[00:00:33] Speaker 01:
In its case, it's number 13-1067, Federal Home Loan Mortgage Corporation against Graft-Ross Holdings.

[00:00:42] Speaker 01:
Mr. Franklin.

[00:00:49] Speaker 04:
Thank you, Your Honor.

[00:00:49] Speaker 04:
May it please the courts?

[00:00:50] Speaker 04:
Jonathan Franklin for the appellate.

[00:00:53] Speaker 04:
Graft-Ross patents pass the threshold inquiry of Section 101 because they do not seek to monopolize and do not embody any fundamental economic practice

[00:01:03] Speaker 04:
long prevalent in our system of commerce.

[00:01:06] Speaker 04:
Accepting Freddie Mac's invitation, the district court held that the patents were directed to the abstract concept of computing a price for the electronic sale of a fixed income asset and generating a financial analysis output.

[00:01:22] Speaker 04:
But even if that concept did describe all 600 plus claims at issue in this case, which we dispute,

[00:01:29] Speaker 04:
the claims would still pass muster under section 101, because that concept is not a fundamental economic practice long prevalent in our system of commerce.

[00:01:38] Speaker 02:
As for the... What if one didn't embed so many details into the statement of the abstract concept that I certainly appreciate that defining the abstract idea in this line of cases is not the simplest thing in the world.

[00:01:58] Speaker 02:
The more you put into this definition of the abstract concept, the less abstract it seems.

[00:02:06] Speaker 04:
And the less inventive than the rest of the invention might be.

[00:02:10] Speaker 02:
Might be, but the idea here at some slightly greater level of generality seems more readily characterizable as an abstract idea even with the term fundamental thrown in.

[00:02:28] Speaker 04:
On appeal, Freddie Mac is essentially trying to switch course here, maybe in response to what your honor is thinking about.

[00:02:36] Speaker 04:
And they have now, for the first time in this case, characterized the abstract idea that these patents are allegedly directed to, to be the much more general concept of computing a financial characteristic of an asset.

[00:02:50] Speaker 04:
Now that broad concept, we think that they have actually waived that argument because they did not present that at any point in the proceedings below.

[00:02:57] Speaker 04:
It's similar to claim construction where this court has said, we're going to look at the case, even though claim construction is a matter of law, we're going to look at the case as it was presented below.

[00:03:07] Speaker 04:
And in this case, it would be the abstract idea that the district court identified.

[00:03:11] Speaker 04:
But even if one were to consider that new concept for the first time on appeal, the claims would still

[00:03:19] Speaker 04:
pass muster because they don't come close to seeking to monopolize the general concept of computing a financial characteristic of an asset.

[00:03:30] Speaker 04:
These claims, these patents claim specific methodology systems and apparatus for conducting electronic trading of fixed income assets.

[00:03:41] Speaker 04:
And they do so in many cases with multiple computers, multiple computer systems, multiple separately valued and separately

[00:03:49] Speaker 04:
computed components of assets.

[00:03:51] Speaker 04:
And importantly, when the claims were initially examined and also in a re-examination that probably was instituted by Freddie Mac, the PTL found that these were in fact novel and inventive, that this had never been accomplished or achieved

[00:04:11] Speaker 04:
or thought of before the priority date of these patents.

[00:04:14] Speaker 02:
Can you remind me when that was?

[00:04:16] Speaker 04:
Sure.

[00:04:17] Speaker 04:
It was 1992.

[00:04:18] Speaker 04:
And I think that's important here because we're talking about a time period.

[00:04:22] Speaker 02:
I'm sorry, the it.

[00:04:23] Speaker 02:
What I meant by the it in my question was the re-exam.

[00:04:26] Speaker 04:
I'm sorry.

[00:04:26] Speaker 04:
The re-exam, when was that?

[00:04:28] Speaker 04:
I don't have that date, but I can get that.

[00:04:30] Speaker 02:
Before the world changed in this area?

[00:04:34] Speaker 04:
The world changed with Bilsky or when?

[00:04:36] Speaker 04:
Oh, you pick a date.

[00:04:37] Speaker 04:
Yeah.

[00:04:39] Speaker 04:
You know, I'm not sure the re-exam, I don't believe Section 101 was a subject of the re-exam.

[00:04:44] Speaker 04:
It normally wouldn't be, but certainly the initial and examinations were conducted.

[00:04:49] Speaker 04:
The second of these patents were issued in 2011, before Bielski for sure.

[00:04:54] Speaker 04:
But in terms of the priority date, which is what I would like to stress, we're talking about patents that were subjected to a priority date of 1992.

[00:05:05] Speaker 04:
It really is engaging in hindsight to say now, almost 25 years later, oh, this is just a routine implementation of computer technology.

