[00:00:01] Speaker 01: Okay. [00:00:04] Speaker 01: Now, Mr. Murray, you want five minutes for rebuttal, right? [00:00:07] Speaker 01: If you could save it, then we'll give it to you or we'll give you something anyway. [00:00:12] Speaker 02: Thank you, Your Honor. [00:00:14] Speaker 02: So before I address the issues on this related appeal, I'd like to point out that if this Court affirms the Board's decision in the CBM appeals that we just discussed on the Section 101 issues, then these appeals are mooted in their entirety. [00:00:29] Speaker 02: Trying to make life easy for us, but that's OK. [00:00:31] Speaker 02: Not trying to make it more difficult. [00:00:33] Speaker 01: You don't mind addressing two separate cases. [00:00:36] Speaker 00: You're hedging risk, aren't you? [00:00:39] Speaker 02: I'm certainly not counting any chickens, Your Honor, so I'm prepared to talk about this case. [00:00:44] Speaker 02: So I'd like to talk about the legal error that the board committed in changing their claim construction. [00:00:50] Speaker 02: So in the proceedings below, the board adopted a claim construction for risk level, an aggregate risk level that was [00:00:59] Speaker 02: quote, a calculated, measured, or otherwise obtained value of exposure to the possibility of loss related to said trade. [00:01:07] Speaker 02: This is page A07 in the appendix. [00:01:11] Speaker 02: But in this final decision, it's clear when you look at how the board applied that claim construction that they narrowed it substantially. [00:01:20] Speaker 02: And if you look at page, for example, A14 and A34 in the appendix, [00:01:26] Speaker 02: The board said, quote, we are not persuaded that under our construction, a risk level for particular trade can be calculated without taking into account critical information, such as volume traded, volume remaining, and the market maker's, quote, price of the trade, et cetera. [00:01:40] Speaker 02: End of quote. [00:01:42] Speaker 02: So the board added another requirement to risk level. [00:01:44] Speaker 02: It doesn't just have to be an indication of risk. [00:01:47] Speaker 02: It has to take into account critical information, such as volume, price, et cetera. [00:01:53] Speaker 02: And we saw that application. [00:01:56] Speaker 02: That changed construction really for the first time when we saw the final written decision at the end of the case. [00:02:02] Speaker 02: So we never had an opportunity to address it below. [00:02:05] Speaker 02: Our experts didn't address it. [00:02:07] Speaker 02: We didn't argue about it at the appeal, at the hearing. [00:02:10] Speaker 01: Did you ask for a claim constructed? [00:02:13] Speaker 01: Did you ask for a construction of the words determining a risk level? [00:02:18] Speaker 02: We were satisfied with the construction that the board initially adopted. [00:02:23] Speaker 02: which didn't have these requirements about critical information. [00:02:27] Speaker 02: So we had no reason to do that. [00:02:29] Speaker 02: So we think it was error to narrow that construction at the end of the case. [00:02:36] Speaker 02: And if that construction had been proposed early on in the case, we would have objected to it. [00:02:43] Speaker 01: How do you determine a risk level without basic information? [00:02:48] Speaker 02: Well, you have to have some information, but you don't have to have [00:02:52] Speaker 02: the critical information that's required here. [00:02:55] Speaker 02: You don't have to have price and volume? [00:02:57] Speaker 02: No, you don't, Your Honor. [00:02:59] Speaker 02: And I don't think that you do. [00:03:02] Speaker 02: Now, Tilfer's actually uses volume to determine step-ups, which is the sort of second part of my argument this morning, is that even under the narrow construction, there isn't substantial evidence to support the conclusion by the board that Tilfer's doesn't do exactly that. [00:03:20] Speaker 02: So we have relied upon [00:03:22] Speaker 02: Something in Tilford that's described as step up. [00:03:25] Speaker 02: And step up is a mechanism that ISE created to help market makers keep their quotes active in an exchange. [00:03:34] Speaker 02: So for example, an exchange would typically have a rule that a quote has to have a certain number, certain volume in the quote. [00:03:41] Speaker 02: Let's say 50 contracts in a quote for it to be valid. [00:03:44] Speaker 02: So if a market maker puts in a quote for 50 contracts and it matches against an order for 20 contracts, [00:03:50] Speaker 02: That quote is still in the system, but it only has 30 contracts in it. [00:03:53] Speaker 02: So it's not a valid quote. [00:03:55] Speaker 02: And the market maker misses out on the opportunity to maybe