Thomas F. Haller

Patent Trials and Appeals Board

Nov 29, 2019

14191152 - (D) (P.T.A.B. Nov. 29, 2019)

UNITED STATES PATENT AND TRADEMARK OFFICE
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
APPLICATION NO. FILING DATE FIRST NAMED INVENTOR ATTORNEY DOCKET NO. CONFIRMATION NO.
14/191,152 02/26/2014 Thomas F. Haller NGI-14-1073R 8564
35811 7590 11/29/2019
IP GROUP OF DLA PIPER LLP (US)
ONE LIBERTY PLACE
1650 MARKET ST, SUITE 5000
PHILADELPHIA, PA 19103
EXAMINER
GREGG, MARY M
ART UNIT PAPER NUMBER
3697
NOTIFICATION DATE DELIVERY MODE
11/29/2019 ELECTRONIC
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.
Notice of the Office communication was sent electronically on above-indicated "Notification Date" to the
following e-mail address(es):
pto.phil@us.dlapiper.com
PTOL-90A (Rev. 04/07)
UNITED STATES PATENT AND TRADEMARK OFFICE
____________

BEFORE THE PATENT TRIAL AND APPEAL BOARD
____________

Ex parte THOMAS F. HALLER
____________

Appeal 2019-000007
Application 14/191,152
Technology Center 3600
____________

Before ELENI MANTIS MERCADER, NORMAN H. BEAMER, and
ADAM J. PYONIN, Administrative Patent Judges.

BEAMER, Administrative Patent Judge.

DECISION ON APPEAL
Appellant1 appeals under 35 U.S.C. § 134(a) from the Examiner’s
Non-Final Rejection of claims 1–24. We have jurisdiction over the pending
rejected claims under 35 U.S.C. § 6(b).
We AFFIRM.

1 We use the word “Appellant” to refer to “applicant” as defined in 37
C.F.R. § 1.42. Appellant identifies NYSE Group, Inc. as the real party in
interest. (Appeal Br. 1.)
Appeal 2019-000007
Application 14/191,152

2
THE INVENTION
Appellant’s disclosed and claimed invention is directed to a trading
platform adapted for pairs trading of unrelated securities from one or more
asset classes using a single order approach. (Abstract.)
Independent claim 1, reproduced below, is illustrative of the subject
matter on appeal:
1. A computer-implemented method, said method
comprising:
in a programmed computer comprising at least one
database structure, said database structure defining an order
book and storing data defining tradable pairs of unrelated
securities as single orders in said order book:
receiving, at the programmed computer, from among one
or more trader computing devices adapted to conduct trades, at
least one request to pair a first leg and a second leg of unrelated
securities for a quantity;
testing, by the programmed computer, information
associated with each of the unrelated securities to determine
whether a pairing compatibility exists between the unrelated
securities in the at least one request;
creating, by the programmed computer, at least one
tradable pair of the unrelated securities when it is determined
that the pairing compatibility exists;
causing, by the programmed computer, the at least one
tradable pair of unrelated securities to be presented to at least
one trading entity via at least one of the one or more trader
computing devices;
receiving, by the programmed computer, from among the
one or more trader computing devices, a selection;
entering, by the programmed computer, said selected
tradable pair as a single pairs trade order into the order book,
the single pairs trade order having order parameters, a portion
Appeal 2019-000007
Application 14/191,152

3
of the order parameters associated with the first leg, another
portion of the order parameters associated with the second leg;
matching, by the programmed computer, information in
one or more other trade orders to the order parameters of the
single pairs trade order entered into the order book;
determining, by the programmed computer, whether the
order parameters associated with said first leg and said second
leg of the single pairs trade order are met; and
executing, by the programmed computer, said single
pairs trade order as one single order when the order parameters
associated with said first leg and said second leg are both met.
Appeal Br. 38. (Claims App.)

REJECTIONS2
The Examiner rejected claims 1–4, 7, and 9–24 under 35 U.S.C.
§ 112, first paragraph, as failing to comply with the written description
requirement. (Non-Final Act. 27.)

2 New Rejections: the obviousness rejections of claims 9, 11, and 19
were modified to correct typographical errors. See Ans. 3–6.
Withdrawn Rejections: The rejections of claim 1 under 35 U.S.C.
§ 112, first paragraph, regarding the “testing” and “entering” limitations
were withdrawn in the Answer. (Non-Final Act. 28–30, Ans. 6–7.) The
rejection of claim 1 under 35 U.S.C. § 112, second paragraph, regarding the
“testing” limitation was withdrawn in the Answer. (Non-Final Act. 35,
Ans. 7.) While the Examiner did not explicitly withdraw the rejections to
the commensurate limitations of independent claim 7, the Answer only
analyzes written description and enablement issues regarding the “database
structure” appearing in independent claims 1 and 7. See Ans. 12–15. We
consider the Examiner’s failure to withdraw the “testing” limitation
rejections to independent claim 7 as harmless error, and we will only
consider the Section 112 rejections regarding the “database structure.” We
treat the rejections of claim 7 regarding the “testing” limitation to be
withdrawn.
Appeal 2019-000007
Application 14/191,152

