04/16/14

Chicago Bd. Options Exch. v. Int'l Secs. Exch.: Identification of Remaining Factual Issue Did Not Violate the Mandate Rule; Holding of Indefiniteness Reversed

Category: 112 - Definiteness 

 

 By: Eric Paul Smith, Contributor

TitleChicago Bd. Options Exch, Inc. v. Int'l Secs. Exch., LLC, No. 2013-1326 (Fed. Cir. Apr. 7, 2014)
Issue
[1] [a] Whether "the district court erred by 'holding that' Hybrid is the accused product and 'precluding [International Securities Exchange )]ISE[)] from accusing CBOEdirect of infringement,'" Chicago Bd. Options Exch. at *9 (text added), and [b] whether "the district court improperly added additional limitations to [the Federal Circuit's] construction of 'automated exchange' [...] [thereby] violat[ing] the mandate rule," id. at *10-11 (text added).
[2] Whether "the district court [correctly] found that claim 2 was indefinite because the specification did not disclose a step-by-step algorithm for performing the claimed function." Id. at *12 (text added).
Holding
[1] [a] "[T]he court did not preclude ISE from accusing CBOEdirect of infringing. Rather, it expressly invited ISE to show that CBOEdirect was independent of the open-outcry aspects of Hybrid . . . ," id. at *10, and [b] "because this factual issue [i.e., whether the two systems were integrated or separate] was unresolved in the previous appeal, the trial court did not violate the mandate rule by allowing this unresolved issue to go to the jury," id. at *11 (text added).
[2] "The district court erred in inding that there was clear and convincing evidence that the specification did not disclose sufficient structure such that a person of ordinary skill in the art would know how to match on a pro rata basis. While it is true that the specification also discusses pro rata allocating, this does not detract from the disclosure of pro rata matching such that claim 2 is indefinite." Id. at *15.

 

 

Procedural History"This patent case, involving systems for trading financial instruments, is before us on appeal for the second time [...]. ISE asserted U.S. Patent No. 6,618,707 (''707 Patent') against Plaintiff-Appellee Chicago Board Options Exchange Inc. ('CBOE') in the Southern District of New York. Subsequently, CBOE filed suit in the Northern District of Illinois seeking a declaratory judgment of noninfringement. The New York case was transferred to Illinois."
Id. at *2.
 
 
 
 
Legal Reasoning (Reyna, Rader, CJ, Wallach)
Background: Invention, Claims, and Alleged Infringing Products
Independent Claim 1"An automated exchange for trading a financial in- strument wherein the trade may be one of a purchase of a quantity of the instrument and a sale of a quantity of the instrument, the exchange comprising:

an interface for receiving an incoming order or quotation to trade the instrument, the incoming order or quotation having a size associated therewith;

book memory means for storing a plurality of previously received orders or quotations to trade a corresponding plurality of quantities of the instrument, the previously received orders and quotations each having a size associated therewith and the previously received orders including public customer orders previously entered for public customers and professional orders or quotations previously entered for one or more professionals;

system memory means for storing allocating parameters for allocating trades between the incoming order or quotation and the previously received orders and quotations; and

processor means for allocating portions of the in- coming order or quotation among the plurality of previously received orders and quotations in the book memory means based on the allocating parameters in the system memory means,

