International Securities Exchange, LLCv.Chicago Board Options Exchange, Incorporated

Patent Trial and Appeal Board

Mar 2, 2015

13178289 (P.T.A.B. Mar. 2, 2015)

Trials@uspto.gov
571.272.7822  
Paper No. 50
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 CBM2013-00051
Patent 8,266,044 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

CBM2013-00051
Patent 8,266,044 B2

2 

I. BACKGROUND
Petitioner, International Securities Exchange, LLC, filed a second
corrected Petition (Paper 7, “Pet.”) requesting review under the transitional
program for covered business method patents of claims 1–3 of U.S. Patent
No. 8,266,044 B2 (Ex. 1001, “the ’044 patent”). Patent Owner, Chicago
Board Options Exchange, Inc., filed a Preliminary Response (Paper 14,
“Prelim. Resp.”). On March 4, 2014, pursuant to 35 U.S.C. § 324, we
instituted this trial as to claims 1–3 on one ground of unpatentability,
35 U.S.C. § 101 (Paper 15, “Dec. to Inst.”).
Subsequent to institution, Patent Owner filed a Patent Owner
Response (Paper 24, “PO Resp.”), a First Supplemental Response (Paper 36,
“PO First Supp. Resp.”), a Second Supplemental Response (Paper 48, “PO
Second Supp. Resp.”), a Motion to Amend (Paper 23, “Mot.”), and a Reply
in support of its Motion (Paper 39, “PO Reply”). Petitioner filed a Reply
(Paper 33, “Pet. Reply”) to Patent Owner’s Response, a First Supplemental
Reply (Paper 38, “Pet. First Supp. Reply”), a Second Supplemental Reply
(Paper 49, “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 46, “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 1–3 of the ’044 patent are
unpatentable.
CBM2013-00051
Patent 8,266,044 B2

3 

A. The ’044 Patent
The ’044 patent, titled “Automated Trading Exchange System Having
Integrated Quote Risk Monitoring and Integrated Quote Modification
Services,” issued on September 11, 2012, based on U.S. Patent Application
No. 13/178,289 (“the ’289 application”), filed on July 7, 2011.1
The ’044 patent relates to automated trading systems for option
contracts (“options”). Ex. 1001, 1:18–22, 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 1:18–22.
Options are traded publicly on exchanges. Id. at 1:27–28. Each
option covers certain rights to buy or sell an underlying security at a fixed
price for a specified period of time. Id. at 1:28–31. 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 1:37–39. 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 1:40–45. Thus, writing options may entail large risks to the
market maker. Id. at 1:44–45.
Many option trading systems utilize an “open outcry” method. Id. at

1 The ’289 application is a continuation of U.S. Patent Application No.
12/035,996 (“the ’996 application”), which issued as U.S. Patent No.
7,980,457 B2 (“the ’457 patent”). The ’996 application is a continuation of
U.S. Patent Application No. 09/475,534, which issued as U.S. Patent No.
7,356,498 B2 (“the ’498 patent”). The ’457 patent is the subject of
CBM2013-00050 and IPR2014-00098. The ’498 patent is the subject of
CBM2013-00049 and IPR2014-00097. Final Written Decisions also are
entered in these cases concurrently with this Decision.

CBM2013-00051
Patent 8,266,044 B2

4 

1:53–54. In such systems, market-makers are required to make a two-sided
market by providing an order and offer quote. Id. at 1:54–56. 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 1:56–59. 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
1:59–61. A market-maker manages risk by modifying quotes for options to
favor trades that tend to hedge against unwanted risk. Id. at 1:61–65.
The ’044 patent Specification states that an automated trading
environment already was known in the art. Id. at 1:66, 2:1–8. An automated
computer-based trading system typically records quotes and automatically
matches them with orders that enter the system. Id. at 1:66–2:4. 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 2:4–15.
Software tools that assess trading option portfolio risk and
recommend quote modifications also were known. Id. at 2:16–21. An
automated trading system, however, processes transactions in the order
received. Id. at 2:26–28. 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 2:21–26. 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 request. Id. at 2:28–33. These known automated trading
CBM2013-00051
Patent 8,266,044 B2