4
The Examiner rejected claims 1–4, 7, and 9–24 under 35 U.S.C.
§ 112, second paragraph, as being indefinite. (Non-Final Act. 35.)
The Examiner rejected claims 1–24 under 35 U.S.C. § 101 because
the claims are directed toward at least one judicial exception without reciting
additional elements that amount to significantly more than the judicial
exception. (Non-Final Act. 37.)
The Examiner rejected claims 1–3, 5, 6, 8, 13, and 14 under 35 U.S.C.
§ 103(a) as being unpatentable over Maynard (US 2009/0271308 A1, pub.
Oct. 29, 2009), Keith (US 2001/0044770 A1, pub. Nov. 22, 2001), and
Securities and Exchange Commission, “Self-Regulatory Organizations et
al.,” Release No. 34-54135, July 12, 2006 (hereinafter “CBOE”). (Non-
Final Act. 64.)
The Examiner rejected claim 4 under 35 U.S.C. § 103(a) as being
unpatentable over Maynard, Keith, CBOE, and Durkin et al (US
2006/0089899 A1, pub. Apr. 27, 2006) (hereinafter “Durkin”). (Non-Final
Act. 75.)
The Examiner rejected claim 8 under 35 U.S.C. § 103(a) as being
unpatentable over Maynard, Keith, CBOE, and Peterffy et al. (US
2004/0254804 A1, pub. Dec. 16, 2004) (hereinafter “Peterffy”). (Non-Final
Act. 76.)
The Examiner rejected claims 9–11 and 23 under 35 U.S.C. § 103(a)
as being unpatentable over Maynard, Keith, CBOE, Rooney (US
2011/0145126 A1, pub. June 16, 2011), and Gao et al., “Institutional
Ownership and Return Predictability Across Economically Unrelated
Stocks,” July 13, 2012 (hereinafter “Gao”). (Non-Final Act. 78.)
Appeal 2019-000007
Application 14/191,152

5
The Examiner rejected claims 7, 12, 15, 17, 18, 21, and 22 under 35
U.S.C. § 103(a) as being unpatentable over Maynard, Keith, and CBOE.
(Non-Final Act. 87.)
The Examiner rejected claim 16 under 35 U.S.C. § 103(a) as being
unpatentable over Maynard, Keith, CBOE, and Durkin. (Non-Final Act.
97.)
The Examiner rejected claims 19, 20, and 24 under 35 U.S.C. § 103(a)
as being unpatentable over Maynard, Keith, CBOE, Rooney, and Gao.
(Non-Final Act. 98.)
ISSUES ON APPEAL
Appellant’s arguments in the Appeal and Reply Briefs present the
following issues:3
Issue One: Whether the Examiner erred in finding claims 1–4, 7, and
9–24 fail to comply with the written description requirement. (Appeal Br.
9–11; Reply Br. 3.)
Issue Two: Whether the Examiner erred in finding claims 1–4, 7, and
9–24 are indefinite. (Appeal Br. 11–12; Reply Br. 3.)
Issue Three: Whether the Examiner erred in finding claims 1–24 are
directed to a judicial exception without significantly more. (Appeal Br. 12–
24; Reply Br. 3–8.)
Issue Four: Whether the Examiner erred in finding the combination
of Maynard, Keith, and CBOE teaches or suggests

3 Rather than reiterate the arguments of Appellant and the positions of the
Examiner, we refer to the Appeal Brief (filed May 7, 2018); the Reply Brief
(filed Sept. 27, 2018); the Non-Final Office Action (mailed Dec. 8, 2017);
and the Examiner’s Answer (mailed Aug. 16, 2018) for the respective
details.
Appeal 2019-000007
Application 14/191,152

6
receiving, at the programmed computer, from among one
or more trader computing devices adapted to conduct
trades, at least one request to pair a first leg and a second
leg of unrelated securities for a quantity,

as recited in independent claim 1, and the commensurate limitation recited in
independent claim 7. (Appeal Br. 34–37; Reply Br. 8.)
ANALYSIS
We have reviewed the Examiner’s rejections in light of Appellant’s
arguments. Arguments Appellant could have made but chose not to make
are deemed to be waived. See 37 C.F.R. § 41.37(c)(1)(iv).
First Issue — Written Description
Appellant argues that written description support for the claimed
“database structure defining an order book and storing data defining
tradeable pairs of unrelated securities as single orders in said order book”
can be found in the disclosure and that “any artisan skilled in the art would
certainly understand that the subject specification indeed provides support.”
(Appeal Br. 9–10, citing Spec. ¶¶ 5, 19, 25–26, 14, 16–17, 33–34, Fig. 3.)
We are unpersuaded of error. The Examiner finds, and we agree, that
upon review of the cited paragraphs, the cited paragraphs have “no support
for a database structure defining an order book” and “no support for a
database structure process or a particular data structure whose structure
defines an order book.” (Ans. 12–13.) The Examiner further finds, and we
agree, that while some “paragraphs pointed to have support for storage
medium to store instruction [paragraphs 14, 16–17, 33–34], these paragraphs
have no support for a database structure defining an order book.” (Ans. 14.)
Appeal 2019-000007
Application 14/191,152

7
Additionally, while Figure 3 refers to a “pair book,” the illustrated flowchart
offers no information regarding a database structure.
Thus, we do not find any indication that Appellant possessed the
“database structure,” or, otherwise, how to achieve the claimed steps using
the “database structure.” See Vasudevan Software, Inc. v. MicroStrategy,
Inc., 782 F.3d 671, 683 (Fed. Cir. 2015) (“The more telling question [for
written description analysis] is whether the specification shows possession
by the inventor of how accessing disparate databases is achieved.”); see also
In re Wilder, 736 F.2d 1516, 1521 (Fed. Cir. 1984) (affirming a rejection for
lack of written description because the specification does “little more than
outlining goals appellants hope the claimed invention achieves and the
problems the invention will hopefully ameliorate.”); Ex parte Smith, Appeal
2012-007631, slip op. at 21 (PTAB Mar. 14, 2013) (informative) (“Beyond
general statements of the function to be performed, which, at most, may
render the claimed function obvious, the inventor has not shown how the
recited opinion timeline is generated,” which “is not sufficient because a
description that merely renders the invention obvious does not satisfy the
written description requirement.”); see also Examining Computer-
Implemented Functional Claim Limitations for Compliance with 35 U.S.C.
112, 84 Fed. Reg. 57 (Jan. 7, 2019).
Accordingly, we sustain the Examiner’s written description rejection
of claims 1–4, 7, and 9–23.
Second Issue — Definiteness
Appellant argues that the Examiner’s indefiniteness rejection of the
claimed “database defining an order book” is in error because “support for
[the] database feature” appears in the disclosure. (Appeal Br. 11, citing
Appeal 2019-000007
Application 14/191,152

