[00:00:02] Speaker 00:
Good morning, ladies and gentlemen.

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We have four argued cases before the court today and one submitted.

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The first two argued cases are actually related.

[00:00:12] Speaker 00:
The Chicago Board Options Exchange versus International Securities Exchange, case number 1728, and case number 151743, which involves the same parties but on opposite sides of the appellate spectrum.

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Mr. Lieberman and Mr. Murray,

[00:00:32] Speaker 00:
I don't think there's a need to change tables between arguments.

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And I also would encourage you, to the extent possible, to not repeat anything that has to do with the technology.

[00:00:46] Speaker 00:
We certainly understand it.

[00:00:48] Speaker 00:
We've read everything you've submitted.

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I commend both of you on the quality of your briefings.

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So it's possible that at least the second argument won't entail the full amount of

[00:01:02] Speaker 00:
of time that's allotted, but I'll give it to you if you, in fact, think that you need it.

[00:01:06] Speaker 00:
So, as I understand it, Mr. Lieberman, you want five minutes for rebuttal in the first case?

[00:01:11] Speaker 00:
That is correct, Your Honor.

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

[00:01:14] Speaker 00:
You ready to proceed?

[00:01:15] Speaker 02:
I am.

[00:01:16] Speaker 02:
Okay.

[00:01:16] Speaker 00:
Go ahead.

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Judge O'Malley, and may it please the Court.

[00:01:24] Speaker 02:
The Supreme Court in the Alice case, before reaching its conclusion that the patent claims in that case were patent ineligible,

[00:01:32] Speaker 02:
asked two questions.

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One is, do the claims purport to improve the functioning of the computer itself?

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And CBOE does not contend that the claims here purport to improve the functioning of a computer.

[00:01:46] Speaker 01:
The second question the Supreme Court asked... So you're conceding step one of the ELLIS test?

[00:01:51] Speaker 02:
No, we are not.

[00:01:52] Speaker 01:
You're not?

[00:01:52] Speaker 02:
No, step one is the question of whether or not... The claims are directed to an effort.

[00:01:57] Speaker 02:
That's correct.

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We are not conceding that.

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The Supreme Court asked these two questions at the end of its Alice analysis.

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The first one is, do the claims report to improve the functioning of a computer?

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And the second is, do the claims affect an improvement in any other technology, other meaning, other than a computer, or technological field?

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And it's our position that the claims in this case affect an improvement in a technological field.

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The technological field is the field of

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automated exchange trading systems.

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That is a claim element.

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The PTAB erred below in concluding that it was not for three reasons.

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First, as this court indicated in the BI versus Shearing case, even if there is no antecedent basis in a preamble, the preamble is still limiting if it is the essence of the invention or the raison d'etre.

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of the invention.

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That was the language that this court used.

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Here, we have automated exchange trading system in the title of the patent, in the first sentence of the abstract, in the very short field of invention, in the first sentence of the summary of invention, and throughout the specification.

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It is critical to the invention.

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Moreover, there was a close correlation between the language in the preamble and the language in the subsequent steps of the claims.

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such that the claims do not make sense without the preamble being considered a claim limitation.

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So are you then contending that you might have a situation where you could be simply implementing an abstract idea upon the initial computerization, but then after the fact, if a problem is realized through the computerization that you then can have a subsequent

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patent that would be patent eligible?

[00:03:58] Speaker 02:
Exactly correct, Your Honor.

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And I think the DDR case, the majority opinion in the DDR case goes precisely to this point.

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In that case, you'll recall the technology involved was when someone clicked on a link in a website, making it look as if when the person traveled off the website that they were still on the website.

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And the panel decision there said two things.

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First, this addressed a problem that did not exist in the bricks and mortar context.

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That is, it was a new problem caused by the internet.

[00:04:30] Speaker 01:
So what's the new problem that was resolved here?

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The delta, claim D of the pen, is that what you say is new, the new technology?

[00:04:45] Speaker 02:
The new problem is this.

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When automatic exchange trading systems were created,

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They created a new type of risk, not a new variation of risk, a new type of risk that never existed before.

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So for example, I think everybody will remember in the Trading Places movie, when somebody came into the options pit and they wanted to do a trade, Eddie Murphy had to say, you know, had to make a little movement with his finger saying, I acknowledge the trade, I accept.

[00:05:16] Speaker 02:
That's what happened in the open outcry system.

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You could not do a trade.