do that trade. [00:04:00] Speaker 02: So ISE came up with this idea of step up. [00:04:03] Speaker 02: And step up adds volume back into that quote. [00:04:06] Speaker 02: Now, that's a good thing, and it helps the market makers. [00:04:09] Speaker 02: But ISE also recognized that it poses a potential risk. [00:04:14] Speaker 02: Because a trader could try and kind of game the system a little bit. [00:04:18] Speaker 02: by putting in a large number of small orders. [00:04:23] Speaker 02: And when you have that automatic step up, that we keep refilling that quote at the same price, a trader could perhaps get hundreds of contracts at the price of the original quote, because the step up would happen automatically. [00:04:37] Speaker 01: So that's your theory that what we're doing is that we're assessing some risk, which is a risk that somebody might be gaming the system. [00:04:47] Speaker 01: And you define that as a risk, and so you say that that's a risk that you can determine even without price? [00:04:58] Speaker 02: Well, the specific risk is that volume has been added to the quote. [00:05:03] Speaker 02: I mean, when you add volume, this is why my argument is that Tilfer absolutely takes volume into account, because a step up only happens when the volume of the quote drops below the threshold required by the exchange, 50 in my example. [00:05:17] Speaker 02: So when the volume in the quote drops below 50, you step it up. [00:05:21] Speaker 02: So you're adding, in my example, you're adding 20 contracts to that quote. [00:05:26] Speaker 02: So step up is caused by volume. [00:05:29] Speaker 02: Now, it's not an exact measure of how much volume is added, because the fact that a step up happened doesn't tell you whether you added 20 contracts, or you added 30, or you added five. [00:05:41] Speaker 02: So it's not precise. [00:05:43] Speaker 02: But it tells market makers somebody is putting [00:05:47] Speaker 02: orders in there that are causing step-ups. [00:05:50] Speaker 01: Is that the kind of risk assessment that is normally talked about when you're talking about a system like this? [00:05:56] Speaker 01: I mean, isn't the risk supposed to be having to do with price and volume calculations? [00:06:02] Speaker 02: Well, there are many risks that face market makers. [00:06:06] Speaker 02: And the claim is fairly broad. [00:06:07] Speaker 02: It just says that you have to have, as Your Honor talked about before, it's a very broad claim. [00:06:12] Speaker 02: It just says that you have to have a risk level, you have to [00:06:15] Speaker 02: You have to have associated with the trade. [00:06:17] Speaker 02: You have to have an aggregate risk level. [00:06:19] Speaker 02: And when you cross the threshold, you have to modify the remaining quote. [00:06:24] Speaker 02: It's a very broad claim. [00:06:25] Speaker 02: So it reads exactly on what happens, what Tilfer's does, with step up. [00:06:29] Speaker 02: I didn't kind of finish the story. [00:06:30] Speaker 02: But in order to protect market makers from a lot of volume being added to a quote using the step up mechanism, the Tilfer's patent says, you can set a threshold. [00:06:42] Speaker 02: And the threshold could be three step ups. [00:06:44] Speaker 02: And after three step ups, you tick the price worse. [00:06:48] Speaker 02: And that's the other thing that we talk about in our briefs is called tick worse. [00:06:52] Speaker 02: And tick worse means worse from the counterparty. [00:06:55] Speaker 02: So it's actually better. [00:06:56] Speaker 02: You're ticking better for the market maker. [00:06:58] Speaker 02: So what Tilfer's does is it counts step ups. [00:07:02] Speaker 02: Each step up is a value. [00:07:05] Speaker 02: It's either a step up happened or it didn't happen. [00:07:07] Speaker 02: It's a one or it's a zero. [00:07:08] Speaker 02: That value is counted. [00:07:10] Speaker 02: When you have a one, you count up those step ups. [00:07:13] Speaker 02: when you get to the threshold, which could be three or four, for example, then you change the price of the quote. [00:07:20] Speaker 02: So that's precisely what claim one talks about. [00:07:23] Speaker 01: So what you're saying is if we have to accept at face value that modification can relate to any potential risk, that therefore this, Tilford's, is modifying to address a potential risk. [00:07:35] Speaker 01: Is that what you're saying? [00:07:36] Speaker 02: Absolutely. [00:07:40] Speaker 02: is that the risk of the claim is that aggregate risk gets larger than the market maker wants, that it's going to cross some threshold. [00:07:48] Speaker 02: So the aggregate risk here is I have three step-ups. [00:07:52] Speaker 02: Now, as a market maker, if I know that