Ex parte Smith

UNITED STA TES p ATENT AND TRADEMARK OFFICE
APPLICATION NO.
13/715,476
13136 	7590
BGL/CBOE
P.O. Box 10395
Chicago, IL 60610
FILING DATE 	FIRST NAMED INVENTOR
12/14/2012 	Eileen C. Smith
02/01/2019
UNITED STATES DEPARTMENT OF COMMERCE
United States Patent and Trademark Office
Address: COMMISSIONER FOR PATENTS
P.O. Box 1450
Alexandria, Virginia 22313-1450
www .uspto.gov
ATTORNEY DOCKET NO. 	CONFIRMATION NO.
11927/244 	8867
EXAMINER
NGUYEN, LIZ P
ART UNIT 	PAPER NUMBER
3696
MAIL DATE 	DELIVERY MODE
02/01/2019 	PAPER
Please find below and/or attached an Office communication concerning this application or proceeding.
The time period for reply, if any, is set in the attached communication.
PTOL-90A (Rev. 04/07)

UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE PATENT TRIAL AND APPEAL BOARD
Ex parte EILEEN C. SMITH, ANTHONY MONTESANO,
EDWARD T. TILLY, MARK A. ESPOSITO,
STUART J. KIPNES, and ANTHONY J. CARONE
Appeal2018-000064
Application 13/715,476 1
Technology Center 3600
Before HUNG H. BUI, MICHAEL M. BARRY, and
PHILLIP A. BENNETT, Administrative Patent Judges.
Opinion for the Board filed by Administrative Patent Judge, PHILLIP A.
BENNETT.
Dissent by Administrative Patent Judge HUNG H. BUI.
BENNETT, Administrative Patent Judge.
DECISION ON APPEAL
STATEMENT OF THE CASE
Appellants appeal under 35 U.S.C. § 134(a) from the Examiner's final
rejection of claims 1---6. 	We have jurisdiction under 35 U.S.C. § 6(b).
We reverse.
1 Appellants' Brief ("Br.") identifies Chicago Board Options Exchange,
Incorporated as the real party in interest. 	Br. 2.

Appeal2018-000064
Application 13/715,476
CLAIMED SUBJECT MATTER
The claims are directed to a hybrid trading system for concurrently
trading securities or derivatives through both electronic and open-outcry
trading mechanisms. 	Spec. ,r 2. 	Claim 1, reproduced below, is illustrative of
the claimed subject matter:
1. 	A method of trading derivatives in a hybrid exchange
system comprising:
collecting orders, via a communication network and order
routing system, for derivatives and placing them in an electronic
book database;
identifying at an electronic trade engine a new quote from
a first in-crowd market participant, wherein one of a bid or an
offer price in the new quote matches a respective price in an order
in the electronic book database from a public customer;
removing at least a portion of the order in the electronic
book database, delaying automatic execution of the new quote
and the order, and starting a timer;
reporting, 	via 	the 	communication 	network 	and 	an
electronic 	reporting 	system, 	a 	market 	quote 	indicative 	of
execution of the at least a portion of the order while delaying
automatic execution;
receiving at the electronic trade engine a second quote
from a second in-crowd market participant after receiving the
new quote from the first in-crowd market participant and before
an expiration of the timer, wherein the second quote matches the
respective price of the public customer order in the electronic
book database; and
allocating the order between the first and second in-crowd
market participants at the electronic trade engine, wherein the
order is not executed until expiration of the timer.
Br. 7 (Claims Appendix).
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REJECTION
Claims 1-6 stand rejected under 35 U.S.C. § 101 as being directed to
patent-ineligible subject matter. Final Act. 3-5.
ANALYSIS
Standard for Patent Eligibility
In issues involving subject matter eligibility, our inquiry focuses on
whether the claims satisfy the two-step test set forth by the Supreme Court in
Alice Corp. v. CLS Bankint'l, 573 U.S. 208 (2014). 	The Supreme Court
instructs us to "first determine whether the claims at issue are directed to a
patent-ineligible concept," id. at 216-18, and, in this case, the inquiry
centers on whether the claims are directed to an abstract idea. 	If the initial
threshold is met, we then move to the second step, in which 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. at 217 (quoting Mayo
Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 79, 78 (2012)).
The Supreme Court describes the second step as a search for "an 'inventive
concept'-i.e., 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."' Id. (quoting Mayo, 566 U.S. at 72-
73).