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You could not get hit as a market maker.

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unless you made a conscious decision to do that.

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With an automated system, all of a sudden, you could have tens, hundreds, thousands of quotes hit without your knowledge and without your participation.

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And Maureen O'Hara, ISE's expert, has admitted these differences in her testimony in the underlying proceeding.

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And we've cited those in the record.

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We understand the concepts that you're saying that this put aside the fact

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This is the first time probably anybody mentioned Eddie Murphy in a federal circuit argument.

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Actually, this is a second time I've heard it.

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I think what my problem is is that I understand the distinction you're making, and I understand the distinction made in DDR holdings.

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The problem is that that distinction has to be supported by the claims.

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even assuming that you're talking about an automated system, and even assuming that you are contemplating that some things occur because of the automated system, there still has to be something inventive about what you are claiming.

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So let's give you the preamble being limiting, though I'm not sure that's absolutely necessary.

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But if we give you that, what in the claims there's storing and undefined modification

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How is that enough?

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The answer is twofold.

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The step that has the critical portion of the invention is the automatically modifying the remaining quotes that are in the system.

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There were no such remaining quotes in the open outcry system.

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Again, Maureen O'Hara at pages 1752 to 1756 of the appendix

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talked about, admitted the differences between open outcry and under an automated exchange trading system.

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But even assuming that, we're in the automatic system.

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There were no remaining quotes because you didn't have any place for them to remain.

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But isn't the fact that there are remaining quotes and that you then store them, isn't that sort of a necessary implication of the automated system?

[00:07:42] Speaker 02:
Well, the storage of the quotes is, the automatically modifying is a disruptive event to the way automated exchange trading systems typically work.

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Just the way the technology in DDR is found to be disruptive by the majority of the panel.

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Here's why.

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In a normal automated system without our invention, what would happen is if a market maker decided that there was too much risk, he would then put in new quotes.

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Those would go to the end of the queue.

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But before it got to the front of the line, he could have been hit on hundreds or thousands of existing quotes.

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What this invention does is it has the system modify a modification in the system so immediately the quotes are modified.

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It's not something that's done by the market maker.

[00:08:33] Speaker 01:
So you're referring to hedging risk?

[00:08:37] Speaker 01:
No.

[00:08:37] Speaker 01:
No.

[00:08:38] Speaker 01:
Or is this not hedging risk?

[00:08:40] Speaker 02:
Well, it's not hedging risk because what you have here

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The automated exchange trading system is essentially an exceedingly complex machine.

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And, I mean, think about it.

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There are only about 15 to 20 exchanges in the United States.

[00:08:55] Speaker 01:
The claimant recites automatically modifying at least one of the remaining specified ones or said quotes in the quote group if said threshold is exceeded.

[00:09:06] Speaker 02:
That's right.

[00:09:07] Speaker 01:
So if you exceed the threshold, then it modifies the remaining quotes.

[00:09:12] Speaker 01:
That's a risk taking or a risk hedging behavior.

[00:09:15] Speaker 02:
Well, I think it's no more related to risk taking than if you have an airbag which you put in a car to mitigate the risks of somebody being injured in a crash or a bulletproof vest that somebody wears to mitigate the risk of being injured by a bullet.

[00:09:33] Speaker 02:
The key here is not that the ultimate result is that the market maker is protected.

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is that you were changing the system, which is a complex machine.

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And by the way, the preferred embodiment in column three of the patent talks about certain computer systems.

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The Sun and the Starfire system, those are not off-the-shelf computers, which is something that the PTAB concluded without any basis.

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Those are computers that cost hundreds of thousands of dollars or millions of dollars.

[00:10:01] Speaker 02:
The Starfires are crazed supercomputers.

[00:10:03] Speaker 01:
Let's go back to

[00:10:06] Speaker 01:
what this pen does and what these claims recite.

[00:10:10] Speaker 01:
So you do concede that claim F or paragraph F refers to or deals with risk hedging.

[00:10:21] Speaker 02:
Well, what it deals with is it deals with modifying, having the system modify the existing quotes.

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It's an improvement to the machine.

[00:10:30] Speaker 02:
It's an improvement to the system.

[00:10:32] Speaker 01:
But it modifies existing quotes in order to address potential risk.

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If I may take a step back, Your Honor, and answer your question this way as a policy matter.

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The Supreme Court declined the invitation made by many to set out a separate category for business method patents and say that they are per se patent ineligible.