I have three step-ups, I know volume has been added three separate times to that quote. [00:07:58] Speaker 02: So maybe I'm not comfortable with that, or maybe I'm comfortable going up to five. [00:08:03] Speaker 01: But I can set that. [00:08:04] Speaker 01: Is there anything in the spec of the patent that [00:08:09] Speaker 01: indicates that the type of risk that's being assessed is the type of risk you're saying, because what you're saying is not the risk of loss. [00:08:16] Speaker 01: You're saying it's a risk of not gaining as much. [00:08:20] Speaker 02: No, Your Honor, respectfully, I think it is a risk of loss, because the problem is that if market makers sell too many contracts on one side, let's say long contracts, a long option contract means that [00:08:36] Speaker 02: The person buying the contract thinks the stock price is going to rise. [00:08:40] Speaker 02: So we call that going long. [00:08:42] Speaker 02: So let's say something happens in the market. [00:08:45] Speaker 02: A review comes out for Apple's new iPhone, and it's a great review. [00:08:50] Speaker 02: And everybody thinks the traders think Apple stock is going to go up. [00:08:54] Speaker 02: So they start hitting options contracts, long options contracts, and they want to buy a lot of them because they're convinced the price is going to go up. [00:09:03] Speaker 02: that poses a big risk to market, really the same kind of risk that the 498 patent is talking about. [00:09:07] Speaker 02: It's a risk to market makers that will sell too many options contracts on the long side. [00:09:13] Speaker 02: And then if the price goes up, the market maker could be in a lot of trouble. [00:09:17] Speaker 02: Because the market maker would have to go out and buy the stock at the higher price to satisfy the options contracts when the holders of the contracts do a call and say, OK. [00:09:29] Speaker 00: I don't see where England claim one [00:09:33] Speaker 00: A risk is specified or defined. [00:09:38] Speaker 00: This talks generally about risk, and you're pointing to specific risk that I don't see in the claim. [00:09:44] Speaker 02: I think your honor is right that the claim is very broad. [00:09:47] Speaker 02: It doesn't specify any particular type of risk. [00:09:50] Speaker 02: It just says that there has to be a risk level associated with the trade. [00:09:55] Speaker 02: Now, when you have a trade, as I'm discussing here, a trade that is 20 contracts in a quote for 50, [00:10:03] Speaker 02: that trade will cause a step up. [00:10:06] Speaker 02: So there is a risk associated with that trade to the market maker. [00:10:09] Speaker 02: Every time a trade causes a step up, that poses risk to the market maker because more volume is being added to that quote. [00:10:18] Speaker 02: Adding more volume means there are more contracts out there that traders on the other side can buy. [00:10:24] Speaker 02: So that's a direct risk to the market maker. [00:10:29] Speaker 01: My problem is that even if you go back to the [00:10:33] Speaker 01: board's claim construction, the one that you said you liked. [00:10:37] Speaker 01: It does say it calculated, measured, or otherwise obtained value of exposure. [00:10:44] Speaker 01: And how is the number of step-ups a value to exposure? [00:10:50] Speaker 02: Well, it certainly is a value, right? [00:10:53] Speaker 02: Because if I have three step-ups, three is a value. [00:10:56] Speaker 02: So that's the aggregate risk level. [00:10:59] Speaker 02: The fact of a step-up is itself a value. [00:11:02] Speaker 02: Either I have a step up or I don't. [00:11:04] Speaker 02: That's a zero or a one. [00:11:06] Speaker 02: That's a value. [00:11:07] Speaker 02: Now, it's not a value that tells you the precise risk. [00:11:10] Speaker 02: It's a number, but is it really a value? [00:11:12] Speaker 02: I think it is a value, Your Honor. [00:11:14] Speaker 02: Because it tells, well, one is a value. [00:11:17] Speaker 02: One is a number. [00:11:19] Speaker 02: I think that's what value means. [00:11:20] Speaker 02: I don't think it has to mean a precise value. [00:11:22] Speaker 01: Wouldn't it normally mean a comparison or a calculation? [00:11:27] Speaker 01: It says calculated, measured, or otherwise obtained value. [00:11:31] Speaker 01: In order to get to a value, don't you have to have two different measures at least? [00:11:36] Speaker 02: Yes, there will. [00:11:37] Speaker 01: Two plus two equals four. [00:11:38] Speaker 01: Yes, four is a number, but it's also a value in that sense. [00:11:40] Speaker 02: Well, there are two different things that can happen when a trade occurs against a quote. [00:11:46] Speaker 02: Either a step up is going to be triggered by that particular