The USPTO recently published revised guidance on the application of
§ 101. USPTO's January 7, 2019 Memorandum, 2019 Revised Patent
Subject Matter Eligibility Guidance ("Memorandum"). Under that
guidance, we first look to whether the claim recites:
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( 1) any judicial exceptions, including certain groupings of abstract
ideas (i.e., mathematical concepts, certain methods of organizing
human interactions such as a fundamental economic practice, or
mental processes); and
(2) additional elements that integrate the judicial exception into a
practical application (see MPEP § 2106.05(a}-(c), (e}-(h)).
Only if a claim (1) recites a judicial exception and (2) does not integrate that
exception into a practical application, do we then look to whether the claim:
(3) adds a specific limitation beyond the judicial exception that is not
"well-understood, routine, conventional" in the field (see MPEP
§ 2106.05(d)); or
(4) simply appends well-understood, routine, conventional activities
previously known to the industry, specified at a high level of
generality, to the judicial exception.
See Memorandum.
Examiner's Findings and Conclusion
In the first step of the Alice inquiry, the Examiner determines the
claims are directed to "the abstract idea of comparing new and stored
information and using rules to identify options" because the claims recite
steps such as "collecting, identifying, and reporting," embodying such a
concept. 	Final Act. 3. 	The Examiner further determines the claims are
directed to "an abstract idea of trading derivatives in a hybrid exchange
system which is a concept within the realm of 'fundamental economic
practices' because the concept relates to the economy and commerce, such
as agreements between people in the form of contracts, legal obligations, and
business relations." Ans. 5.
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At Alice step 2, the Examiner determines the claims do not recite
elements sufficient to amount to significantly more than the abstract idea
because "the computer as recited is a generic computer component that
performs functions ... [which] are generic computer functions ... that are
well-understood, routine, and conventional activities previously known to
the industry." Final Act. 4. 	The Examiner further finds that "[a]lthough a
computer system acts as the intermediary in the claimed method, the claims
do no more than implement the abstract idea on a generic computer." Ans.
8. 	The Examiner further analyzes each of the limitations individually and as
an ordered combination, and determines that they do not amount to
significantly more because the derivative trading system "is stated at a high
level of generality" and that in performing the various recited functions,
"[t]he computer is employed for its most basic functions and does not
impose meaningful limits on the scope of the claims." Ans. 9.
Appellants 'Contentions
Appellants argue their claims "stand apart from cases holding claims
were patent ineligible abstract ideas 'because they do not merely recite the
performance of some business practice known from the pre-Internet world
along with the requirement to perform it on the Internet."' Br. 4 (citing
DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1264 (Fed. Cir.
2014)). 	Appellants further contend the claims provide a technological
improvement because they allow for in-crowd market participant input in
automated trade processing that would ordinarily bypass such participants.
Br. 4. 	Appellants assert that this technological improvement is provided
through the "removal of a portion of an order from a database while delaying
automated execution and communicating via a network that the portion has
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been traded to permit another in-crowd market participant to submit quotes
during the delay." Br. 4. 	Appellants further argue the Examiner's
characterization of the abstract idea is overly broad because it focuses
narrowly on certain claim limitations but not the claims as a whole. 	Br. 5.
Appellants also challenge the Examiner's step 2 determination.
Appellants argue "the claims are directed to solving technical problems first
encountered when trying to concurrently trade securities through both an
electronic system and open-outcry (i.e., trading in the pits)." Br. 6.
Appellants challenge the Examiner's finding that the claimed hybrid trading
system is a general purpose computer, arguing that "the computer
components of the hybrid trading system are designed, configured, and
implemented in order to facilitate the complex transactions of the financial
exchange ... [and] include both the specialized hardware and the proprietary
exchange software." Br. 6.
Appellants also argue their claims compare favorably to those found
eligible in McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299
(Fed. Cir. 2016). In particular, Appellants argue "[t]he process recited in
claim 1 uses a combination of specific rules that provides for the integration
of floor-based trading and screen-based trading that were previously
separate." Br. 7. 	According to Appellants, "it is the combination of rules
that renders information into a specific format that is then used and applied
to create desired results of integrating floor-based trading in screen-based
trading." Id.