[00:05:16] Speaker 03:
Back in 1992, one needs... So is your argument that if a 90 is novel or non-novelist that it's that knowledgeable?

[00:05:25] Speaker 03:
No, that's obviously not just... That's the sum total of it.

[00:05:29] Speaker 03:
That's necessary, but not sufficient.

[00:05:31] Speaker 03:
That's kind of like the

[00:05:32] Speaker 03:
the fundamental of your argument that you're making now.

[00:05:35] Speaker 04:
What I'm saying, though, is that in the concept when you talk about abstract ideas, in Bilsky and in Alice Court, the Supreme Court said that the ideas that qualify as abstract ideas for this purpose, protection 101, in the economic realm are those, and this is a direct quote, are the fundamental economic practice long prevalent in our system of commerce.

[00:05:59] Speaker 04:
And I think the court recognized that because

[00:06:01] Speaker 04:
As Judge Toronto was somewhat alluding to, and as the case has made clear, every patent can be characterized in some way as involving some sort of an abstract idea.

[00:06:12] Speaker 04:
The diamond versus deer, the patent involved the only novel part of that patent.

[00:06:16] Speaker 03:
That's why we have step two of mail.

[00:06:20] Speaker 04:
That's right.

[00:06:21] Speaker 04:
But we also have step one.

[00:06:23] Speaker 04:
And in terms of the business method patent, Bilsky makes clear that the abstract idea, even though business method patents or commercial patents

[00:06:31] Speaker 04:
might have at the root an abstract idea.

[00:06:34] Speaker 04:
That's not sufficient to invalidate them under section 101, even though in the business method area, you're not going to typically have satisfied the transformation test, for example.

[00:06:47] Speaker 04:
But you will involve, you will have a situation where they are invented, even though they may seem like they're just using computers to do something.

[00:06:57] Speaker 04:
And DDR holdings in this court

[00:06:59] Speaker 04:
one of the court's most recent opinions in this area makes clear that just because you have a computer implemented patent that involved an abstract idea, that does not make it invalid under Section 101.

[00:07:12] Speaker 04:
And again, we're talking here about a situation where the PTO has determined that nobody at the time of this patent, in 1992 when it was applied for, nobody had thought of or implemented an electronic fixed income asset trading system.

[00:07:29] Speaker 04:
Computer networks were in their infancy.

[00:07:31] Speaker 04:
The internet did not exist in any way, shape, or form that it does today.

[00:07:38] Speaker 04:
So in order to accept Freddie Mac's invitation to invalidate these patents, I think one would have to engage in the kind of hindsight which is inappropriate.

[00:07:47] Speaker 04:
We know in obviousness inquiries, but also should be inappropriate in a Section 101 inquiry.

[00:07:54] Speaker 04:
You're going to look at these patents based on

[00:07:56] Speaker 04:
what the technology was at the time that they were implemented.

[00:08:00] Speaker 04:
And that, as the PTO found, these patents were novel.

[00:08:06] Speaker 04:
These patents were new.

[00:08:09] Speaker 04:
They were not just the routine application of computer technology.

[00:08:13] Speaker 04:
If they were, somebody would have done it.

[00:08:16] Speaker 04:
So again, I think one of the things to really stress here is that Section 101 bars patents that

[00:08:26] Speaker 04:
effectively attempt to monopolize long-standing and fundamental laws of nature, natural phenomena, and abstract ideas that are the basic tools of scientific and technological work or the building blocks.

[00:08:38] Speaker 03:
Let me understand your argument.

[00:08:40] Speaker 03:
I'm a little confused.

[00:08:43] Speaker 03:
You're saying, or rather, if a patent is novel and non-nogis at the time that it was issued, what are you saying?

[00:08:50] Speaker 03:
That it's not abstract or that it's inventive?

[00:08:53] Speaker 04:
I'm saying it is not abstract in the way that the Supreme Court has interpreted that test in Bielski and CLS bank, and that it is also invented.

[00:09:02] Speaker 04:
So what we're trying to prevent here is somebody from using the basic tools of technological and scientific work, this is quoting some of the cases, or the building blocks of our modern economy.

[00:09:14] Speaker 04:
We're trying to prevent people from being able to monopolize those things.

[00:09:18] Speaker 04:
Those are similar to the other categories that the judicially created categories of natural phenomenon laws of nature.

[00:09:26] Speaker 04:
Those are the things that are open to everybody reserved to none.

[00:09:30] Speaker 02:
Can I ask maybe just about thinking about it in the following way if you can address this.

[00:09:41] Speaker 02:
I suppose that I thought that it was sufficient to be

[00:09:47] Speaker 02:
directed to an abstract idea that a claim was directed to the formation of a contract, which is an intangible and in that sense abstract, and information and information that went into the formation of the contract.

[00:10:09] Speaker 02:
This involves Matt, so did Bilsky, so did Alice.