8
Spec. ¶¶ 5, 14, 17, 19, 25–26, 33–34, Figs. 1–4.) We are unpersuaded of
error. The Examiner finds, and we agree, that
the Appellant provides [no] explanation as to how a database
structure defines an order book. The appellant does not point to
any specific functions or structures or what exactly the metes
and bounds of the term “defining” actually encompasses.
(Ans. 14.) The Examiner further finds, and we agree, that “it is not clear
how the database as claimed defines an order book. It is also not clear as to
what the scope of the term ‘defining’ actually entails.” (Ans. 15.) One
skilled in the art, having reviewed the disclosure and finding no written
description support for the claimed “database,” would similarly be unable to
understand the meaning of the “database defining an order book.”
Accordingly, we sustain the Examiner’s indefiniteness rejection of
claims 1–4, 7, and 9–23.
Third Issue — Patent Eligibility
The Examiner determines the claims are patent ineligible under
35 U.S.C. § 101, because “method claim 1 is rooted in a business solution in
a financial pairs trading system for unrelated (i.e. inter-commodity)
securities” and “[t]he claim at issue is directed or drawn to the abstract idea
of unrelated/inter-commodity pairs trading.” (Non-Final Act. 38.) The
Examiner further concludes that there is nothing in the claims that is
significantly more than this abstract idea because the individual steps of
independent claim 1 are abstract (see Non-Final Act. 39–43), and that
[v]iewing the ordered combination of abstract elements and
concrete tangible components as a combination does not add
anything further than the individual elements. This is because
the ordered combination of abstract elements do not go beyond
generally linking use of the judicial exception to a particular
technological environment. The technology implemented in the
Appeal 2019-000007
Application 14/191,152

9
instant application is useful to solve a business problem (trading
unrelated (inter-commodity) securities as a single order), but
the additional elements are not a technological solution to a
technological problem, or a solution to the problem introduced
by the technology itself.
(Non-Final Act. 45.)
Appellant argues the claims are directed to a technological
improvement, because the claims
provide a way for pairing, storing and even executing trades
involving unrelated securities as single orders; whereas prior art
systems which do not have this capability are required to store
the unrelated securities separately and execute multiple trades
on multiple orders (i.e., one trade for each unrelated security) to
achieve the same result.
(Appeal Br. 13.) Particularly, Appellant contends that
according to Enfish [Enfish, LLC v. Microsoft Corp., 822 F.3d
1327 (Fed. Cir. 2016)], even a basic and known computer
component (such as a database) that is reconfigured to operate
differently from conventional databases in the art, and, as a
result of the reconfiguration, results in data processing
improvements (e.g., faster search times, flexibility, etc.),
constitutes patent-eligible subject matter under §101,
and that
similar to Enfish, the instant claims include a reconfigured
database structure that is specially reconfigured to define an
order book that accepts and stores pairs trade orders of
unrelated securities as single orders.
(Appeal Br. 14, emphasis in original.)
An invention is patent-eligible if it claims a “new and useful process,
machine, manufacture, or composition of matter.” 35 U.S.C. § 101. Here,
independent claim 1 and dependent claims 2–6, 8, 9–11, 13, 14, and 23
relate to a method, and independent claim 7 and dependent claims 12, 15–
Appeal 2019-000007
Application 14/191,152

10
22, and 24 t relate to a system. Thus each claim is a machine, process, or
manufacture. However, the Supreme Court has long held that “[l]aws of
nature, natural phenomena, and abstract ideas are not patentable.” Alice
Corp. v. CLS Bank Int’l, 573 U.S. 208, 216 (2014) (quoting Ass’n for
Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 598–99
(2013)). The “abstract ideas” category embodies the longstanding rule that
an idea, by itself, is not patentable. Alice, 573 U.S. at 216–17.
In Alice, the Supreme Court sets forth an analytical “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. at 217. The first step in the analysis is to “determine whether
the claims at issue are directed to one of those patent-ineligible concepts,”
such as an abstract idea. Id. Concepts determined to be abstract ideas, and
thus patent ineligible, include certain methods of organizing human activity
such as fundamental economic practices (Alice, 573 U.S. at 219–20; Bilski v.
Kappos, 561 U.S. 593, 611 (2010)); mathematical concepts (Parker v.
Flook, 437 U.S. 584, 594–95 (1978)); and mental processes (Gottschalk v.
Benson, 409 U.S. 63, 69 (1972)). Concepts determined to be patent eligible
include physical and chemical processes, such as “molding rubber products”
(Diamond v. Diehr, 450 U.S. 175, 191 (1981)); “tanning, dyeing, making
water-proof cloth, vulcanizing India rubber, smelting ores” (id. at 182 n.7
(quoting Corning v. Burden, 56 U.S. 252, 267–68 (1853))); and
manufacturing flour (Benson, 409 U.S. at 69 (citing Cochrane v. Deener, 94
U.S. 780, 785 (1876))).
If the claims are directed to a patent-ineligible concept, the second
step in the Alice/Mayo analysis is to consider the elements of the claims
Appeal 2019-000007
Application 14/191,152