Our Review
Applying the guidance set forth in the Memorandum, we conclude the
Examiner has erred in rejecting the claims as being directed to patent-
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ineligible subject matter. 	The Memorandum instructs us first to determine
whether any judicial exception to patent eligibility is recited in the claim.
The guidance identifies three judicially-excepted groupings: (1)
mathematical concepts, (2) certain methods of organizing human behavior
such as fundamental economic practices, and (3) mental processes. 	We
focus here on the second grouping----certain methods of organizing human
behavior such as fundamental economic practices.
Claim 1 recites the following limitations: ( 1) "[a] method of trading
derivatives," (2) "collecting orders ... for derivatives," (3) "identifying ... a
new quote from a first in-crowd market participant, wherein one of a bid or
an offer price in the new quote matches a respective price in an order in the
electronic book database from a public customer," (4) "removing at least a
portion of the order," (5) "reporting ... a market quote indicative of
execution of the at least a portion of the order," (6) "receiving ... a second
quote from a second in-crowd market participant after receiving the new
quote from the first in-crowd market participant." These limitations, under
their broadest reasonable interpretation, recite the fundamental economic
practice of derivative trading because the limitations all recite the operations
that would ordinarily take place in a derivatives trading environment.
For example, collecting orders for derivatives, as recited in limitation
(2), is an activity which would take place in any derivatives trading market.
Similarly, identifying new quotes from market participants and matching
those to orders, as recited in limitation (3), is also a characteristic of a long-
known derivative trading market. 	Also, when orders are filled and trades are
conducted, they are removed and reported to the market as recited in
limitations (4) and (5). 	Thus, like the concept of intermediated settlement in
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Alice, and the concept of hedging in Bilski, the concept of trading derivatives
recited in Appellants' claims "is a fundamental economic practice long
prevalent in our system of commerce." Alice, 573 U.S. 216 (citations and
internal quotation marks omitted). 	Accordingly, we conclude the claims
recite a judicial exception of a fundamental economic practice.
Having determined that the claims recite a judicial exception, our
analysis under the Memorandum turns now to determining whether there are
"additional elements that integrate the judicial exception into a practical
application." 	See MPEP § 2106.05(a}-(c), (e}-(h). 	Appellants' claim 1
recites various computer-related limitations, including a "hybrid exchange
system," a "communication network and order routing system," an
"electronic trade engine," an "electronic book database," and an "electronic
reporting system." Although these computer-related limitations are not
wholly generic in nature and are specific to electronic derivatives trading,
they are described at a high level in the Specification without any
meaningful detail about their structure or configuration. 	As such, we do not
find the computer-related limitations are sufficient to integrate the judicial
exception into a practical application.
However, claim 1 also recites additional limitations which focus on
addressing problems arising in the context of a hybrid derivatives trading
system in which trades are made both electronically and on a trading floor
(i.e., "in the pits"). 	These limitations include: (1) "delaying automatic
execution of the new quote and the order, and starting a timer," (2) while
"delaying automatic execution" of the order, and "before expiration of the
timer," receiving a second matching quote "wherein the second quote
matches the respective price of the public customer order," and (3)
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"allocating the order between the first and second in-crowd market
participants at the electronic trade engine, wherein the order is not executed
until expiration of the timer."
We conclude that these limitations integrate the recited judicial
exception of derivative trading into a practical application. 	In particular,
these additional elements limit the conventional practice of automatically
executing matching market orders by reciting a specific timing mechanism
in which the execution of a matching order is delayed for a specific period of
time. 	This delay allows for other matching orders to be received from the
in-market participants so that the order can be allocated between the first and
second and executed upon expiration of the delay period.
As explained in the Specification, "[ t ]he purpose of the temporary
restraint on execution is to allow a preset grace period within which other in-
crowd market participant quotes or orders [may be] submitted at the best
price represented by the new in-crowd market participant quote." 	Spec.
,r 5 5. 	The Specification further explains "[ a]dvantages of temporarily
restraining this type of trade include[] encouraging more in-crowd market
participants to quote at the best price and the removal of any communication
or computer hardware advantage among the in-crowd market participants."
Id. 	Thus, the use of the claimed timing mechanisms and the associated
temporary restraints on execution of trades provide a specific technological
improvement over prior derivatives trading systems.
