasis added). Thus, the Specification indicates that the claimed
`systems for processing trades of securitized instruments 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 systems can
`be implemented 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 3:41–45; Tr. 37:15–17.
`Our review of the patent does not indicate that specialized computer
`hardware is necessary to implement the claimed systems, 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 [method] to a particular technological environment,
`that is, implementation via computers”) (citations and internal quotation
`marks omitted).
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`Patent Owner refers extensively to the declaration of its witness,
`Dr. Sandholm, in support of its position that the claimed systems require
`specialized and customized hardware and software. PO Resp. 58–63 (citing
`Ex. 2017 ¶¶ 25–28, 34, 38–39, 41). We do not find Dr. Sandholm’s
`testimony persuasive, however, because it generally relates to commercial
`embodiments and is not supported by the ’457 patent Specification. See,
`e.g., Ex. 2017 ¶ 26. For example, Dr. Sandholm states that systems for
`processing trades of securitized instruments “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 ’457 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, 3:28–35 (emphasis added), 3:35–45.
`Patent Owner also argues that, although the ’457 patent Specification
`recognizes that generic hardware can provide the starting materials needed
`to implement the claimed systems, the hardware must be programmed
`specifically to implement the patent, “such that [the systems] can perform
`the operations defined by the claims of the ’457 patent.” PO Resp. 77; PO
`First Supp. Resp. 3–4. 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 generic computer cannot transform a
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`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, configured to perform the steps
`recited in the claims, 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 functions are accomplished within the exchange trading system,
`demonstrating that those claims are directed to an application of an abstract
`idea. PO Resp. 46–48. Patent Owner emphasizes that the claims require the
`server computer to be configured to perform at least 15 specific steps and
`sub-steps. Id. at 48. Patent Owner notes, for example, that “claim 1 requires
`that the ‘quotes have associated trading parameters comprising a risk
`threshold.’” Id. at 49. Patent Owner contends that “[t]he addition of this
`new trading parameter, a risk threshold, which is associated with a market
`maker’s quotes, was in no way routine or conventional.” Id. 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
`
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`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 ’457 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, 1:50–58. 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
`1:58–62. The ’457 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 2:13–18. That it was well known to
`manage trading risk is supported by the testimony of Dr. Maureen O’Hara,
`Petitioner’s witness. Ex. 1004 ¶ 44 (stating that the steps which the server
`computer in claim 1 is configured to perform amount to “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 ’457 patent
`. . . selectively accounting for past trades and current holdings and/or
`evaluating greek values”). Also, the claimed “risk threshold” of claim 1 is
`recited at a high level of generality, and as Petitioner argues, emulates the
`personal tolerance level of a market-maker with respect to 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, 1:66–67.
`The claimed systems integrate an automated exchange trading system,
`already known in the art, with methods that mitigate the risks of a market-
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`CBM2013-00050
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`maker, also already known in the art. See id. at 2:46–48. 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 4–5 (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, 1:50–62; Ex. 1004 ¶ 44; Ex. 1006,
`244:24–245:20. We do not find persuasive Patent Owner’s arguments that
`the claimed systems are limited to steps performed by the exchange trading
`system and cannot be performed manually because a human “cannot
`perform the functions of an exchange trading system.” PO Resp. 71–72.
`Patent Owner’s argument that a human cannot handle millions, or hundreds
`of millions, of orders and quotes each day misses the point. See Tr. 69:22–
`73:13. The claims are not limited to a certain quantity of trading, and the
`claimed invention’s ability to handle a large amount of orders and quotes is
`the function of a generic computer. Also, reciting that the claimed steps be
`performed by the exchange trading system, a system that was indisputably
`known in the art, and which the patent makes clear can be a generic
`computer system, does not confer patent eligibility. See Mayo, 132 S.Ct. at
`
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`1300 (simply appending conventional steps, specified at a high level of
`generality, to abstract ideas cannot make those ideas patent eligible); Tr.
`59:8–61:7 (Patent Owner arguing that we need not define the claim term
`“automated exchange trading system” precisely).
`Relying on the Supreme Court’s decision in Alice Corp., Patent
`Owner argues that the claimed invention is patent eligible because it effects
`an improvement in the technological area of automated exchange trading
`systems. See, e.g., PO Resp. 50–51, id. at 74–75 (arguing that challenged
`claims satisfy the “machine-or-transformation” test because the claims are
`direct
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