[00:10:17] Speaker 02:
And so one would have to get to step two and ask, is there something inventive about the use of computers in doing that?

[00:10:27] Speaker 02:
What would be the inventive aspect of the invocation of computers other than speed and volume?

[00:10:37] Speaker 04:
I think it would be this.

[00:10:38] Speaker 04:
First of all, I would disagree that I don't think Bielski and the CLS bank follow that.

[00:10:44] Speaker 04:
But accepting your hypothetical for what it is,

[00:10:47] Speaker 04:
I think the inventive aspect here would be the system-determined purchase price or the system-determined price yield.

[00:10:54] Speaker 04:
Those things were done as the PTO determined in its examinations, re-examinations.

[00:10:59] Speaker 04:
Prior to these patents, there was no system for doing that in a system-determined price.

[00:11:05] Speaker 04:
There was a, you would call your broker, so the prior art that the PTO relied on talked about, you'd call your broker and he'd give you an estimate of what he thought the thing was worth.

[00:11:17] Speaker 04:
system out there.

[00:11:18] Speaker 02:
Based on a very traditional yield industry calculation.

[00:11:23] Speaker 04:
He would give you what he thought it would be worth, but this system tells you, it tells you, gives you all the inputs from a publicly traded system, you know, kind of a bond trading system similar to what a stock trading system was, and it would come out with a system determined purchase price, and then it's the PTO determined.

[00:11:41] Speaker 04:
Again, this is the all we have in the record is what the PTO found.

[00:11:44] Speaker 04:
There was no prior art system that could do that.

[00:11:48] Speaker 04:
That was invented.

[00:11:49] Speaker 04:
And we can think that, oh, that seems trivial now.

[00:11:53] Speaker 04:
But again, in 1992, there were not public computer networks of the sort that we're used to today.

[00:11:59] Speaker 02:
Private computer networks?

[00:12:02] Speaker 04:
There may have been.

[00:12:03] Speaker 04:
But again, we don't have evidence because the other side whose burden it was to prove the validity of these patents by clear and convincing evidence didn't put any of that evidence in.

[00:12:11] Speaker 04:
So all the evidence we have here is what the PTO said.

[00:12:14] Speaker 04:
And the PTO said, these are novel, these are inventive, these are something that nobody had ever done before.

[00:12:23] Speaker 04:
And I think for taking section 101, as the Supreme Court has told us we should in section, in Alice Corp and Bilski, these patents pass that threshold.

[00:12:34] Speaker 04:
That doesn't mean, Your Honor, that these claims are necessarily valid.

[00:12:38] Speaker 04:
It just means they pass that initial

[00:12:40] Speaker 04:
threshold, which many cases have said is not a particularly onerous threshold.

[00:12:44] Speaker 04:
How would you say that this case is analogous to DDR Holdings?

[00:12:49] Speaker 04:
I think it's analogous in the way that both cases involve what was alleged to be an abstract idea.

[00:12:55] Speaker 04:
Both of them implement that idea on using computers doing what computers do.

[00:13:01] Speaker 04:
In DDR Holdings, it was just instructions of the sort that we see in the internet all the time.

[00:13:07] Speaker 04:
But the key aspect in DDR holdings and the key aspect here is that in both cases, these patents are doing something, solving a problem in an innovative new way that wasn't done before, even though they are doing it on computers and even though they are using computers to do what computers do.

[00:13:24] Speaker 04:
And in DDR holdings, obviously there was a new solution to the problem of how do you make one website look like another one.

[00:13:32] Speaker 04:
And in this case, as the PTO determined, and I keep coming back to that because that's all we have in the record,

[00:13:37] Speaker 04:
This was a new way of conducting electronic bond trading systems that had never before been implemented.

[00:13:43] Speaker 01:
Okay.

[00:13:44] Speaker 01:
Mr. Franklin, we want to save your rebuttal time.

[00:13:52] Speaker 00:
Thank you.

[00:13:53] Speaker 00:
Mr. Moore.

[00:13:54] Speaker 00:
Good morning.

[00:13:55] Speaker 00:
May it please the court?

[00:13:58] Speaker 00:
The claims in this case are directed at the abstract idea of valuing a fixed income asset.

[00:14:04] Speaker 00:
Valuing a fixed income asset is a basic economic idea.

[00:14:08] Speaker 00:
Exactly the same way the economic ideas in Bilski for hedging and in Alice for intermediate settlement were basic economic ideas.

[00:14:17] Speaker 02:
Do you disagree with Mr. Franklin's statement that the formulation of the abstract idea that you just gave was not one you gave in the district court?

[00:14:28] Speaker 02:
And if that's right, why should you be able to give it here?

[00:14:31] Speaker 00:
Yes, we do disagree.