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If this court is going to say that just because an invention

[00:10:57] Speaker 02:
touches on the concept of risk.

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That's going to implicate essentially every financial risk.

[00:11:03] Speaker 01:
Don't take my questions to express that type of policy.

[00:11:08] Speaker 01:
I'm just trying to understand how what you're advocating to us that's new here and the element that we should focus on, I'm trying to get you to articulate that element

[00:11:24] Speaker 01:
Because my next question is going to be, how is this different from ALICE, the risk agent in ALICE?

[00:11:31] Speaker 02:
OK.

[00:11:31] Speaker 02:
So the newness we know because of the result in the IPR proceeding, there is a new risk and a big difference between what is covered by this patent and what was done previously.

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We know that it's not routine and conventional because the same PTAB panel found that it wasn't invalid as anticipated or obvious, and I know we'll be speaking

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More about that probably a little later this morning.

[00:11:56] Speaker 02:
So we know that it's new and it's different.

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It's a new type of risk.

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It's embodied in an exchange trading system, which are machines, cables, software code, millions and millions of dollars that transact transactions involving trillions of dollars every day.

[00:12:12] Speaker 02:
It can't get much more real than that.

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How is this different than Alice?

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I would turn it around and say the only way it's the same

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is that it involves financial transactions.

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And at the highest level of abstraction, it involves risk.

[00:12:30] Speaker 02:
In the Alice case, the Supreme Court said it was nothing new.

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You can't get a patent just by taking something that's old and doing it on the computer, even if it's faster and better on the computer.

[00:12:39] Speaker 02:
And we agree with that.

[00:12:40] Speaker 01:
Well, it seems to me that up until you get to F, that everything above that is something that's been assigned to a computer.

[00:12:51] Speaker 01:
I mean, you're describing a system under the open outcry system, except that you're now doing it on a computer, receiving orders, generating a trade, storing the orders, determining a quote, comparing said aggregate risk.

[00:13:07] Speaker 02:
Judge Wren, I agree entirely that these steps are done on a computer.

[00:13:12] Speaker 02:
Let me advert for a second to what the Supreme Court said in Alice in discussing the Deer case.

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The Supreme Court said,

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The claims in deer were patent eligible because they improved on an existing technological process, not because they were done on a computer.

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There was a computer in deer.

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That isn't what made those claims patentable.

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And the fact the computer is being used isn't what make the claims patentable here.

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What makes them patentable is that there is a problem, a new type of problem created by automated exchange trading systems with an entirely new type of risk.

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And this invention

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cured that problem created by the internet in a disruptive fashion.

[00:13:55] Speaker 02:
And the technology here, again, we're not talking about a conventional scanner or a copy or even a laptop computer.

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These are supercomputers.

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These are hundreds of thousands of dollars, these machines.

[00:14:06] Speaker 02:
This was in the Sand Home Declaration, which the PTAB really paid no deference to, even though there was nothing on the other side.

[00:14:16] Speaker 02:
I see I only have a few minutes left and I would like to save some time for rebuttal, but I do want to answer any other questions the court might have right now.

[00:14:24] Speaker 00:
Okay, we'll give you three minutes for rebuttal.

[00:14:26] Speaker 02:
Thank you, Your Honors.

[00:14:41] Speaker 03:
Good morning, Your Honors.

[00:14:42] Speaker 03:
May it please the court?

[00:14:43] Speaker 03:
I'd like to do what CBO has been very reluctant to do from the beginning of this case, which is address the two-part test in Alice for determining whether we have patent-eligible subject matter here.

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Alice step one says we have to see if we have an abstract method embodied in the claim.

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And we clearly do.

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As the board concluded below, they said, we conclude that the concept of managing trading risk is an economic practice long prevalent in our system of commerce

[00:15:10] Speaker 03:
and squarely within the realm of abstract ideas.

[00:15:13] Speaker 03:
They really said nothing.

[00:15:14] Speaker 00:
But trading risk, in your particular case, you are talking about trading risk as it relates to these classic exchanges, correct?

[00:15:26] Speaker 03:
It doesn't have to be in an exchange, actually.

[00:15:28] Speaker 03:
This sort of basic economic practice could apply to other fields as well.

[00:15:32] Speaker 00:
Would you concede that you could have a situation in which the initial automation of

[00:15:41] Speaker 00:
an idea is just automation with a generic computer of an abstract idea.