11
“individually and ‘as an ordered combination’” to determine whether there
are additional elements that “‘transform the nature of the claim’ into a
patent-eligible application.” Alice, 573 U.S. at 217 (quoting Mayo
Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 79, 78 (2012)).
In other words, the second step is to “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.’” Alice, 573 U.S. at 217–18 (quoting Mayo, 566
U.S. at 72–73.) A claim that recites an abstract idea must include additional
features to ensure that the claim is more than a drafting effort designed to
monopolize the abstract idea. Alice, 573 U.S. at 221. A transformation into
a patent-eligible application requires more than simply stating the abstract
idea while adding the words “apply it.” Id.
Further to the Alice/Mayo analytical framework, after the mailing of
the Answer and the filing of the Briefs in this case, the USPTO published
revised guidance on the application of Section 101. See 2019 Revised Patent
Subject Matter Eligibility Guidance, 84 Fed. Reg. 50 (Jan. 7, 2019)
(hereinafter “Revised Guidance”). Under the Revised Guidance, we first
look to whether the claim recites:
(1) any judicial exceptions, including certain groupings of
abstract ideas (i.e., mathematical concepts, certain methods of
organizing human activity 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)).
Appeal 2019-000007
Application 14/191,152

12
Only if a claim (1) recites a judicial exception and (2) does not integrate that
exception into a practical application, does the Office then look to whether
the claim:
(3) adds a specific limitation beyond the judicial exception that
are 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 Revised Guidance.
In evaluating the claims at issue, we consider claim 1 as
representative, consistent with how Appellant and the Examiner analyze the
claims. See 37 C.F.R. § 41.37(c)(1)(iv) (2016). The claimed method as a
whole recites a method of “pairs trading of unrelated securities from one or
more asset classes using a single price movement provided by a single order
approach” (Spec. ¶ 5), and accordingly recites a method of organizing
human activity.
Omitting the portions of the claim invoking use of generic technology
(which are discussed separately below), the remaining limitations of claim 1
(both “receiving” steps, as well as the “testing,” “creating,” “causing,”
“entering,” “matching,” “determining,” and “executing” steps) elaborate on
the actions performed in order to consummate a single pairs trade order.
Specifically, claim 1 recites operations that would ordinarily take
place in performing trading. For example, pairs trading is well known:
[t]he concept of pairs trading is disarmingly simple. Find two
stocks whose prices have moved together historically. When
the spread between them widens, short the winner and buy the
Appeal 2019-000007
Application 14/191,152

13
loser. If history repeats itself, prices will converge and the
arbitrageur will profit.4
The trading of single or multiple securities involves the economic acts of
purchasing and/or selling securities, typically in one or more financial
markets. Such trading forms the basis of a fundamental economic practice.5
As stated in the Revised Guidance, fundamental economic principles
or practices (including hedging, insurant, mitigating risk), and commercial
or legal interactions (including agreements in the form of contracts; legal
obligations; advertising; marketing or sales activities or behaviors; business
relations) are an example of organizing human activity. (Revised Guidance,
84 Fed. Reg. at 52.)

4 Gatev et al., “Pairs Trading: Performance of a Relative-Value Arbitrage
Rule,” The Review of Financial Studies, Vol. 19, No. 3 (2006), pp. 797–827,
available at: http://www-stat.wharton.upenn.edu/~steele/Courses/434/
434Context/PairsTrading/PairsTradingGGR.pdf.
5 See also Bilski v. Kappos, 561 U.S. 593, 611 (2010) (“The concept of
hedging, described in claim 1 and reduced to a mathematical formula in
claim 4, is an unpatentable abstract idea . . . .”); Alice, 573 U.S. at 218
(“These claims are drawn to the abstract idea of intermediated settlement.”);
buySafe, Inc. v. Google, Inc., 765 F.3d 1350, 1355 (Fed. Cir. 2014) (claims
that “are squarely about creating a contractual relationship—a ‘transaction
performance guaranty’” held as “directed to an abstract idea”); Accenture
Glob. Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1345 (Fed.
Cir. 2013) (claims reciting “generalized software components arranged to
implement an abstract concept [of generating insurance-policy-related tasks
based on rules to be completed upon the occurrence of an event] on a
computer” not patent eligible); Bancorp Servs., L.L.C. v. Sun Life Assur. Co.
of Can. (U.S.), 687 F.3d 1266, 1277 (Fed. Cir. 2012) (determining a
“‘method for managing a life insurance policy comprising’ seven steps” is
abstract).
Appeal 2019-000007
Application 14/191,152

14
In sum, the subject matter of claim 1 is a fundamental economic
practice, which is one of the certain methods of organizing human activity
identified in the Revised Guidance. Therefore, we agree with the Examiner
that the subject matter of claim 1 recites an abstract idea, as do the remaining
claims.
Further, pursuant to the Revised Guidance, we consider whether there
are additional elements set forth in claim 1 that integrate the judicial
exception into a practical application. Revised Guidance, 84 Fed. Reg. at
54–55. The abstract idea of claim 1 is carried out using various generic
technological components to facilitate the pairs trade: a “programmed
computer” and “database structure.”
We are unpersuaded by Appellant’s principal argument that the claims
“include a reconfigured database structure” (Appeal Br. 14, emphasis in
original) that “provides more efficient storage.” (Appeal Br. 15, emphasis in
original), and “achieves processing improvements and benefits to the end
users.” (Appeal Br. 16.) Appellant offers no technical reasoning or factual
support for the assertion that Appellant’s claimed invention includes a
reconfigured database structure and data handling mechanism that provide
an advancement in technology. Nor do we see, in the record before us, any
indication that the claimed technique will store orders more efficiently. (See
Ans. 21.) The claim limitations are recited at a high level of generality and
the Specification provides no indication of an improvement in the
underlying computer system.
We additionally note that as discussed above regarding the written
description rejection, although the claim recites a “database structure” that
defines “an order book and storing data defining tradable pairs of unrelated
Appeal 2019-000007
Application 14/191,152