wherein the allocating parameters include parameters for allocating a first portion of the incoming order or quotation against previously received customer orders and allocating a remaining portion of the incoming order or quotation preferen- tially against professional orders and quotations with larger size."
'707 Patent at col. 29, l. 53 - col. 30, l. 14.
Dependent Claim 2"The exchange according to claim 1, wherein processor means further comprises means for matching the remaining portion with professional orders or quotations in the book memory means on a pro rata basis."
 Id. at col. 30, ll. 15-19.
Summary of the Invention"The '707 Patent . . . discloses an invention that relates generally to markets for the exchange of securities. In particular, the ’707 Patent is directed to an automated exchange for the trading of options contracts that allocates trades among market professionals and that assures liquidity. The Patent distinguishes an 'automated' exchange from the traditional, floor-based 'open-outcry' system for trading options contracts. In an open-outcry system, trading takes place through oral communications between market professionals at a central location in open view of other market professionals. For example, an order is typically relayed out to a trader standing in a 'pit.' The trader shouts out that he has received an order and waits until another trader or traders shouts back a two-sided market (the prices at which they are willing to buy and sell a particular option con- tract), then a trade results. The ’707 Patent builds on this traditional exchange system [by] provid[ing] an automated system for matching previously entered orders and quotations with incoming orders and quotations on an exchange for securities, which will improve liquidity and assure the fair handling of orders." Chicago Bd. Options Exch. at *4-5.
Accused Product"CBOE’s accused product is the 'Chicago Board Options Exchange,' which uses the Hybrid Trading System ('Hybrid'). The Hybrid system includes a fully screen-based trading system called 'CBOEdirect.' The Hybrid system integrates CBOEdirect with traditional, open-outcry trading." Id. at *5.
Proceedings on Remand from First Appeal
ISE's Stipulation to Noninfringement"ISE stipulated to noninfringement because it felt that the district court’s pre-trial rulings prevented it from proving that the accused product met the 'automated exchange' limitation." 
Chicago Bd. Options Exch. at *6.
Jury Instruction Regarding the "Automated Exchange" Limitation"An automated exchange is a system for executing trades of financial instruments that is fully computerized, such that it does not include matching or allocating through the use of open outcry. Conversely, a system for executing trades of financial instruments that includes matching or allocating through the use of open outcry is not an automated exchange."
Id. at *6-7.
Identification of the Remaining Factual Issue"Because CBOEdirect is a computerized trading system with a floor-based component for matching and allocating some trades through open outcry, it will be a jury question whether CBOEdirect is a stand alone automated exchange alongside a floor-based system or whether it is a system that includes matching or allocating through open outcry." Id. at *7. "The issue for trial is whether Hybrid is merely two independent exchanges, one an 'automatic exchange' (CBOEdirect) and the other open out-cry on the trading floor, or whether it is an integrated system that requires interaction with the trading floor. As such, ISE will have the burden to demonstrate (1) that each element (e.g., interface, book memory means and processor means) of one or more claims is present in CBOEdirect, and (2) that Hybrid’s 'rule-based order routing algorithm' does not include matching or allocating through open outcry. This is necessary because the ’707 patent disavows floor based trading. In other words, ISE must prove that Hybrid is a system for executing trades of financial instruments that is fully computerized, such that it does not include matching or allocating through the use of open outcry." Id. at *8.
The District Court's Pre-Trial Rulings
District Court Did Not Preclude ISE from Accusing CBOEdirect of Infringement"The district court, however, did not preclude ISE from arguing that CBOEdirect infringes the '707 Patent. In fact, on more than one occasion, the district court said just the opposite [...]. While the court did refer, on occasion, to Hybrid as the accused product, it clearly recognized that ISE could prove its infringement case if it showed that CBOEdirect, by itself, was the claimed automated exchange. For example, the court identified 'the issue for trial' as 'whether Hybrid is actually two independent exchanges, one an "automatic exchange" (CBOEdirect) and the other open outcry on the trading floor or whether it is an integrated system that requires interaction with the trading floor.' It also noted that 'it will be a jury question whether CBOEdirect is a stand alone automated exchange alongside a floor-based system or whether it is a system that includes matching or allocating through open outcry.' Thus, the court did not preclude ISE from accusing CBOEdirect of infringing. Rather, it expressly invited ISE to show that CBOEdirect was independent of the open-outcry aspects of Hybrid, as required by this court’s construction of 'automated exchange.'"
Id. at *9-10.
District Court Did Not Violate the Mandate Rule"The district court correctly framed the factual issue remaining for the jury by requiring ISE to show that CBOEdirect did not include open-outcry. ISE recognizes that, in order to prove infringement, it must show that CBOEdirect is 'a system for executing trades of financial instruments that is fully computerized, such that it does not include matching or allocating through the use of open-outcry.' As noted above, CBOEdirect is a part of the larger Hybrid trading system. The Hybrid system does utilize, at least to some extent, 'matching or allocating through the use of open-outcry.' Thus, ISE must demonstrate that CBOEdirect is separate from the open-outcry aspects of Hybrid. The district court recognized this unresolved factual issue on more than one occasion [...] . We hold that, because this factual issue was unresolved in the previous appeal, the trial court did not violate the mandate rule by allowing this unresolved issue to go to the jury. See, e.g., Del Mar Avionics, 836 F.2d at 1324."
Id. at *10-11.
Indefiniteness of Claim 2
Legal Standard Under Which the District Court Held Claim 2 Indefinite"Relying on Aristocrat Techs. Australia Pty Ltd. v. Int’l Game Tech., 521 F.3d 1328, 1333 (Fed. Cir. 2008), the district court found that claim 2 was indefinite because the specification did not disclose a step-by-step algorithm for performing the claimed function. Aristocrat and related cases hold that, for means-plus-function claims, the corresponding structure in the specification must be a step-by-step algorithm, unless a general purpose computer is sufficient for performing the claimed function."
Id. at *12.
The Specification of the '707 Patent Discloses a Matching Algorithm"We find that claim 2 is not indefinite because the specification discloses an algorithm for matching the remaining orders on a pro rata basis. First, 'matching' itself is not indefinite, having been construed by this court as 'identifying a counterpart order or quotation for an incoming order or quotation.' The remaining question then is whether the specification discloses an algorithm for “identifying a counter- part order” on a pro rata basis. “Pro rata” means in proportion. The summary of the invention explains that pro rata assignments in the ’707 Patent are made based upon order size [...]. The specification specifically describes matching the 'remaining' portion of orders on a size-based, pro rata basis [...]. [T]he specification explains that orders are matched in proportion to the size of the order requested by the professional."
Id. at *13-14.
The District Court Erred in Holding Claim 2 Indefinite"[T]he specification outlines an algorithm for matching on a size-based, pro rata basis. The disclosure of pro rata allocation does not detract from the disclosure of pro rata matching. Indeed, a person of ordinary skill in the art would likely look to the similar pro rata allocating process when implementing pro rata matching. Additionally, simply because the pro rata aspects of allocation and matching may be similar, or even the same, does not mean that the overall processes are no longer 'distinct.' [...]  The district court erred in finding that there was clear and convincing evidence that the specification did not disclose sufficient structure such that a person of ordinary skill in the art would know how to match on a pro rata basis."
Id. at *15.
Conclusion
Affirmed-in-Part and Reversed-in-Part"We affirm the lower court’s judgment of noninfringement because none of its pretrial rulings were in error. Because the specification discloses an algorithm for 'matching' on a 'pro rata' basis, we reverse the finding that claim 2 is indefinite."
Id. at *2.
 
 
 
 
 Image Attribution Statement: Thomas J. O'Halloran et al, “NY stock exchange traders floor LC-U9-10548-6,” available as a public domain image donated to the Library of Congress by U.S. ewe and World Report, http://commons.wikimedia.org/wiki/File:NY_stock_exchange_traders_floor_LC-U9-10548-6.jpg (last visited April 15, 2014)(image edited).
 
 
 
 
 
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