[00:15:46] Speaker 00:
But if that automation itself generates an additional problem that was unknown before, that a new patent could be patent eligible.

[00:15:55] Speaker 03:
If they claim the solution to that problem in their claims, then I think that's possible, Your Honor.

[00:16:02] Speaker 00:
That's what I want to focus on.

[00:16:04] Speaker 00:
Because yes, just

[00:16:06] Speaker 00:
managing risk, that's like a red flag that goes off for everybody because of Bilski.

[00:16:12] Speaker 00:
And we know what the Supreme Court was looking at there.

[00:16:17] Speaker 00:
But assume there was no risk related to sort of the amassing of quotes that occurs as a necessary incident of the automation.

[00:16:31] Speaker 00:
Could there be a patent that

[00:16:33] Speaker 00:
claims a solution to that additional risk that wouldn't just be addressing the abstract idea of risk?

[00:16:40] Speaker 03:
I think it's possible, but it's not this patent.

[00:16:42] Speaker 03:
It's not this claim.

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That's what I want to focus on.

[00:16:45] Speaker 03:
Right.

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This claim, the risk in this claim is very clearly set forth in the claim.

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It's about the risk of first of all, there's a risk level associated with each trade.

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And this claim is directed specifically in its language to avoiding having that aggregate risk getting too large.

[00:17:01] Speaker 03:
So as a trader is trading, each trade has a risk associated with it.

[00:17:07] Speaker 03:
And we describe in the brief this Greek delta, which is sort of a measure of risk.

[00:17:13] Speaker 03:
So when the trader is trading, the trader is adding up those deltas.

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And this is what was done in open outcry.

[00:17:19] Speaker 03:
And when that delta became too large, uncomfortably large, as admitted by Sibo's expert, there would be some hedging to bring that delta back down.

[00:17:29] Speaker 03:
That's the risk that's called out in the claims.

[00:17:33] Speaker 00:
Okay.

[00:17:33] Speaker 00:
What language are you focusing on in the claims for that?

[00:17:36] Speaker 03:
I'm focusing on the determining a risk level and an aggregate risk level.

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Now that risk level is the risk associated with a trade.

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The aggregate risk level is simply adding up the risks associated with each trade.

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So if your first trade has a risk level of one and your second trade has a risk level of two, now your aggregate risk level is three.

[00:17:56] Speaker 03:
And market makers would have a threshold tolerance for risk.

[00:18:02] Speaker 03:
And when they crossed that threshold tolerance, what they would do is they would modify their remaining quotes.

[00:18:08] Speaker 03:
And that's what happened in open outcry.

[00:18:10] Speaker 03:
It's exactly the same process.

[00:18:12] Speaker 00:
But what if your remaining quotes are 1,000?

[00:18:16] Speaker 00:
I mean, that didn't happen on the trading floor, right?

[00:18:20] Speaker 03:
Well, first of all, the idea that the trades were not

[00:18:24] Speaker 03:
sort of displayed or stored on a trading floor is not true.

[00:18:28] Speaker 03:
Quotes were stored in open outcry.

[00:18:30] Speaker 03:
Mr. Kaminsky admitted that, quote, market makers would determine the quotes which were, in most cases, posted on large monitors mounted in rows above the pit.

[00:18:40] Speaker 03:
This is at A1494 in the record.

[00:18:43] Speaker 03:
So even in open outcry, the market makers would put their quotes up on a board.

[00:18:47] Speaker 03:
And there would be lots of quotes there.

[00:18:49] Speaker 03:
So now in open outcry, when the market maker is trading and monitoring his or her risk,

[00:18:55] Speaker 03:
When that risk became too large, even the background of the 498 patent tells us that what market makers would do is they would adjust their pricing to hedge away that unwanted risk.

[00:19:06] Speaker 03:
That's right in the background of the 498 patent.

[00:19:10] Speaker 03:
And that appears at column one, lines 43 through 55.

[00:19:16] Speaker 03:
So the risk of the claim is the same risk that existed in open outcry where market makers would monitor their risk

[00:19:24] Speaker 03:
and then make adjustments when that risk got too high.

[00:19:27] Speaker 03:
All they did was implement that.

[00:19:28] Speaker 00:
You don't see that there's a difference between the risk and an exponential volume of that risk?

[00:19:36] Speaker 03:
Well, first of all, there's nothing in the claims about the volume of the trades.

[00:19:40] Speaker 03:
So again, a lot of what's in CBO's briefs and what Mr. Lieberman was just talking about is we've got thousands of trades and we have millions of lines of code.