5 

exchange systems, therefore, limit a market-maker’s ability to manage risk.
Id. at 2:34–42. The ’044 patent Specification recognizes the need for a
method that automatically modifies quotes under certain trading conditions
in an automated trading exchange system. Id. at 2:43–45.
The invention of the ’044 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
2:49–51. 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 2:51–54.
The computer receives orders and quotes, wherein a quote has
associated trading parameters, such as a risk threshold. Id. at 2:54–57. The
computer then may generate a trade by matching the received orders and
quotes to previously received orders and quotes. Id. at 2:64–66. If a trade is
not generated, the computer stores each of the received orders and quotes.
Id. at 2:66–67. 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 2:67–3:4. 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 3:4–7.
B. Illustrative Claim
Of the challenged claims, claim 1 is the only independent claim.
Claim 1 of the ’044 patent, reproduced below, is illustrative of the
challenged claims:
CBM2013-00051
Patent 8,266,044 B2

6 

1. A system for processing trades of securitized
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 predefined number of bought or sold contracts
relating to said quote group;
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 number of contracts that have
been bought or sold within said quote group, including the
generated trade;
comparing said number of contracts that have been
bought or sold within said quote group with said predefined
number of bought or sold contracts relating to said quote group;
and,
automatically modifying at least one of the
remaining specified ones of said quotes in the quote group if
said predefined number of bought or sold contracts is exceeded.

CBM2013-00051
Patent 8,266,044 B2

7 

II. ANALYSIS
A. Claim Construction
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. 7–8. 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.
For purposes of this decision, and based on the record before us, we
interpret the following claim language: “automatically modifying at least
one of the remaining specified ones of said quotes in the quote group,” as set
forth in claim 1.
We must determine whether the claim limitation encompasses issuing
a “new quote.” Petitioner’s proposed construction for this claim language
does not touch upon the term “remaining.” Pet. 13.

2 Leahy-Smith America Invents Act, Pub. L. No. 11229, 125 Stat. 284
(2011) (“AIA”).
CBM2013-00051
Patent 8,266,044 B2

8 

We are persuaded that the Specification differentiates between
modifying a “remaining quote” and issuing a new quote when trades have
occurred against previous quotes. Specifically, the ’044 patent Specification
states:
The computer then compares the aggregate risk level with the
market-maker’s risk threshold, and if the threshold is exceeded,
automatically modifies at least one of the remaining quotes in
the quote group. The computer may also automatically
regenerate quotes, that is, automatically issue new quotes when
trades have occurred against previous quotes.
Ex. 1001, 3:49 (emphases added). Thus, based on this record, we are
persuaded that the recited “automatically modifying at least one of the
remaining specified ones of said quotes in the quote group” means
“automatically cancelling or revising a price or quantity of at least one of the
received specified quotes still available for execution.”
B. Claims 1–3 of the ’044 Patent are Unpatentable as Directed to
Non-Statutory Subject Matter
Petitioner challenges claims 1–3 of the ’044 patent under 35 U.S.C.
§ 101, as directed to patent-ineligible subject matter. Pet. 21–29. 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 specific hardware configured to perform numbers
steps and sub-steps, 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
CBM2013-00051
Patent 8,266,044 B2

9 

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.
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
CBM2013-00051
Patent 8,266,044 B2

10 

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
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)).
CBM2013-00051
Patent 8,266,044 B2

11 

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 1–3 of the ’044 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”
claims in Bilski. Pet. 24; Pet. Reply 1, 3–4. Patent Owner does not dispute
that the ’044 patent claims are directed to an abstract idea. See PO Resp. 46
(“Patent Owner respectfully submits that the claims are not merely to an
abstract idea, but rather provide a specific application of risk management
CBM2013-00051
Patent 8,266,044 B2

12 

with many specific, meaningful limitations.” (emphasis added)); Ex. 1001,
1:18–22. 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 ’044 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, 1:53–65. Furthermore, the claims recite, for example, a
server computer configured to perform the steps of “receiving orders and
quotes,” “generating a trade,” “determining a number of contracts that have
been bought or sold within said quote group, including the generated trade,”
“comparing said number of contracts that have been bought or sold within
said quote group with said predefined number of bought or sold contracts
relating to said quote group,” and “automatically modifying” one of the
remaining quotes if the predefined number of bought or sold contracts is
exceeded (claim 1). Accordingly, we analyze the ’044 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 1–3 of the ’044 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
CBM2013-00051
Patent 8,266,044 B2