15
securities as single orders in said order book,” the disclosure fails to describe
this structure in terms that one of ordinary skill in the art would use in a
description.
Thus, the subject matter here is distinguished from that considered in
such authorities as BASCOM Global Internet Servs., Inc. v. AT&T Mobility
LLC, 827 F.3d 1341 (Fed. Cir. 2016). There, the court held eligible claims
directed to a technology-based solution to filter Internet content that
overcame existing problems with other Internet filtering systems by making
a known filtering solution—namely a “one-size-fits-all” filter at an Internet
Service Provider (ISP)—more dynamic and efficient via individualized
filtering at the ISP. BASCOM, 827 F.3d at 1351. Notably, this customizable
filtering solution improved the computer system’s performance and,
therefore, was patent-eligible. See id. But unlike the filtering system
improvements in BASCOM that added significantly more to the abstract idea
in that case, the claimed invention here uses generic computing components
to implement an abstract idea as noted previously.
Nor is this invention analogous to that which the court held eligible in
McRO, Inc. v. Bandai Namco Games America, Inc., 837 F.3d 1299 (Fed.
Cir. 2016). There, the claimed process used a combined order of specific
rules that rendered information in a specific format that was applied to create
a sequence of synchronized, animated characters. Id. at 1315. Notably, the
recited process automatically animated characters using particular
information and techniques—an improvement over manual three-
dimensional animation techniques that was not directed to an abstract idea.
Id. at 1316.
Appeal 2019-000007
Application 14/191,152

16
But unlike the claimed invention in McRO that improved how the
physical display operated to produce better quality images, the claimed
invention here merely uses generic computing components to perform a
financial trade. This generic computer implementation does not improve a
display mechanism as was the case in McRO. See SAP America, 898 F.3d at
1167 (distinguishing McRO).
Although Appellant contends that “conventional systems do not
include any mechanism for processing or storing pairs trade orders of
unrelated securities ( e.g., from different asset classes) as a single order”
(Appeal Br. 16, emphasis in original), “merely adding computer
functionality to increase the speed or efficiency of the process does not
confer patent eligibility on an otherwise abstract idea.” Intellectual Ventures
I LLC v. Capital One Bank (USA), 792 F.3d 1363, 1370 (Fed. Cir. 2015); see
also Credit Acceptance Corp. v. Westlake Servs., 859 F.3d 1044, 1057 (Fed.
Cir. 2017). The savings efficiency afforded combining orders is part of the
abstract idea, and is only a conclusory, unpersuasive assertion that the
subject matter provides any improvements to technology. (Appeal Br. 14–
16.)
Nor does the subject matter of claim 1 contain additional elements
that implement the judicial exception with a “particular machine,” because
the claims do not specify any particular technology. See MPEP
§ 2106.05(b). Further, the method does not transform matter; at best it
transforms information. See MPEP § 2106.05(c). Nor does claim 1 have
any other meaningful limitations (MPEP § 2106.05(e)), or any of the other
considerations set forth in the Revised Guidance regarding a determination
of whether additional elements integrate the judicial exception into a
Appeal 2019-000007
Application 14/191,152

17
practical application. See Revised Guidance, 84 Fed. Reg. at 55. Rather, the
claim “merely includes instructions to implement an abstract idea on a
computer, or merely uses a computer as a tool to perform an abstract idea.”
Id. Accordingly, we conclude that the subject matter of claim 1 (and the
remaining pending claims) is directed to an abstract idea, and the additional
elements recited therein do not integrate the abstract idea into a practical
application.
Turning to the second step of the Alice inquiry, we do not agree with
Appellant that additional elements of claim 1 add “significantly more” to the
basic abstract idea encompassed by the claim sufficient to transform the
claimed abstract idea into a patent-eligible application. Alice, 573 U.S. at
223 (“[T]he mere recitation of a generic computer cannot transform a patent-
ineligible abstract idea into a patent-eligible invention.”). “It is clear from
Mayo that the ‘inventive concept’ cannot be the abstract idea itself.” Aatrix
Software, Inc. v. Green Shades Software, Inc., 890 F.3d 1354, 1359 (Fed.
Cir. 2018). Moreover, “[p]atent law does not protect claims to an ‘asserted
advance in the realm of abstract ideas . . . no matter how groundbreaking the
advance.’” Id. at 1359 (citation omitted.) Unlike Core Wireless, in which
“the claims are directed to an improvement in the functioning of computers,”
(Core Wireless Licensing S.A.R.L. v. LG Elecs., Inc., 880 F.3d 1356, 1363
(Fed. Cir. 2018), Appellant’s improvement is part of the abstract idea,
despite the claim limitations reciting a programmed computer and a database
structure.
The record supports the Examiner’s finding that the additional
element of a programmed computer (recited in claim 1) is well-understood,
routine, and conventional, specified at a high level of generality. (Non-Final
Appeal 2019-000007
Application 14/191,152