The dissent finds these features do not amount to a technological
improvement because delays in market order execution are inherent in any
market trade, and therefore conventional. 	(Dissent 16.) The claimed timing
mechanisms are not so trivial. 	The use of the recited "timer" does not occur
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with each and every trade. Rather, it is implemented in specific
circumstances in a specific trading environment, namely when a matching
market order is received from an in-crowd market participant in a hybrid
trading system. 	As the Specification explains, the problem of inequitable
access to information arises only in the context of hybrid trading platforms
where trades occur both "in the pits" and electronically. 	Spec. ,r 55. Thus,
like the claim and DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245
(Fed. Cir. 2014), Appellants' claims "overcome a problem specifically
arising in the realm of computer networks." Id. at 1257. Accordingly, we
conclude claim 1 is integrated into a practical application, and under the
guidance provided in the Memorandum, the claim is eligible because it is not
directed to the recited judicial exception. 2
DECISION
We reverse the Examiner's rejection of claims 1---6.
REVERSED
2 Because we have determined the claim is not directed to the recited judicial
exception, we need not reach the question of whether the claim provides an
inventive concept under the second step of the Alice inquiry.
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UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE PATENT TRIAL AND APPEAL BOARD
Ex parte EILEEN C. SMITH, ANTHONY MONTESANO,
EDWARD T. TILLY, MARK A. ESPOSITO,
STUART J. KIPNES, and ANTHONY J. CARONE
Appeal2018-000064
Application 13/715,4763
Technology Center 3600
Before HUNG H. BUI, MICHAEL M. BARRY, and
PHILLIP A. BENNETT, Administrative Patent Judges.
BUI, Administrative Patent Judge.
I respectfully disagree with the majority's reversal of claims 1---6
under 35 U.S.C. § 101.
Based on the Federal Circuit precedent post Alice and the newly
published 2019 Revised Patent Subject Matter Eligibility Guidance, 84 Fed.
Reg. 50 ("PTO § 101 Memorandum") that governs all patent-eligibility
analysis under Alice and§ 101 effective as of January 7, 2019, I agree with
the majority's conclusion that the claims recite "the fundamental economic
practice of derivative trading because the limitations all recite the operations
that would ordinarily take place in a derivatives trading environment"- a
3 Appellants' Brief ("Br.") identifies Chicago Board Options Exchange,
Incorporated as the real party in interest. 	Br. 2.
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subject matter that falls within the three types of abstract ideas identified by
the PTO§ 101 Memorandum, 84 Fed. Reg. at 54--55. 	Dec. 8. 	Such
activities are squarely within the realm of abstract ideas, like (1) the risk
hedging in Bilski v. Kappas, 561 U.S. 593 (2010); (2) the intermediated
settlement in Alice, 573 U.S. at 220; (3) verifying credit card transactions in
CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1370 (Fed. Cir.
2011); (4) guaranteeing transactions in buySAFE, Inc. v. Google, Inc., 765
F.3d 1350, 1354 (Fed. Cir. 2014); (5) distributing products over the Internet
in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014);
(6) determining a price of a product offered to a purchasing organization in
Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015);
and (7) pricing a product for sale in OIP Techs., Inc. v. Amazon.com, Inc.,
788 F.3d 1359 (Fed. Cir. 2015). 	Trading derivatives in an exchange system
is a building block of a market economy and, like risk hedging and
intermediated settlement, is an "abstract idea" beyond the scope of§ 101.
See Alice, 573 U.S. at 220.
However, I respectfully disagree with the majority's conclusion that
the additional elements recited in Appellants' claims actually integrate the
judicial exception of derivative trading into a practical application. 	See PTO
§ 101 Memorandum, 84 Fed. Reg. at 54--55 ("Prong Two"). 	For example,
the majority explains that additional elements that integrate the recited
judicial exception into a practical application include: 	(1) "delaying
automatic execution of the new quote and the order, and starting a timer,"
(2) while "delaying automatic execution" of the order, and "before
expiration of the timer," receiving a second matching quote "wherein the
second quote matches the respective price of the public customer order," and
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(3) "allocating the order between the first and second in-crowd market
participants at the electronic trade engine, wherein the order is not executed
until expiration of the timer." Dec. 9.
According to the PTO § 101 Memorandum, even if the claims recite a
fundamental economic practice, these claims are still not "directed to" a
judicial exception and, thus, are "patent-eligible" if "the claim as a whole
integrates the recited judicial exception into a practical application of that
Liudicial] exception." 	84 Fed. Reg. at 53. "Integration into a practical
application" requires an additional element or a combination of additional
elements in the claim to apply, rely on, or use the judicial exception in a
manner that imposes a meaningful limit on the judicial exception, such that
the claim is more than a drafting effort designed to monopolize the
exception. 	84 Fed. Reg. at 53.