[00:19:50] Speaker 03:
None of that is in the claims, which is what the board focused on below.

[00:19:54] Speaker 03:
The claims require nothing other than a plurality of quotes, two quotes.

[00:19:59] Speaker 03:
So if they have some unique solution to how to deal with millions of quotes, it certainly isn't claimed.

[00:20:07] Speaker 03:
There's nothing in the claim that requires that.

[00:20:09] Speaker 00:
And I'd also... I know the case isn't binding on us, but do you see a distinction between this case and trading tech?

[00:20:18] Speaker 03:
Yes, I see a big distinction.

[00:20:19] Speaker 03:
Trading technologies, what they claimed was a unique graphical user interface.

[00:20:24] Speaker 03:
So it was a GUI, graphical user interface, that arranged data in a certain way that presented the data in a unique way to the market makers that were doing the trading.

[00:20:36] Speaker 03:
So that is rooted in the technology.

[00:20:38] Speaker 03:
It's a graphical user interface.

[00:20:41] Speaker 03:
So that had no analog in the open outcry market.

[00:20:45] Speaker 03:
It wasn't something that market makers would do with pencil and paper, for example.

[00:20:50] Speaker 03:
It was a unique graphical interface that changed in a certain way.

[00:20:54] Speaker 03:
So it's very different technology.

[00:20:57] Speaker 01:
Can you address the step that's recited in F of claim one in terms of what your opponent was saying to my questions?

[00:21:08] Speaker 03:
Well, Mr. Lieberman was saying that he thinks it's significant that the modification is done automatically.

[00:21:14] Speaker 01:
But again, taking in the- I think he was even more limiting than that when he said that it's done to remaining quotes.

[00:21:22] Speaker 03:
Right.

[00:21:22] Speaker 03:
Well, again, that's exactly what happened in open outcry.

[00:21:24] Speaker 03:
Market makers in open outcry would have quotes posted on the board behind them in the pit.

[00:21:30] Speaker 03:
For some reason, CBO has focused on the fact that in a pit, you have multiple market makers instead of just one.

[00:21:36] Speaker 03:
So the quotes aren't sort of pit quotes, not quotes for particular market makers.

[00:21:40] Speaker 03:
But again, the claim doesn't say anything about that.

[00:21:43] Speaker 03:
The claim is just dealing with quotes.

[00:21:45] Speaker 03:
But you certainly had remaining quotes.

[00:21:48] Speaker 03:
And Your Honors, even if it's audible,

[00:21:51] Speaker 03:
even if it isn't stored, which it was stored in open outcry.

[00:21:55] Speaker 03:
But if I'm a market maker and I'm saying, here's my quote for this IBM option, and then somebody trades with me and is buying a lot of that particular option, and I decide that I want to change the price, I say, here's my revised price for that IBM option.

[00:22:10] Speaker 03:
The fact that I'm saying it out loud, modifying my quotes orally, why is it patentable to just take that and implement it on a computer?

[00:22:18] Speaker 03:
It really isn't.

[00:22:21] Speaker 00:
So what you're saying is that there might be conceivably a way in which the danger of collating or amassing huge volumes of quotes could be addressed by a patent eligible claim, but this claim is too broad to get there.

[00:22:42] Speaker 03:
This claim doesn't even begin to touch on that kind of thing.

[00:22:45] Speaker 03:
So when you look at their briefing, what they're talking about are message cues.

[00:22:50] Speaker 03:
Things are being processed in the order that they're received.

[00:22:53] Speaker 03:
And an execution message, if it's sitting in the message queue behind an order, these are the problems that they're talking about in the electronic world.

[00:23:03] Speaker 03:
This claim has nothing to do with.

[00:23:05] Speaker 03:
This claim is just taking the basic abstract operation and automating it.

[00:23:11] Speaker 00:
And just getting back to Alice for a minute, the- Why wouldn't it have been anticipated under 102?

[00:23:18] Speaker 00:
I know we'll get there in a minute.

[00:23:20] Speaker 03:
I think it is.

[00:23:22] Speaker 03:
I mean, I'm certainly happy to talk about the IPR issue.

[00:23:25] Speaker 03:
There's nothing at all inconsistent about the IPR.

[00:23:27] Speaker 01:
First of all, the... Before you get into that, how about responding to his analogy to the DDR case?

[00:23:35] Speaker 03:
Sure.