13 

[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. 59), but rather require “specific
programming in the system computer” (id. at 49). 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 59–61, 67 (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
CBM2013-00051
Patent 8,266,044 B2

14 

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 ’044 patent Specification
affirms that the claimed systems can be a general purpose computer with a
generic programming and processing environment. For example, the ’044
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, 2:51–54. 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 17:18–20 (emphasis added). The ’044 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 3:31–38
(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.
CBM2013-00051
Patent 8,266,044 B2

15 

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 3:41–47; 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).
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. 59–64 (citing
Ex. 2017 ¶¶ 25–36, 39). We do not find Dr. Sandholm’s testimony
persuasive, however, because it generally relates to commercial
embodiments and is not supported by the ’044 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 ’044 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
CBM2013-00051
Patent 8,266,044 B2

16 

sufficient resources to meet the desired trading volume and desired
transaction-processing rate.” Ex. 1001, 3:34–38 (emphasis added), 3:38–44.
Patent Owner also argues that, although the ’044 patent Specification
recognizes that generic hardware can provide the starting materials needed
to create an automated exchange trading system, “the hardware is ultimately
specifically programmed to implement the modules of the patent, such that
they can perform the operations defined by the claims of the ’044 patent.”
PO Resp. 77–78; PO First Supp. Resp. 2–3. 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 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
CBM2013-00051
Patent 8,266,044 B2

17 

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 14 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 predefined
number of bought or sold contracts relating to said quote group.’” Id. at 49–
50. 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. at 50. 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 ’044 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, 1:53–61. 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
1:61–65. The ’044 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 2:16–21. That it was well known to
CBM2013-00051
Patent 8,266,044 B2

18 

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 ’044 patent
. . . selectively accounting for past trades (such as the volume of past trades)
and current holdings and/or evaluating greek values”). Also, the claimed
“predefined number of bought or sold contracts relating to said quote group”
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,
2:2–3. The claimed systems 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. See id. at 2:49–51. 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
CBM2013-00051
Patent 8,266,044 B2

19 

outcry options trading systems, market-makers determined and hedged their
risks mentally. Ex. 1001, 1:52–65; Ex. 1004 ¶ 44; Ex. 1005, 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. 73. 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 1300
(simply appending conventional steps, specified at a high level of generality,
to abstract ideas cannot make those ideas patent eligible). 
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. 54–64, 74–75 (arguing that challenged claims
satisfy the “machine-or-transformation” test because the claims are directed
to an improved trading system with risk management functionality); PO
Second Supp. Resp. 1–2; Tr. 44:16–46:12, 47:20–23, 48:22–50:6,
55: 13–56:2, 60:25–61:2; see Alice Corp., 134 S.Ct. at 2359 (distinguishing
patent ineligible method claims at issue from claims that “effect an
improvement in any other technology or technical field”). Patent Owner
CBM2013-00051
Patent 8,266,044 B2

20 

contends that the claimed invention solves a new risk posed by electronic
trading systems that was not present in prior art open outcry trading systems.
See Tr. 105:15–16 (Petitioner agreeing that automated exchanges are a
technical field). Patent Owner refers to the patent to explain the new risk
posed by automated trading systems. PO Resp. 70–71.
The ’044 patent Specification explains that with computerized trading
systems and increased communication speeds, the speed and rapidity of
trades may exceed the market-maker’s ability to adapt his or her position,
resulting in an unacceptable risk being assumed by a market-maker. Ex.
1001, 2:4–2:15. “That is, the trades may occur so rapidly that the market-
maker is unable to withdraw or modify his quotes in a timely manner.” Id.
at 2:13–15; Tr. 58:23–25 (Patent Owner arguing that “when you say an
automated trading system, it means something that allows for . . . automated,
fast, fast trading”); Tr. 72:16–23 (Patent Owner stating that in an automated
trading system, quotes can get satisfied “before the market maker even has
the opportunity to know that it is going on,” so the market-maker “doesn’t
have the chance to do any calculations”). Patent Owner further explains
that, in an electronic exchange, market-makers must be proactive and
maintain a large number of outstanding persistent quotes that are stored in
the exchange’s order book, which can be accessed by brokers for execution,
without first communicating with the broker. PO Resp. 20 (citing Ex. 2016
¶ 48). Thus, Patent Owner contends that an automated exchange trading
system that incorporates the claimed risk management features is an
“improvement over [exchange] trading systems without them.” PO Resp.
54. We determine that the invention, even as characterized by Patent
CBM2013-00051
Patent 8,266,044 B2