[00:14:32] Speaker 00:
Our formulation of the abstract idea has no meaningful difference.

[00:14:35] Speaker 00:
It might use slightly different terms, but we can use any of them.

[00:14:37] Speaker 00:
They all mean the same thing.

[00:14:40] Speaker 02:
Is it not even different in the level of specificity?

[00:14:44] Speaker 02:
The district court, at least if I'm remembering right, and I think Mr. Franklin was quoting the district court's opinion, identifying the abstract idea in a way that included many words involving electronic this and that.

[00:15:01] Speaker 00:
The district court characterized the abstract idea a few ways.

[00:15:04] Speaker 00:
In the first set of claims from the 2007 case regarding the 347 patent, it characterizes computing a price of a fixed income asset and generating a financial analysis output.

[00:15:15] Speaker 00:
That abstract idea came from the two claims that were at issue in the 347 patent, claims 101 and 102.

[00:15:21] Speaker 00:
When we got to the second two cases, the case in 2010 regarding the 053 patent and the case in 2011 involving the

[00:15:31] Speaker 00:
They were briefed together.

[00:15:32] Speaker 00:
And so how the case transpired is we had the group of claims from the 347 in case one, then the briefing in case two, group the claims.

[00:15:41] Speaker 00:
Group one of the nine groups that are before the court in the district court's opinion involved the exact same abstract idea, computing a price of a fixed income asset and generating a financial analysis output.

[00:15:53] Speaker 00:
Then the court looked at the successive groups of claims, 234 all the way through nine, and looked at the differences.

[00:16:00] Speaker 00:
And there was another characterization by the district court which talked about computing the price of a component of a fixed income asset.

[00:16:08] Speaker 00:
It added a little bit more detail.

[00:16:10] Speaker 00:
And then when you go to the claim one of the 053 patent, which is one of the claims they rely on here is computing the yield discount rate for a fixed income asset.

[00:16:19] Speaker 00:
It actually dealt with those differently too.

[00:16:21] Speaker 00:
If you look at the district court's opinion, and this is regarding group six.

[00:16:25] Speaker 00:
What it said regarding those claims, the site for that is page 50 of the joint appendix, A0050.

[00:16:33] Speaker 00:
And what the district court said regarding group six was the claims there involved the computation of various equations.

[00:16:41] Speaker 00:
Because the court realized there was no difference between these computations of value.

[00:16:46] Speaker 00:
And that's all these claims are derived for.

[00:16:50] Speaker 00:
They all compute the value of a fixed income asset.

[00:16:53] Speaker 00:
There's no difference whether you're computing the price

[00:16:55] Speaker 00:
or you're computing the yield discount rate.

[00:16:57] Speaker 00:
In the terms of fixed income assets, which are before the court, yield discount rate is the present value of the fixed income.

[00:17:05] Speaker 00:
The whole patent was derived to breaking the property up into components.

[00:17:09] Speaker 00:
And so if I lease a property, for example, I might agree to lease you a piece of property for a year at $100 a month.

[00:17:16] Speaker 00:
And if I want to determine the present value of that, I first look at the yield.

[00:17:20] Speaker 00:
I'm going to get $100 a month.

[00:17:22] Speaker 00:
But then I also have to discount that.

[00:17:24] Speaker 00:
based on the time value of money and other risk.

[00:17:27] Speaker 00:
You might not pay.

[00:17:27] Speaker 00:
You might default on your lease.

[00:17:29] Speaker 00:
Other events might come up.

[00:17:31] Speaker 00:
So the yield discount is nothing more than the value of that property.

[00:17:35] Speaker 00:
And if you look at the Supreme Court cases, it's just because you specify what's computed doesn't make the abstract idea any less abstract.

[00:17:43] Speaker 00:
We have, for example, in Benson, the equations in that case computed pure binary numbers.

[00:17:50] Speaker 00:
That didn't make the claim not abstract.

[00:17:52] Speaker 00:
You have in Fluke.

[00:17:54] Speaker 00:
The claim there computed an updated alarm limit.

[00:17:57] Speaker 00:
The fact it computed an updated alarm limit didn't make it patentable.

[00:18:00] Speaker 00:
And in Alice, you had computing adjusted shadow records.

[00:18:04] Speaker 00:
Didn't make the claim patentable.

[00:18:06] Speaker 00:
What about DDR?

[00:18:07] Speaker 00:
DDR is a fundamentally different situation because the claims in DDR were necessarily rooted in technology.

[00:18:14] Speaker 00:
Here, we're not dealing with a claim necessarily rooted in technology.

[00:18:17] Speaker 00:
We're dealing with a basic economic concept like we had in Alice and like we had in Bilsky.

[00:18:23] Speaker 00:
In fact, some of the prosecution history they cite refers to the prior art doing this with quill and carrier pigeon.