[00:23:35] Speaker 03:
DDR solved the problem that was sort of rooted in technology.

[00:23:39] Speaker 03:
It's about when you click a hyperlink in the internet, instead of going where you would normally go, which is out to a different website,

[00:23:48] Speaker 03:
The invention was, let's say I'm in a Home Depot website, and I'm looking at a Kohler faucet, and I click on the Kohler hyperlink.

[00:23:58] Speaker 03:
In the prior art, I would jump to the Kohler website.

[00:24:02] Speaker 03:
So now Home Depot has kind of lost that customer, lost control of that customer, because they've jumped to the Kohler website.

[00:24:09] Speaker 03:
And so the invention there was, instead of that hyperlink jumping to the Kohler website, I'm going to create within the Home Depot website a little sort of Kohler

[00:24:19] Speaker 03:
page to maybe sell that faucet, but I keep my customer within the Home Depot website.

[00:24:26] Speaker 03:
So this is something that is solidly rooted in technology in DDR.

[00:24:34] Speaker 01:
Maybe another way of looking at it is that DDR resolves a problem that's specific and peculiar to the internet.

[00:24:44] Speaker 01:
And Mr. Lieberman is saying that what

[00:24:48] Speaker 01:
especially step F does, it resolves a problem that arose out of prior methods of automating the exchange system.

[00:25:01] Speaker 01:
So this resolves a problem that didn't exist, but for prior.

[00:25:08] Speaker 01:
So this advances technology.

[00:25:11] Speaker 01:
It's internet-based.

[00:25:14] Speaker 03:
Well, I'd like to talk about that.

[00:25:16] Speaker 03:
The so-called problem that Mr. Lieberman is addressing is what happens when you separate the trading from the risk analysis.

[00:25:25] Speaker 03:
So in open outcry, the market maker would do a trade, would see how that trade affected his or her risk profile, is my risk getting too large, make some adjustments, and do another trade.

[00:25:37] Speaker 03:
It was always known that whoever or whatever is doing the trading has to do the risk analysis.

[00:25:43] Speaker 03:
So Mr. Lieberman, or CBO, sort of

[00:25:46] Speaker 03:
hypothetically says, well, what if we had an electronic exchange that took the trading away from the market maker to a computer down the road, but the risk analysis is left back with the market maker?

[00:25:58] Speaker 03:
So now you have separated the trading from the risk analysis.

[00:26:01] Speaker 03:
Well, now you have a problem because the computer is going to do the trading very quickly.

[00:26:05] Speaker 03:
And if the market maker is sitting back in his or her office trying to do the risk analysis as the trades happen, well, a human can't keep up with a computer.

[00:26:15] Speaker 03:
So you have this kind of mismatch.

[00:26:18] Speaker 03:
But this is a hypothetical that didn't exist, first of all, in the real world.

[00:26:22] Speaker 03:
There were no exchanges that did that.

[00:26:24] Speaker 03:
And it's illogical.

[00:26:25] Speaker 03:
You're saying there were no exchanges in the United States that did that.

[00:26:28] Speaker 03:
Well, no.

[00:26:29] Speaker 03:
There were no exchanges anywhere that did that.

[00:26:31] Speaker 03:
The exchanges in Europe were really kind of hybrid exchanges.

[00:26:34] Speaker 03:
Market makers would put, for example, one quote into the electronic exchange and see if it matched.

[00:26:41] Speaker 03:
And if it matched, maybe they'd make some adjustments.

[00:26:43] Speaker 03:
Then they'd put another quote in.

[00:26:44] Speaker 03:
It was really kind of like OpenOutCry, sort of a hybrid OpenOutCry electronic system.

[00:26:51] Speaker 03:
But there was no system that took away the trading completely from the market.

[00:26:57] Speaker 00:
But does the problem have to exist in the real world?

[00:26:59] Speaker 00:
You can't anticipate a problem that's going to be created by the automation?

[00:27:05] Speaker 03:
Sure, you could anticipate a problem.

[00:27:07] Speaker 03:
But again, what happened in OpenOutCry, the basic economic practice here is trade

[00:27:14] Speaker 03:
do your risk analysis, do another trade, do your risk analysis.

[00:27:17] Speaker 03:
That's what market makers did.

[00:27:18] Speaker 03:
So it's not statutory to automate that entire process.

[00:27:26] Speaker 03:
It's illogical.