18
Act. 44; see also Fig. 4, Spec. ¶¶ 29–34.) See Revised Guidance, 84 Fed.
Reg. at 56.
Accordingly, we sustain the Examiner’s 35 U.S.C. § 101 rejection of
claim 1. Appellant provides no arguments that would differentiate the
remaining claims. Thus, the foregoing analysis of claim 1 is exemplary of
that for claims 2–24. See 37 C.F.R. § 41.37(c)(1)(iv)(2016). Therefore, we
also sustain the Examiner’s 35 U.S.C. § 101 rejection of those claims.
Fourth Issue — Obviousness
Appellant argues that
the Examiner, at page 52 of the Second Examiner’s Answer,
now acknowledges that Maynard does not recite the term “un-
related securities.” However, the Examiner goes on to re-define
this term (again), and alleges that this term can be “broadly
interpreted as “pair trading from different asset classes,”
and that “the Examiner’s interpretation of the claim term is improper.”
(Reply Br. 8.)
We are persuaded of error. The Examiner first finds that “Maynard
does not explicitly teach: unrelated securities” (Non-Final Act. 67) and later
finds that “[a]lthough Maynard does not recite the term “un-related
securities” in light of the definition provided by the specification that “un-
related securities” can be broadly interpreted as “pair trading from different
asset classes.[”] (Ans. 52, citing Maynard ¶¶ 25–26.)
Although the disclosure does not contain an explicit definition of
“unrelated securities,” the disclosure states that “related securities . . . tend
to move together.” (Spec. ¶ 3, emphasis added.) The disclosure additionally
refers to “pairing unrelated securities from one or more asset classes”
(Spec. ¶ 21) and that “two legs of unrelated securities from the same asset
Appeal 2019-000007
Application 14/191,152

19
class may also be paired” (Spec. ¶ 21.) One of ordinary skill in the art, upon
reading the disclosure, would consider that the type of asset class or classes
does not determine whether two securities are “unrelated,” because the
disclosure indicates that securities from the same or different asset classes
may be unrelated.
Accordingly, we do not agree with the Examiner’s finding that
Maynard teaches or suggests Appellant’s trading of “unrelated securities”
because Maynard teaches that asset classes may be mixed in “any
combination.” (Ans. 52.)
As none of the remaining references are cited as curing the deficiency
of Maynard, we are persuaded the combination of references does not teach
or suggest “unrelated securities.” Accordingly, we reverse the obviousness
rejections of independent claims 1 and 7, and all claims that depend
therefrom.

CONCLUSION
For the reasons stated above, we
(1) affirm the written description and indefiniteness rejections of claims
1–4, 7, and 9–24;
(2) affirm the non-statutory subject matter rejection of claims 1–24; and
(3) reverse the obviousness rejections of claims 1–24.

Appeal 2019-000007
Application 14/191,152

20
DECISION SUMMARY
In summary:
Claims
Rejected
35
U.S.C. §
Reference(s)/Basis Affirmed Reversed
1–4, 7, 9–24 112(1) written description 1–4, 7, 9–
24

1–4, 7, 9–24 112(2) indefiniteness 1–4, 7, 9–
24

1–24 101 non-statutory subject matter 1–24
1–3, 5, 6, 8,
13, 14
103(a) Maynard, Keith, CBOE 1–3, 5, 6,
8, 13, 14
4 103(a) Maynard, Keith, CBOE,
Durkin
4
8 103(a) Maynard, Keith, CBOE, and
Peterffy
8
9–11, 23 103(a) Maynard, Keith, CBOE,
Rooney, Gao
9–11, 23
7, 12, 15,
17, 18, 21,
22
103(a) Maynard, Keith, CBOE 7, 12, 15,
17, 18,
21, 22
16 103(a) Maynard, Keith, CBOE,
Durkin
16
19, 20, 24 103(a) Maynard, Keith, CBOE,
Rooney, Gao
19, 20, 24
Overall
Outcome
1–24
The Examiner’s decision is affirmed because we have affirmed at
least one ground of rejection with respect to each claim on appeal. See
37 C.F.R. § 41.50(a)(1).
TIME PERIOD FOR RESPONSE
No time period for taking any subsequent action in connection with
this appeal may be extended under 37 C.F.R. § 1.136(a)(1)(iv).

AFFIRMED

Notice of References Cited
Application/Control No.

14/191,152

Applicant(s)/Patent Under Patent
Appeal No.
2019-000007
Examiner

Art Unit

3697

Page 1 of 1
U.S. PATENT DOCUMENTS
* Document Number Country Code-Number-Kind Code Date MM-YYYY Name Classification
A US-
B US-
C US-
D US-
E US-
F US-
G US-
H US-
I US-
J US-
K US-
L US-
M US-
FOREIGN PATENT DOCUMENTS
* Document Number Country Code-Number-Kind Code Date MM-YYYY Country Name Classification
N
O
P
Q
R
S
T
NON-PATENT DOCUMENTS
* Include as applicable: Author, Title Date, Publisher, Edition or Volume, Pertinent Pages)

U
Gatev et al., “Pairs Trading: Performance of a Relative-Value Arbitrage Rule,” The Review of Financial
Studies, Vol. 19, No. 3 (2006), pp. 797–827.