[00:18:30] Speaker 00:
That proves the point that this is in fact a long-standing economic process and it is an abstract idea because it can be done in somebody's head.

[00:18:38] Speaker 00:
It can be done as a mental process.

[00:18:40] Speaker 00:
So here, the problem is not necessarily rooted in technology.

[00:18:43] Speaker 00:
It's also not solving a technological problem.

[00:18:46] Speaker 00:
The problem here was just doing the computations faster, computing at a larger volume and more fast.

[00:18:52] Speaker 00:
There was not a technological problem like you had in DDR when the person would be instantaneously transported from one website to a competitor or a vendor website.

[00:19:04] Speaker 00:
You don't have that, and there's no specific way.

[00:19:07] Speaker 00:
Here we've talked about one of the things that were mentioned by my friend was the system-determined purchase price as being the inventive concept.

[00:19:15] Speaker 00:
We've got to break that down into its components.

[00:19:17] Speaker 00:
The system is even more generic

[00:19:20] Speaker 00:
than the general purpose computer limitations that were recited in ALICE.

[00:19:24] Speaker 00:
In ALICE, you had a data processing center, you had data storage, you had a communications controller.

[00:19:32] Speaker 00:
Those components were much more specific than just saying a system.

[00:19:35] Speaker 00:
And when you look at the patent here and it describes the system, all it says is that the computers that were used to perform this were IBM personal computers.

[00:19:44] Speaker 00:
And it specifies that it's not just IBM personal computers.

[00:19:48] Speaker 00:
Those are just an example.

[00:19:49] Speaker 00:
It could be any digital computer being used to perform these operations.

[00:19:54] Speaker 00:
And so then what you're left with is determining a price.

[00:19:57] Speaker 00:
Well, determining a price is part of the abstract idea.

[00:20:00] Speaker 00:
That's the basic economic concept, and that's not to be considered under step two of Alice.

[00:20:04] Speaker 03:
Why wouldn't speed be rooted in technology as in DVR?

[00:20:10] Speaker 00:
For the same reason it wasn't in Alice.

[00:20:12] Speaker 00:
Computers simply taking an abstract idea and doing it more efficiently and faster

[00:20:17] Speaker 00:
on a computer was the issue before the Supreme Court in Alice, and it wasn't sufficient.

[00:20:21] Speaker 00:
And there's been many cases like that with Accenture and Bancorp where simply taking an abstract idea and loading it onto a general purpose IBM personal computer is not sufficient.

[00:20:32] Speaker 00:
In DDR, you had a claim that was necessarily rooted in technology, and they were actually fundamentally improving the way the internet operated.

[00:20:40] Speaker 00:
Because in DDR, before that, conventionally, somebody would be moved from the host website

[00:20:46] Speaker 00:
to a third party website.

[00:20:48] Speaker 00:
But now after DDR, instead of losing control of that customer, you'd be moved to an outsourced provider's website.

[00:20:56] Speaker 00:
Then if you look in the claims in DDR, they actually provide a lot of examples of specifically what that outsourced provider's website needs to do to provide this new composite or hybrid site.

[00:21:10] Speaker 00:
It needs to be able, if you go to the vendor site,

[00:21:12] Speaker 00:
It knows exactly what website to show.

[00:21:15] Speaker 00:
It's going to show my website.

[00:21:17] Speaker 00:
If you go to an outsourced provider's website, there's got to be new details.

[00:21:21] Speaker 00:
How do I know which of my customers' websites to show?

[00:21:25] Speaker 00:
So the claims require identifying that source so I know what my host's website is.

[00:21:31] Speaker 02:
Then once I... So the actual subject of DDR was a novel, or at least allegedly novel, physical display and input

[00:21:41] Speaker 02:
physical system.

[00:21:43] Speaker 02:
That's not what's going on here.

[00:21:44] Speaker 00:
Not at all.

[00:21:45] Speaker 00:
Here, there's nothing that improves the operation of computers in any way.

[00:21:49] Speaker 00:
Computers are just doing what they've always done.

[00:21:51] Speaker 02:
Can I ask, needless to say, I have not read all of the claims.

[00:21:55] Speaker 02:
Do any of the claims here themselves call for certain levels of speed or volume of processing?

[00:22:04] Speaker 00:
No.

[00:22:04] Speaker 00:
That's an important question about the number of claims here.

[00:22:08] Speaker 00:
In Freddie Mac's brief below at the district court, we grouped them into nine groups.

[00:22:12] Speaker 00:
And that's what the district court adopted.

[00:22:13] Speaker 00:
It didn't adopt them wholesale.

[00:22:15] Speaker 00:
It actually changed the wording at group six and group eight to what it thought was more accurate.

[00:22:20] Speaker 00:
And the district court did that.