[00:27:28] Speaker 03:
But the claim at its core does nothing but automate sort of both halves of that.

[00:27:33] Speaker 03:
It automates the trading and it automates the risk analysis.

[00:27:41] Speaker 03:
Now, if I could get back to, I mean, I think we haven't talked about Alice part one and part two.

[00:27:46] Speaker 03:
I mean, CBO doesn't want to talk about part two of Alice because what you have to do is you have to look at the additional elements beyond the abstract method that are in the claim and explain why those additional elements impart patentability.

[00:27:59] Speaker 03:
And there are no additional elements in this claim.

[00:28:02] Speaker 03:
When you take out the abstract method, all you have left is automatically modifying.

[00:28:08] Speaker 03:
And that certainly isn't something that would

[00:28:11] Speaker 03:
add something sufficient to the abstract method to make it patent eligible.

[00:28:16] Speaker 03:
So CBO never talks about step two of Alice, and they don't talk about it because they have nothing to say about it.

[00:28:24] Speaker 03:
Now, I'd like to address a couple of other things.

[00:28:27] Speaker 03:
First of all, the preamble issue, only one patent out of the three even has automated electronic exchange in the preamble, something that CBO kind of glosses over.

[00:28:37] Speaker 03:
So if automated electronic exchange is so critical,

[00:28:40] Speaker 03:
Why isn't it in all three of the patents?

[00:28:43] Speaker 03:
So the preamble in this one patent, the 498 patent, is really just an intended use.

[00:28:49] Speaker 03:
The other claims in the other patents talk more generally about a system.

[00:28:53] Speaker 03:
So there's no reason that preamble should be limiting.

[00:29:13] Speaker 03:
I was going to talk about the IPR a little bit, if there are any questions about that.

[00:29:18] Speaker 03:
I think there's a lot of confusion there in Cibo's papers about the IPR, maybe intentionally.

[00:29:26] Speaker 03:
But the issue about novelty only applies to the second step in Alice.

[00:29:32] Speaker 03:
So you don't get over the 101 hurdle even if you have a novel abstract idea.

[00:29:40] Speaker 03:
This court made that clear in Ultramershal.

[00:29:42] Speaker 03:
specifically, which talked about that.

[00:29:45] Speaker 03:
The so-called search for novelty or the novelty issues in ALIS come in only with respect to the additional elements.

[00:29:54] Speaker 03:
So if there was some additional elements added to these claims beyond the abstract method, and those additional elements were really new and innovative technology, then they might have a case for why that would be relevant.

[00:30:07] Speaker 00:
Give me an example beyond DDR where you would see an additional element.

[00:30:13] Speaker 00:
that if you say you fail the first prong, that there is an abstract idea that you're definitely dealing with, but you're improving upon the automation, or there's something else that occurs that could give rise to patent eligibility because of the novelty of the additional element.

[00:30:35] Speaker 03:
Well, it's possible if they had claimed some of the things that they talk about in their brief,

[00:30:40] Speaker 03:
OK, you have a message queue, and you have orders and cancellations that come into that message queue.

[00:30:46] Speaker 03:
If a cancellation is behind an order, maybe you don't process it in the order in which it's received.

[00:30:53] Speaker 03:
This is the so-called problem.

[00:30:56] Speaker 03:
So maybe you take cancellations out of order in the message queue, and you process cancellations first.

[00:31:01] Speaker 03:
I don't think the patent actually discloses that, but we're talking hypothetically.

[00:31:05] Speaker 03:
So if you had a claim like that,

[00:31:07] Speaker 03:
that was really sort of rooted in what's going on in the computer and in the technology, it's possible that that kind of claim could be patentable.

[00:31:15] Speaker 00:
So you're saying the patent doesn't really claim that because the use of the word modification in light of the spec couldn't be interpreted to claim that?

[00:31:26] Speaker 03:
Well, it doesn't.

[00:31:27] Speaker 03:
It says all you do is you modify one of the remaining quotes.

[00:31:31] Speaker 03:
And in the specification, they talk about just changing the price.

[00:31:35] Speaker 03:
example, which is what market makers did in open outcry, of course.

[00:31:38] Speaker 00:
Okay.

[00:31:38] Speaker 00:
All right.

[00:31:39] Speaker 00:
Well, we'll save the rest of the discussion for the next case, but you have three minutes, Mr. Lieberman, to respond.

[00:31:50] Speaker 02:
Thank you, Your Honor.