V

W

X

*A copy of this reference is not being furnished with this Office action. (See MPEP § 707.05(a).)
Dates in MM-YYYY format are publication dates. Classifications may be US or foreign.
U.S. Patent and Trademark Office
PTO-892 (Rev. 01-2001) Notice of References Cited Part of Paper No.
Pairs Trading: Performance
of a Relative-Value Arbitrage Rule
Evan Gatev
Boston College
William N. Goetzmann
Yale University
K. Geert Rouwenhorst
Yale University
We test a Wall Street investment strategy, ‘‘pairs trading,’’ with daily data over
1962–2002. Stocks are matched into pairs with minimum distance between normal-
ized historical prices. A simple trading rule yields average annualized excess returns of
up to 11% for self-financing portfolios of pairs. The profits typically exceed conser-
vative transaction-cost estimates. Bootstrap results suggest that the ‘‘pairs’’ effect
differs from previously documented reversal profits. Robustness of the excess returns
indicates that pairs trading profits from temporary mispricing of close substitutes. We
link the profitability to the presence of a common factor in the returns, different from
conventional risk measures.
Wall Street has long been interested in quantitative methods of specula-
tion. One popular short-term speculation strategy is known as ‘‘pairs
trading.’’ The strategy has at least a 20-year history on Wall Street and
is among the proprietary ‘‘statistical arbitrage’’ tools currently used by
hedge funds as well as investment banks. The concept of pairs trading is
disarmingly simple. Find two stocks whose prices have moved together
historically. When the spread between them widens, short the winner and
buy the loser. If history repeats itself, prices will converge and the arbi-
trageur will profit. It is hard to believe that such a simple strategy, based
solely on past price dynamics and simple contrarian principles, could
possibly make money. If the U.S. equity market were efficient at all
times, risk-adjusted returns from pairs trading should not be positive.
In this article, we examine the risk and return characteristics of pairs
trading with daily data over the period 1962 through December 2002.
We are grateful to Peter Bossaerts, Michael Cooper, Jon Ingersoll, Ravi Jagannathan, Maureen O’Hara,
Carl Schecter, and two anonymous referees for many helpful discussions and suggestions on this topic.
We thank the International Center for Finance at the Yale School of Management for research support,
and the participants in the EFA’99 Meetings, the AFA’2000 Meetings, the Berkeley Program in Finance,
and the Finance and Economics workshops at Vanderbilt and Wesleyan for their comments. Address
correspondence to Evan Gatev, Boston College, Carroll School of Management, Fulton Hall, 140
Commonwealth Ave, Chestnut Hill, MA 02467, or email: gatev@bc.edu.
 The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights
reserved. For permissions, please email: journals.permissions@oxfordjournals.org.
doi:10.1093/rfs/hhj020 Advance Access publication February 13, 2006
Using a simple algorithm for choosing pairs, we test the profitability of
several straightforward, self-financing trading rules. We find average
annualized excess returns of about 11% for top pairs portfolios. Although
pairs strategies exploit temporary components of stock prices, we show
that our profits are not caused by simple mean reversion as documented
in the previous literature. We examine the robustness of our results to a
wide variety of risk factors—including not only the widely used factors in
the empirical literature but also potential low-frequency institutional
factors such as bankruptcy risk. In addition, we explore the robustness
of our results to microstructure factors such as the bid-ask bounce, short-
selling costs, and transaction costs. Although some factors such as short-
selling and transaction costs affect the magnitude of the excess returns,
pairs trading remains profitable for reasonable assumptions over the
sample period of study, as well as over a true out-of-sample test of four
years. We interpret the results of our analysis as evidence in favor of
profitable arbitrage in expectations that may accrue to market partici-
pants who possess relatively low transaction costs and the ability to short
securities. We also find evidence that points to a systematic factor that
influences the profitability of pairs trading over time. This unidentified
latent risk factor has been relatively dormant recently. The importance of
this risk factor is correlated with the returns to pairs trading, which is
consistent with the view that the profits are a compensation to arbitra-
geurs for enforcing the ‘‘Law of One Price.’’
We argue that our results reveal something about the mechanism and
performance of relative-price arbitrage activities in practice. This is
potentially useful to researchers because, despite considerable theory
about market efficiency, economists have little empirical information
about how efficiency is maintained in practice. In addition, despite the
fact that hedge funds have attracted an increasing amount of investment
capital over the past decade, the study of hedge fund strategies is in its
infancy in the financial economics literature. This article examines the risk
and return characteristics of one widely practiced active trading strategy.
One natural question to ask is whether our results imply a violation of
equilibrium asset pricing. Although the documented profitability of the
pairs trading rule is a robust result, it is not inconsistent with all pricing
models. Indeed the reversion in relative values we find is consistent with a
pricing model in prices developed and tested by Bossaerts (1988). Thus,
our article at the very least suggests that this class of models merits further
empirical investigation.
The remainder of the article is organized as follows. Section 1 provides
some background on pairs trading strategy. The next section describes
our methodology of constructing pairs and calculating returns. The
empirical results are described in Section 3, and Section 4 provides con-
clusions and directions for future research.
The Review of Financial Studies / v 19 n 3 2006
798
1. Background of Pairs Trading
1.1 History
In the mid-1980s, the Wall Street quant Nunzio Tartaglia assembled a
team of physicists, mathematicians, and computer scientists to uncover
arbitrage opportunities in the equities markets. Tartaglia’s group of for-
mer academics used sophisticated statistical methods to develop high-tech
trading programs, executable through automated trading systems, which
took the intuition and trader’s ‘‘skill’’ out of arbitrage and replaced it with
disciplined, consistent filter rules. Among other things, Tartaglia’s pro-
grams identified pairs of securities whose prices tended to move together.
They traded these pairs with great success in 1987—a year when the group
reportedly made a $50 million profit for the firm. Although the Morgan
Stanley group disbanded in 1989 after a couple of bad years of perfor-
mance, pairs trading has since become an increasingly popular ‘‘market-
neutral’’ investment strategy used by individual and institutional traders
as well as hedge funds. The increased popularity of quantitative-based
statistical arbitrage strategies has also apparently affected profits. In a
New York Times interview, David Shaw, head of one of the most success-