For example, limitations that are indicative of "integration into a
practical application" include:
1) Improvements to the functioning of a computer, or to any
other 	technology 	or 	technical 	field 	- 	see 	MPEP
§ 2106.05(a);
2) Applying the judicial exception with, or by use of, a particular
machine - 	see MPEP § 2106.05(b );
3) Effecting a transformation or reduction of a particular article
to a different state or thing-see MPEP § 2106.05(c); and
4) Applying 	or using 	the judicial exception 	in 	some 	other
meaningful way beyond generally linking the use 	of the
judicial exception to a particular technological environment,
such that the claim as a whole is more than a drafting effort
designed 	to 	monopolize 	the 	exception 	- 	see 	MPEP
§ 2106.05(e).
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In contrast, limitations that are not indicative of "integration into a
practical application" include:
1) Adding the words "apply it" (or an equivalent) with the
judicial exception, or mere instructions to implement an
abstract idea on a computer, or merely uses a computer as
a 	tool 	to 	perform 	an 	abstract 	idea 	- 	see 	MPEP
§ 2106.05(±);
2) Adding insignificant extra-solution activity to the judicial
exception-see MPEP § 2106.05(g); and
3) Generally linking the use of the judicial exception to a
particular technological environment or field of use - 	see
MPEP § 2106.05(h).
See PTO§ 101 Memorandum, 84 Fed. Reg. at 54--55 ("Prong Two").
For business-centric inventions such as Appellants' invention
involving derivative trading, the Federal Circuit's precedential decisions in
(I) DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1257 (Fed. Cir.
2014) and (2) Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288
(Fed. Cir. 2016) are more instructive. 	For example, the Federal Circuit
found DDR 's claims are patent-eligible under§ 101 because DDR 's claims
(1) do not merely recite "the performance of some business practice known
from the pre-Internet world" previously disclosed in Bilski and Alice, but
instead (2) provide a technical solution to a technical problem unique to the
Internet, i.e., a "solution ... necessarily rooted in computer technology in
order to overcome a problem specifically arising in the realm of computer
networks." DDR, 773 F.3d at 1257. Likewise, the Federal Circuit also
found Amdocs' claims patent-eligible under § 101 because like DDR,
Amdocs' claims "entail[] an unconventional technological solution
(enhancing data in a distributed fashion) to a technological problem
(massive record flows which previously required massive databases)" and
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"improve the performance of the system itself." Amdocs, 841 F.3d at 1300,
1302. According to MPEP § 2106.05(a), both the Federal Circuit's
precedential decisions in DDR and Amdocs are incorporated into the
"integration into a practical application" prong of the PTO § 101
Memorandum. 	For example, the "integration into a practical application"
prong also requires consideration of whether the claims purport to provide "a
technical solution to a technical problem." 	See MPEP § 2106.05(a).
I do not agree with the majority that the "use of the claimed timing
mechanisms and the associated temporary restraints on execution of trades"
"provide[ s] a specific improvement over prior derivatives trading systems"
and "limit[ s] the conventional practice of automatically executing matching
market orders." Instead, the delay of matching market orders, whether 10
minutes, 10 seconds, or even 1 millisecond, is a necessary requirement for
both the conventional trading practice or Appellants' derivative trading
practice of automatically executing matching market orders, whether on a
trading floor (i.e., "in the pits") of New York Stock Exchange (NYSE) or
NASDAQ, or electronically via a brokerage firm such as Charles Schwab,
TD Ameritrade, or Fidelity. 	As one skilled in the art would appreciate,
electronic trading has already replaced the trading floor of human brokers in
order to minimize the delay of executing matching market orders of
securities or derivatives and thereby maximize the price of the trade. 	These
timing features themselves are not technical in nature and do not provide any
"technical solution to a technical problem" as contemplated by the Federal
Circuit in DDR and Amdocs. See MPEP § 2106.05(a).
Based on these findings and the fundamental of trading of securities
or derivatives, I would conclude that Appellants' claims are not "integrated
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into a practical application" and, as such, are not patent-eligible under § 101
and the PTO § 101 Memorandum.
16