[00:31:50] Speaker 02:
Let me begin with the last point that Mr. Murray made.

[00:31:55] Speaker 02:
The step F, the automatically modifying, does relate to and the purpose of it is

[00:32:03] Speaker 02:
One of the purposes is to fix the message queue problem.

[00:32:06] Speaker 02:
And the message queue problem was specifically identified in the specification of the patent, the column two, line 21.

[00:32:13] Speaker 02:
That's why it's important that the system will automatically modify the quotes, because it does that before all those quotes in the message queue can be hit.

[00:32:26] Speaker 00:
Why, I mean, the spec does discuss

[00:32:31] Speaker 00:
that some of those things occur or you perceive some of those problems.

[00:32:36] Speaker 00:
But the claims are so broad that they don't really say anything about that.

[00:32:44] Speaker 02:
Well, I don't believe that the law requires that in the claim itself you specifically repeat the problem that you're fixing.

[00:32:52] Speaker 02:
Here in the claim we deal with the specific solution that fixes the problem talked about in the specification.

[00:32:58] Speaker 02:
And the solution is the automatically modified.

[00:33:02] Speaker 02:
And the purpose of the automatically modifying is to make sure that that new type of risk doesn't redound to the detriment of the market maker.

[00:33:09] Speaker 02:
That is, that the market maker doesn't get hit, doesn't have quotes hit, 10 quotes, 100 quotes, 1,000 quotes.

[00:33:15] Speaker 02:
And by automatically modifying those quotes, you eliminate the message queue problem.

[00:33:21] Speaker 02:
I would submit you don't have to repeat the problem in the claim.

[00:33:25] Speaker 02:
Have I answered your question?

[00:33:31] Speaker 00:
somewhat of a loss as to how you say that automatically modifying that we are supposed to assume that it does things like you know alter the orders of the quotes or and not just and it's not just addressed to the price of the quote right so let me answer that question very directly you can modify the quotes in a number of different ways you could modify them by withdrawing them you could modify them by changing price you could modify them

[00:33:59] Speaker 02:
uh... by changing the i mean there are a whole variety of different ways that in general quote can be modified uh... we didn't have to i would submit limit the claim to particular types of modifications if the problem out there for the market maker is he's got ten thousand quotes with respect to the stock and bp and uh... that that the bt horizon oil rig just blew up now he may decide to take all those quotes off the market

[00:34:29] Speaker 02:
But he can't, because he can't get there first.

[00:34:32] Speaker 02:
The quotes are already up there, and people particularly with the computerized trading can hit those things in a matter of microseconds once the news comes out.

[00:34:41] Speaker 02:
So automatically modifying the quotes, the system, once that first quote is hit, the system will automatically modify the quote in a way so that the market maker doesn't lose 30 years of accumulated savings from work.

[00:34:56] Speaker 02:
It does it immediately.

[00:34:57] Speaker 02:
It does it automatically.

[00:34:59] Speaker 02:
And it fixes that problem.

[00:35:01] Speaker 02:
And we know it's a new problem.

[00:35:02] Speaker 02:
And we know it's very different from what existed in open outcry because in two places in her testimony, Maureen O'Hara, their expert, admitted the differences both as to risk and to the way things worked in open outcry.

[00:35:17] Speaker 02:
This is the appendix at 1752 to 56 and the appendix at 1834 to 35.

[00:35:24] Speaker 02:
She also admitted in those sites

[00:35:28] Speaker 02:
that the steps that are in the claim are by and large steps that would not have been done by a market maker.

[00:35:36] Speaker 02:
These are steps that are done by an exchange.

[00:35:39] Speaker 02:
So all or almost all the steps here relate to what the exchange, the machine does, and it's an improvement to a machine.

[00:35:47] Speaker 02:
And let me analogize this to a case that on first blush may seem to be very different, but I would submit that it's very, very closely related.

[00:35:58] Speaker 02:
And that's the Supreme Court's case in Deere.

[00:36:00] Speaker 02:
And Deere, there were essentially three categories.

[00:36:03] Speaker 00:
I'm sorry.

[00:36:04] Speaker 00:
Your time is up, and you actually talked about Deere the first time around.

[00:36:07] Speaker 00:
But we get it.

[00:36:08] Speaker 00:
I mean, it's in your briefs, too.

[00:36:10] Speaker 02:
Thank you, Your Honor.

[00:36:11] Speaker 00:
We've probably read Deere more than we ever cared to.