ful modern quant shops and himself an early Tartaglia’s protégé, sug-
gests that recent pickings for quant-shops have become slim—he
attributes the success of his firm, D. E. Shaw, to early entry into the
business. Tartaglia’s own explanation for pairs trading is psychological.
He claims, ‘‘... Human beings don’t like to trade against human nature,
which wants to buy stocks after they go up not down’’ [Hansell (1989)].
Could pairs traders be the disciplined investors taking advantage of the
undisciplined over-reaction displayed by individual investors? This is at
least one possible—albeit psychological—explanation for our results,
which is consistent with Jegadeesh and Titman’s (1995) finding that contra-
rian profits are in part due to over-reaction to company-specific informa-
tion shocks rather than price reactions to common factors.
1.2 Data snooping and market response
In our study we have not searched over the full strategy space to identify
successful trading rules, but rather we have interpreted practitioner
description of pairs trading as straightforwardly as possible. Our rules
follow the general outline of first ‘‘find stocks that move together,’’ and
second ‘‘take a long–short position when they diverge and unwind on
convergence.’’ A test requires that both of these steps must be parameter-
ized in some way. How do you identify ‘‘stocks that move together?’’
Need they be in the same industry? Should they only be liquid stocks?
How far do they have to diverge before a position is put on? When is a
position unwound? We have made some straightforward choices about
each of these questions. We put positions on at a two-standard deviation
Pairs Trading
799
spread, which might not always cover transaction costs even when stock
prices converge. Although it is tempting to try potentially more profitable
schemes, the danger in data-snooping refinements outweigh the potential
insights gained about the higher profits that could result from learning
through testing.1
As with all filter rules using historical asset pricing data, data snooping
is a potential concern. One approach to the data snooping issue is to test
the results out of sample. We completed and circulated the first draft of
the working paper in 1999, using data through the end of 1998. The time
lag between the first analysis and the present study gives us an ideal
holdout sample. Using the original model, but the post-1988 data, we
found that over the 1999–2002 period, the excess return of the fully
invested portfolio of the top 20 pairs averaged 10.4% per annum, with
an annual standard deviation of 3.8% and a large and significant Newey-
West-adjusted t-statistic of 4.82—consistent with the long-term, in-sample
results of our original analysis. We were careful not to adjust our strategy
from the first draft to the current draft of the article, to avoid data-
snooping criticisms. Not only does this additional four-year sample suggest
that the results were not simply an artifact of the earlier sample period, over
which pairs trading was known to be popular, but it also suggests that the
public dissemination of the results has apparently not affected the general
risk and return characteristics of the strategy, despite curiosity from the
professional sector.
1.3 Relative pricing
Asset pricing can be viewed in absolute and relative terms. Absolute
pricing values securities from fundamentals such as discounted future
cash flow. This is a notoriously difficult process with a wide margin for
error. Articles by Bakshi and Chen (1997) and Lee et al. (1997), for
example, are heroic attempts to build quantitative value-investing models.
Relative pricing is only slightly easier. Relative pricing means that two
securities that are close substitutes for each other should sell for the same
price—it does not say what that price will be. Thus, relative pricing allows
for bubbles in the economy, but not necessarily arbitrage or profitable
speculation. The Law of One Price [LOP] and a ‘‘near-LOP’’ are applic-
able to relative pricing—even if that price is wrong.
Ingersoll (1987) defines the LOP as the ‘‘proposition ... that two invest-
ments with the same payoff in every state of nature must have the same
current value.’’ In other words, two securities with the same prices in all
states of the world should sell for the same amount. Chen and Knez
(1995) extend this to argue that ‘‘closely integrated markets should assign
1 Froot and Dabora (1999) consider ‘‘twin’’ stocks that trade in different international markets to examine
the issues of market integration.
The Review of Financial Studies / v 19 n 3 2006
800
to similar payoffs prices that are close.’’ They argue that two securities
with similar, but not necessarily, matching payoffs across states should
have similar prices. This is of course a weaker condition and subject to
bounds on prices for unusual states; however, it allows the examination of
‘‘near-efficient’’ economies, or in Chen and Knez’ case, near integrated
markets. Notice that this theory corresponds to the desire to find two
stocks whose prices move together as long as we can define states of
nature as the time series of observed historical trading days.
We use an algorithm to choose pairs based on the criterion that they have
had the same or nearly the same state prices historically. We then trade
pairs whose prices closely match in historical state-space, because the LOP
suggests that in an efficient market their prices should be nearly identical. In
this framework, the current study can be viewed as a test of the LOP and
near-LOP in the U.S. equity markets, under certain stationarity conditions.
We are effectively testing the integration of very local markets—the markets
for specific individual securities. This is similar in spirit to Bossaerts’ (1988)
test of co-integration of security prices at the portfolio level. We further
conjecture that the marginal profits to be had from risk arbitrage of these
temporary deviations is crucial to the maintenance of first-order efficiency.
We could not have the first effect without the second.
1.4 Co-integrated prices
The pairs trading strategy may be justified within an equilibrium asset-pricing
framework with nonstationary common factors like Bossaerts and Green
(1989) and Jagannathan and Viswanathan (1988). If the long and short
components fluctuate with common nonstationary factors, then the prices
of the component portfolios would be co-integrated and the pairs trading
strategy would be expected to work. Evidence of exposures to common
nonstationary factors would support a nonstationary factor pricing frame-
work.
The space of normalized, cum-dividend prices, that is, cumulative total
returns with dividends reinvested, is the basic space for the pairs trading
strategies in this article. The main observation about our motivating
models of the CAPM-APT variety is that they are known to imply perfect
collinearity of prices, which is readily rejected by the data. On the other
hand, Bossaerts (1988) finds evidence of price co-integration for the U.S.
stock market. We would like to keep the notion of the empirically
observed co-movement of prices, without unnecessarily restrictive
assumptions, hence we proceed in the spirit of the co-integrated prices
literature. More specifically, our matching in price space can be inter-
preted as follows. Suppose that prices obey a statistical model of the form,
pit¼
X
ilplt þ eit; k