[00:22:21] Speaker 00:
But here, if you look at the opening brief by Graf Ross, they say on page 32 of the opening brief, the court need only consider claim one of the 053 patent and claim one of the 202 patent.

[00:22:35] Speaker 00:
And so they actually, the only claims they argue separately are those two claims.

[00:22:42] Speaker 02:
It is my impression, but you've probably read these cases more recently than I, that we have not yet had a case in which the claim said, use a computer to do something people have been doing in their heads or with quills or even pigeons, but do it at the following volumes per second.

[00:23:07] Speaker 02:
I'm not sure we've had a claim like that.

[00:23:11] Speaker 02:
Do any of the claims here read like that?

[00:23:13] Speaker 00:
I'm not aware of any of the 616 claims reading like that in any way.

[00:23:17] Speaker 00:
And Graf Ross has not argued that separately.

[00:23:20] Speaker 00:
And since Graf Ross hasn't argued those claims separately, this court doesn't need to address them separately under its precedent and dealer track.

[00:23:31] Speaker 00:
Also came to the issue, there was some suggestion of whether there were some fact issues here.

[00:23:34] Speaker 00:
Here there are no fact issues.

[00:23:36] Speaker 00:
We do think the concept of valuing a fixed income asset is a fundamental concept.

[00:23:42] Speaker 00:
As their prosecution history says, it's been done with quills.

[00:23:45] Speaker 00:
It's been done with carrier pigeons.

[00:23:47] Speaker 00:
So we believe it satisfies that.

[00:23:49] Speaker 00:
But still, if you look at the Supreme Court precedent, the test for an abstract idea is not as rigid as it must be a fundamental or long-standing idea.

[00:23:58] Speaker 00:
In fact, that's just one way the courts have characterized the abstract idea in certain cases.

[00:24:04] Speaker 00:
But if you look at Fluke,

[00:24:05] Speaker 00:
they presume the abstract idea was novel and that wasn't sufficient to make it patentable.

[00:24:10] Speaker 00:
You look at Buy Safe and that the court said even if the abstract idea is brilliant, it wouldn't make it patentable.

[00:24:16] Speaker 00:
So there are no factual issues involved here.

[00:24:19] Speaker 00:
You look at the Supreme Court precedent.

[00:24:23] Speaker 02:
My general impression of the abstract idea precedents, at least in the Supreme Court, put aside ours for now, is that there are two kinds of abstraction.

[00:24:32] Speaker 02:
One is the

[00:24:34] Speaker 02:
the mathematical abstractions, stuff in your head.

[00:24:39] Speaker 02:
And then there's legal entity, like contract abstraction.

[00:24:43] Speaker 02:
And in the second group, the legal entity contract abstraction, so far at least, the Supreme Court, Bilski and Alice have, I think in both instances, said what we have here, at least, is something fundamental.

[00:25:01] Speaker 02:
So maybe some highly

[00:25:04] Speaker 02:
complicated new sort of contractual arrangement might lie outside the abstract category.

[00:25:14] Speaker 02:
Taking that as a hypothetical assumption, why is this not such a newfangled as opposed to fundamental abstract idea?

[00:25:29] Speaker 00:
Because this abstract idea is exactly like the abstract idea.

[00:25:32] Speaker 00:
In fact, I would say it's more abstract than the ideas of hedging risk and Bilsky or intermediate settlement now.

[00:25:38] Speaker 00:
It's simply calculating the value of something.

[00:25:40] Speaker 00:
It goes back to the first marketplace.

[00:25:43] Speaker 00:
It was literally done with quills.

[00:25:45] Speaker 00:
And for that reason, this court can look at it as an abstract idea just like it did in those cases.

[00:25:50] Speaker 00:
It's also, it is a contractual relationship because you're really in these claims dealing with a sale between a buyer

[00:25:58] Speaker 00:
the seller.

[00:25:59] Speaker 00:
One of the computers is providing bids and the other one is calculating the price and it's determined if it accepts those bids to consummate a sale.

[00:26:07] Speaker 00:
So it's a sales contract just like the contractual relationship cases.

[00:26:15] Speaker 00:
And there are no factual issues here because if you look at the Supreme Court's precedent, when you look at Alice and how it calculate, how it determined that the intermediate settlement was an abstract idea, it said it flowed from the

[00:26:26] Speaker 00:
previous cases.

[00:26:27] Speaker 00:
It flowed from the court's previous cases and it looked back at Bilsky.

[00:26:31] Speaker 00:
If you look at Bilsky, Bilsky said, I'm going to look back to Benson, Fluke, and Dear.

[00:26:37] Speaker 00:
And all these analysis, it's simply a legal analysis looking back at the earlier abstract ideas in other cases.

[00:26:43] Speaker 00:
It's not a factual issue.