21 

Owner, does not fall within the scope of patent eligible subject matter as
described by the Supreme Court.
The “new risk” described by Patent Owner is the result of automated
trading. See Tr. 79:10–12. The claimed invention solves the problem by
automating risk management, i.e., “automatically” modifying quotes. See
PO Resp. 71–72 (Patent Owner emphasizes that the present invention
automatically modifies quotes). Whereas in the open outcry system, the
market-maker was aware of each trade and could make a decision about the
trade, in the claimed invention, the computer is aware of each trade that
takes place and makes the risk calculation based on those trades,
automatically modifying quotes to protect the trader against a risk which did
not exist in the open outcry system. Tr. 73:4–20; see PO Resp. 19 (“the role
of market makers is now frequently performed by specially programmed
computers that act as market makers”). The function of “automatically”
modifying quotes, however, is the result of integrating risk calculation and
quote modification into an automated trading exchange system. That
integration allows the computer to make quote modifications at a faster pace.
In other words, “it is the [automation of the abstract idea of risk
management] that is integral to [the] claims at issue, not the computer
machinery that may be used to accomplish it.” See Bancorp. Servs., 687
F.3d at 1279. As Petitioner argues, “[e]ven if [Patent Owner] came up with
a wonderful new risk hedging technique, it is still an abstract concept.” Tr.
23:22–24.
In further support of its position that the claims lack a meaningful
limitation, Petitioner maintains that the claims preempt all practical uses of
the abstract idea of the known risk management technique. Pet. Reply 3,
CBM2013-00051
Patent 8,266,044 B2

22 

14–15; see also Pet. Second Supp. Reply 1–2 (contending that the recent
Ultramercial decision makes it clear that Patent Owner’s arguments
regarding pre-emption “are not a substitute for the proper two-part test under
Alice”). Patent Owner disagrees, maintaining instead that the challenged
claims do not preempt the “entire field” of managing trading risk. PO Resp.
73–74. Specifically, Patent Owner argues that the claims cover only
“specific applications of this idea,” and do not present the risk of pre-
empting the field of managing trading risk. Id. at 74. We are not persuaded
by Patent Owner’s argument.
The issue is whether the claims preempt the abstract idea of risk
management that is claimed. The abstract idea of the challenged claims is
not only risk management in general, but also the specific type of risk
management claimed in each claim. Furthermore, limiting an abstract idea
to a specific field of use or adding token post-solution activity does not make
an abstract idea patentable. Diehr, 450 U.S. at 191–92; Parker v. Flook, 437
U.S. 584, 590 (1978) (“[t]he notion that post-solution activity, no matter
how conventional or obvious in itself, can transform an unpatentable
principle into a patentable process exalts form over substance”). Therefore,
we determine that the limitations of the challenged claims do not
meaningfully limit the claim beyond the claimed abstract idea of risk
management, and, in practical terms, preempt the abstract idea of risk
management.
With respect to dependent claims 2 and 3, Petitioner argues that they
add nothing of significance to independent claim 1, which defines an
abstract idea, and amount to nothing more than conventional and routine
activity that does not make the claims patent eligible. Pet. 28. For example,
CBM2013-00051
Patent 8,266,044 B2