[00:26:46] Speaker 00:
And same thing here regarding the conventional computer components.

[00:26:50] Speaker 00:
They're not enough to transform these claims into patentable subject matter.

[00:26:54] Speaker 00:
simply because they're generic computer components, as explained in our brief at four, in the red brief.

[00:27:03] Speaker 00:
Last thing I'll mention is that the court did, or Graf Ross did suggest in this brief, the fact that claims were allowed over 102 and 103 would then in some way provide evidence that the claims are valid under 101.

[00:27:15] Speaker 00:
That's not true.

[00:27:16] Speaker 00:
101, 102, and 103 are separate and distinct inquiries.

[00:27:21] Speaker 00:
A claim can be valid under 102 and 103

[00:27:24] Speaker 00:
and still invalid under 101.

[00:27:26] Speaker 00:
In fact, in the last five years, the Supreme Court and this court have found many cases where the Patent Office found the claims were valid over 102 and 103, but the courts found the claims invalid under 101.

[00:27:40] Speaker 00:
It's because if you look at the steps of Alice under step one, the Supreme Court's spoken fluke, even if the abstract idea is novel, it's not sufficient to transform the claim into patentable subject matter.

[00:27:51] Speaker 02:
Do you know the answer to the question about dates of re-exam and whatnot that I asked Mr. Franklin?

[00:28:00] Speaker 02:
When did the PTO last look at these patents?

[00:28:05] Speaker 00:
The PTO last looked at it in the re-exam.

[00:28:07] Speaker 00:
But first thing, the PTO cannot consider 101 in a re-exam.

[00:28:12] Speaker 00:
So it couldn't have possibly ruled on that basis.

[00:28:14] Speaker 00:
And two, I believe it was before Bilsky.

[00:28:18] Speaker 00:
This case was originally filed.

[00:28:21] Speaker 00:
back in 2007, three years before Bilski.

[00:28:24] Speaker 02:
And the re-exam had been completed?

[00:28:27] Speaker 00:
The re-exam, I believe, was only on the 347 patent, but I don't remember the facts of that specifically.

[00:28:35] Speaker 00:
So, but even if you look at step two, Alice, just to conclude the last point, just because conventionality is not the exclusive task for whether something adds an inventive concept.

[00:28:44] Speaker 00:
An inventive concept has been defined in the Supreme Court as whether the claim adds significantly something more.

[00:28:51] Speaker 00:
And under step two, an ultra-mercial has said, even if that additional thing may be novel, it still may not be enough to make the claim patentable.

[00:29:00] Speaker 00:
The test is not whether it's inventive.

[00:29:02] Speaker 00:
For example, look at a field of use limitation.

[00:29:04] Speaker 00:
In a field of use limitation, even though it might make the claim novel under 102 or 103, it's not sufficient to make the claim patentable under 101.

[00:29:13] Speaker 00:
The concept of hedging in Bilski at some point was novel, but the fact that somebody claimed hedging in the energy markets

[00:29:20] Speaker 00:
still wouldn't have been patentable even at that point when it was the first person to ever contemplate it.

[00:29:26] Speaker 00:
So it's still not sufficient to make a claim.

[00:29:28] Speaker 01:
Do you feel that that's the situation here?

[00:29:32] Speaker 00:
Well, here there's nothing in these additional claims, there's no additional elements in these claims that would transform the claims from patentable subject matter, from unpatentable abstract ideas to patentable subject matter.

[00:29:43] Speaker 00:
The only additional limitations in these claims are conventional computer components exactly like the conventional computer components now.

[00:29:51] Speaker 00:
and there are no factual issues to be cited.

[00:29:54] Speaker 00:
The only place there could be a factual issue is under claim construction based on TIVA, but here Graf Ross has never suggested, and Freddie Mac has never suggested, that there are any claim construction issues that affect this analysis.

[00:30:24] Speaker 04:
Thank you, Your Honor.

[00:30:25] Speaker 04:
I'm just looking at the date for, I think the re-exam, the initial re-exam certificate, that's 51-59 of the appendix.

[00:30:32] Speaker 04:
That would have been in 2012.

[00:30:35] Speaker 04:
But it was, it was, I believe it was pre, pre-Bilski is my recollection of it, but I think Mr. Moore is correct that that 101 wouldn't have been a subject in the re-exam.

[00:30:46] Speaker 04:
It would have been something the initial examiners would consider.

[00:30:49] Speaker 04:
Just briefly, on the

[00:30:52] Speaker 04:
characterization of the abstract idea, if one looks at pages 49, 28 to 29 of the appendix, you'll see that Freddie Mac identified the abstract idea in the 053 and 202 patent, precisely in the same manner the district court did.

[00:31:10] Speaker 04:
Nowhere did he identify the abstract idea as the broad concept of valuing a fixed income asset.