23 

dependent claim 2 limits claim 1 by specifying that “the number of contracts
that have been bought or sold comprises a total number of put contracts
bought or sold,” and claim 3 limits claim 1 by specifying that “the number of
contracts that have been bought or sold comprises a total number of call
contracts bought or sold.” Patent Owner does not make separate arguments
for the dependent claims. We agree with Petitioner that the dependent
claims do not include meaningful limitations that make them patent eligible
subject matter under Alice.
For the foregoing reasons, we conclude that Petitioner has
demonstrated by a preponderance of the evidence that the challenged claims
are directed to patent-ineligible subject matter under § 101.
C. 35 U.S.C. § 101 is a Condition of Unpatentability
Lastly, Patent Owner maintains that 35 U.S.C. § 101 is not a proper
ground for covered business method patent review. PO Resp. 79. We
addressed this issue in our Decision to Institute. Dec. to Inst. 14–16. We
adhere to that determination.
The Supreme Court has recognized § 101 as a condition for
patentability. See, e.g., Mayo, 132 S.Ct. at 1305 (addressing invalidity under
§ 101 when it was raised as a defense to an infringement claim); Graham v.
John Deere Co., 383 U.S. 1, 12 (1966) (stating that the 1952 Patent Act “sets
out the conditions of patentability in three sections” (emphasis added), citing
35 U.S.C. §§ 101, 102, and 103). The Federal Circuit also has recognized
that § 101 is a condition for patentability that can be raised as an affirmative
defense under 35 U.S.C. § 282(b)(2). For example, in Dealertrack, the
majority rejected the dissent’s contention that § 101 is not a “condition for
patentability,” stating that “the ‘defenses provided in the statute,’ § 282,
CBM2013-00051
Patent 8,266,044 B2

24 

include not only the ‘conditions of patentability’ in §§ 102 and 103, but also
those in § 101.” 674 F.3d at 1330 n.3 (citing Aristocrat Techs. Austl. PTY
Ltd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008) (“It has long
been understood that the Patent Act sets out the conditions for patentability
in three sections: sections 101, 102, and 103.”) (emphasis added) (citations
omitted))). In addition, the Board’s consideration of § 101 challenges in
covered business method patent reviews also is consistent with the
legislative history of the AIA. See SAP Am., Inc. v. Versata Dev. Grp., Inc.,
Case CBM2012-00001, slip op. at 32–35 (PTAB Jan. 9, 2013) (Paper 36)
(discussing the legislative history of the AIA as it relates to covered business
method patent reviews covering § 101 challenges).
D. Contingent Motion to Amend Independent Claim 1is Denied
Because we determine that claims 1–3 are unpatentable, we turn to
Patent Owner’s contingent request to enter proposed substitute independent
claims 4 as a replacement for original independent claim 1. Mot. 1–2.
Proposed independent claim 4 is reproduced below with underlining to
indicate additions relative to original claims 1:
4. A system for processing trades of securitized
instruments based on security orders and quotes received from
client computers, comprising:
at least one server computer comprising a memory,
[[and]] a processor, and executable code maintained on
said memory executable by said processor such that said
server computer is configured to perform the steps of:
receiving, from one or more client servers over a
communication network, 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 predefined
CBM2013-00051
Patent 8,266,044 B2

25 

number of bought or sold contracts relating to said quote
group;
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 number of contracts that have been bought
or sold within said quote group, including the generated trade;
comparing said number of contracts that have been
bought or sold within said quote group with said predefined
number of bought or sold contracts relating to said quote group;
and,
automatically modifying at least one of the remaining
specified ones of said quotes in the quote group if said
predefined number of bought or sold contracts is exceeded. 
Id.
A covered business method patent review is not a patent examination
proceeding or a patent reexamination proceeding. A proposed substitute
claim, in a motion to amend, is not entered automatically and then examined.
If a patent owner’s motion to amend is granted, the claim will be added
directly to the patent, without examination. Therefore, we enter proposed
amended claims only upon a showing by the patent owner that the amended
claims are patentable. See Idle Free Sys., Inc. v. Bergstrom, Inc., Case
IPR2012-00027, slip op. at 33 (PTAB Jan. 7, 2014) (Paper 66); Volusion,
Inc. v. Versata Software, Inc., Case CBM2013-00017, slip op. at 2–3 (PTAB
Dec. 30, 2013) (Paper 19) (Idle Free’s guidance relating to IPRs applies to
CBMs).
CBM2013-00051
Patent 8,266,044 B2