[00:31:18] Speaker 04:
I don't think we have any

[00:31:20] Speaker 04:
citation to anywhere in the record where it made that contention below.

[00:31:24] Speaker 03:
Can you point to the claims and actually show us what you think the inventive concept is?

[00:31:31] Speaker 04:
Okay.

[00:31:31] Speaker 04:
Yes, you're right.

[00:31:32] Speaker 03:
Because the claims don't speak to speed, don't speak to anything different.

[00:31:37] Speaker 03:
You enter data, pricing data, and you come out with pricing data.

[00:31:42] Speaker 04:
Right.

[00:31:42] Speaker 04:
Well, you have in the first patent that was considered, you have the

[00:31:49] Speaker 04:
347 patent, you have the system-determined purchase price.

[00:31:53] Speaker 04:
And that's what the PTO determined was novel, that Prior Art could at best, and I'm reading from page 1892 of the record, Prior Art disclosed only the computer-implemented calculation of market-based components of properties, but do not teach or suggest determining a purchase price and consummating a sale and corresponding purchase of components, as recited in the patent.

[00:32:18] Speaker 04:
So we have on this record a PTO determination that that aspect of these claims was novel.

[00:32:25] Speaker 04:
And it is a technological innovation.

[00:32:27] Speaker 03:
It's novel under their definitions at the time that the panel's considered.

[00:32:33] Speaker 03:
But is it an inventive concept?

[00:32:35] Speaker 03:
I think it is.

[00:32:36] Speaker 03:
Do we understand that concept now?

[00:32:38] Speaker 03:
I would say yes, Your Honor.

[00:32:39] Speaker 03:
Show me where.

[00:32:40] Speaker 04:
Where in the claim is the inventive concept?

[00:32:42] Speaker 04:
Well, I just referred to the system-determined purchase price and other of the claims that talks about the system-determining

[00:32:48] Speaker 04:
yield discount rates.

[00:32:51] Speaker 04:
Mr. Moore suggested that that could have been done with quill pens and carrier pigeons.

[00:32:55] Speaker 04:
That's not what the PTO held.

[00:32:57] Speaker 04:
The PTO held that that's what the art was prior to this invention.

[00:33:00] Speaker 04:
This invention did something that couldn't have been done.

[00:33:03] Speaker 04:
The closest prior art to an electronic bond trading system was described as being the telephone.

[00:33:09] Speaker 04:
The telephone cannot do a system-determined purchase price.

[00:33:13] Speaker 04:
That was a new innovation that was something

[00:33:15] Speaker 04:
like DDR, where it was an advance in the field.

[00:33:18] Speaker 04:
It was a technological advance.

[00:33:20] Speaker 04:
And I don't think we can use our 2015 blinders and say, well, that seems kind of trivial.

[00:33:27] Speaker 04:
Because in 1992, when these patents were applied for, it wasn't.

[00:33:31] Speaker 04:
And to the extent there's any question in the court's mind, any question at all about what was or wasn't possible in 1992 to do or thought of doing, that's a factual issue.

[00:33:43] Speaker 04:
And at best, it's a remand issue.

[00:33:46] Speaker 03:
But we're looking at a legal issue.

[00:33:47] Speaker 03:
And what was the law in 1992 is different from the law in 2015.

[00:33:52] Speaker 03:
And I'm asking you to assist the court by pointing to the claim and showing where the inventive concept is, as we understand that term, under law today.

[00:34:04] Speaker 03:
OK.

[00:34:05] Speaker 04:
I think I've tried to do that with the 347 and claim 101.

[00:34:09] Speaker 04:
It's controlling a computer processor to compute a system-determined purchase price for the component of the asset.

[00:34:15] Speaker 04:
That's something the PTO said was invented, that hadn't been done before, that nobody had done before, even though they were computerized asset valuations.

[00:34:23] Speaker 04:
I'm just relying, again, it's not what I'm saying, that's what the PTO is saying.

[00:34:26] Speaker 04:
And again, I think that if there's any question in the court's mind as to what was or wasn't possible in 1992, and again, the law has changed, the facts have not.

[00:34:36] Speaker 04:
The facts are the same.

[00:34:37] Speaker 04:
And legal determinations do often rely on factual decisions.

[00:34:41] Speaker 04:
At best, that's a remand.

[00:34:43] Speaker 04:
At worst, it's a victory for us, because they didn't put in any of the evidence.

[00:34:48] Speaker 04:
At worst, from their perspective, anyway.

[00:34:51] Speaker 04:
So I would encourage the court to look at this case not focusing on what we think we know as of 2015, but what the PTO found was known and could have been done as of 1992.

[00:35:05] Speaker 04:
Thank you, Your Honor.

[00:35:06] Speaker 01:
We ask it according to our suggestions.