26 

Patent Owner as movant bears the burden to demonstrate patentability
and compliance with 37 C.F.R. § 42.221. Patent Owner contends that the
proposed substitute claim is supported by the disclosure in the ’534
application (Ex. 2023), a parent application of the ’289 application, that
issued as the ’044 patent. Mot. 2–7. Patent Owner states that the proposed
substitute claims address the sole ground upon which trial was instituted,
patent subject matter eligibility under § 101. Id. In support of its argument,
Patent Owner essentially makes the same arguments it made with respect to
the original claims of the ’044 patent. Id. at 7–9; PO Reply 1–4. For
example, Patent Owner argues that proposed system claim 4 is “directed to a
specific computer system instead [of] a general purpose computer” (PO
Reply 1), “limited to a specific application of performing risk management”
(id. at 3), and “directed to an inventive concept of exchange side risk
analysis” (id.). Patent Owner characterizes proposed independent claim 4 as
reciting “a system for processing trades that includes at least one server
computer comprising a memory, a processor, and executable code
maintained on the memory.” Mot. 8. Thus, Patent Owner maintains that the
proposed claim “does not merely use a generic computer to perform or
accelerate a mental process.” Id. at 9. Petitioner opposes the Motion to
Amend arguing that the claims do not recite patent eligible subject matter for
essentially the same reasons raised with respect to the original claims. Opp.
1–12. We agree and determine that Patent Owner has not satisfied its
burden of demonstrating that the proposed substitute claims are patentable
under § 101.
As explained above, the addition of a limitation regarding generic
computer devices does not limit the claims sufficiently or add concrete ties
CBM2013-00051
Patent 8,266,044 B2

27 

to make the claims less abstract. See Alice, 134 S.Ct. at 2358–59; Accenture
Global Servs., 728 F.3d at 1344–45. The limitations requiring “executable
code maintained on said memory executable by said processor,” so that the
server computer is configured to perform the steps of receiving orders and
quotes “from one or more client servers over a communication network”
are generic and conventional for the same reasons discussed above with
respect to the original claims. In sum, Patent Owner’s proposed
amendments are not specific and do not tie the claim to a concrete apparatus
or method; rather, the added limitations are generic and insufficient to confer
patent eligibility, similar to the claims at issue in Alice (which recited a “data
storage unit” and “computer,” for example), CLS Bank Int’l v. Alice Corp.
Pty. Ltd., 717 F.3d 1269, 1289 (Fed. Cir. 2013), and those at issue in
Accenture Global Servs. (which recited a “database,” “client component,”
“server component,” and “automated method,” for example), 728 F.3d at
1344–45. Thus, Patent Owner has not shown patentability under 35 U.S.C.
§ 101. Given that Patent Owner has not established patent eligibility of the
claimed subject matter, we do not address whether the proposed substitute
claim is patentable over the prior art. See Mot. 9–15.
For the foregoing reasons, Patent Owner has not met its burden of
showing the patent eligibility of proposed substitute claim 4.
Accordingly, the contingent Motion to Amend is denied.
III. CONCLUSION
This is a Final Written Decision of the Board under 35 U.S.C.
§ 328(a). We hold Patent Owner’s claims 1–3 of the ’044 patent to be
unpatentable under 35 U.S.C. § 101. Specifically, the claims recite
unpatentable abstract ideas, and the claims do not provide sufficient
CBM2013-00051
Patent 8,266,044 B2

28 

meaningful limitations to transform these abstract ideas into patent-eligible
applications of these abstractions.
ORDER
In consideration of the foregoing, it is hereby:
ORDERED that claims 1–3 of the ’044 patent are cancelled;
FURTHER ORDERED that Patent Owner’s contingent Motion to
Amend is denied; and
FURTHER ORDERED that, because this is a final written decision,
parties to the proceeding seeking judicial review of the decision must
comply with the notice and service requirements of 37 C.F.R. § 90.2.

CBM2013-00051
Patent 8,266,044 B2

29 

PETITIONER:

Michael M. Murray
mmurray@winston.com

Bryan DeMatteo
bdematteo@winston.com

Michael Scheer
mscheer@winston.com

PATENT OWNER:

Joseph A. Hynds
jhynds@rfem.com

Steven Lieberman
cboeipr@rfem.com

Jason M. Shapiro
jshapiro@rfem.com