trade, or it won't. [00:11:51] Speaker 02: So you have two options there. [00:11:53] Speaker 02: And we can call it a zero and a one. [00:11:56] Speaker 02: So if that trade does not [00:11:59] Speaker 02: trigger a step up. [00:12:00] Speaker 02: If it doesn't have just the right volume to trigger a step up, then the value is going to be 0. [00:12:07] Speaker 02: And it doesn't get counted up when you're adding up the aggregate value. [00:12:13] Speaker 02: If the volume is just right that causes a step up, then the value is 1. [00:12:18] Speaker 02: And you add that to your running total of step ups. [00:12:22] Speaker 02: So for that quote, maybe now we have five step ups for that quote, which means that there have been five orders that came in. [00:12:28] Speaker 02: and hit that quote, not for the full volume, but for just the right volume, to generate a step up. [00:12:34] Speaker 02: And now the risk that market maker is starting to increase to perhaps an uncomfortable level, because volume contracts keep getting added to that quote over and over and over again. [00:12:43] Speaker 02: And as those contracts get added, that market maker is exposed to more and more risk. [00:12:48] Speaker 02: Because if there are long contracts, in my example, and the price rises, the market maker could be in trouble. [00:12:54] Speaker 02: So this Tilfer's mechanism protects market makers from the risk of having too many contracts out there on sort of the wrong side of things. [00:13:04] Speaker 02: It's really the same exact thing. [00:13:06] Speaker 01: I want to give you some rebuttal, so I'll give you three minutes and then we'll go. [00:13:09] Speaker 03: Thank you. [00:13:16] Speaker 03: Good morning again, Judge O'Malley and at least the court. [00:13:23] Speaker 03: The question that Your Honor asked Mr. Murray parallels very well the reaction of ISE's expert to the same question when she was asked it in a deposition in this matter. [00:13:37] Speaker 03: This is in the appendix of page A798. [00:13:40] Speaker 03: The question, so the risk level is the fact that we are stepping up. [00:13:47] Speaker 03: Answer, that is kind of strange, right? [00:13:50] Speaker 03: Question mark. [00:13:52] Speaker 03: She was puzzled by it. [00:13:53] Speaker 03: Because, in fact, the fact that one is stepping up cannot be a calculated, measured, or otherwise obtained value of exposure to the possibility of loss related to said trade. [00:14:06] Speaker 03: That is, it's got to be the possibility of loss related to the trade that just took place. [00:14:14] Speaker 01: You cited to that exchange a couple times. [00:14:17] Speaker 01: What did she mean by strange? [00:14:18] Speaker 01: The question was strange, or the fact that that's the risk is strange, or [00:14:22] Speaker 01: I don't understand. [00:14:24] Speaker 01: Right. [00:14:24] Speaker 01: The questioner just didn't close the loop there. [00:14:29] Speaker 03: Right. [00:14:30] Speaker 03: The risk level, the question of whether or not there's a step up is a yes or no answer to whether or not you put in more quotes to meet the exchange traded minimum. [00:14:45] Speaker 03: It has no correlation to the risk of loss associated with the last trade. [00:14:51] Speaker 03: A couple of examples, I think your honor is probably familiar with this from your questions to Mr. Murray, that the PTAB relied on. [00:14:59] Speaker 03: So let's assume that the exchange has a required minimum of 10 contracts, that you have 10 contracts out there. [00:15:05] Speaker 03: And in one circumstance, you have the 10 contracts out there, and five of them, there's a transaction for five of them. [00:15:15] Speaker 03: And you want to replace and get back to the 10. [00:15:17] Speaker 03: So the step up is one. [00:15:19] Speaker 03: Five contracts have been sold. [00:15:21] Speaker 03: The step up is one. [00:15:23] Speaker 03: In another circumstance, you have 20 contracts out there. [00:15:27] Speaker 03: And you sell nine of them. [00:15:28] Speaker 03: So instead of five, you're selling a larger number, nine. [00:15:32] Speaker 03: The step up there is actually zero. [00:15:35] Speaker 03: Because 20 minus nine, you're at 11. [00:15:37] Speaker 03: You're already higher than the required number of contracts. [00:15:40] Speaker 03: So you're trading more contracts. [00:15:42] Speaker 03: But instead of getting a step up, you get no step up. [00:15:45] Speaker 03: A third example, let's assume that there were 10 contracts out there. [00:15:50] Speaker 03: and you sell one of them. [00:15:53] Speaker 03: And then you have a step up of one. [00:15:56] Speaker 03: So again, you have a step up of one that correlates to one contract being sold. [00:16:03] Speaker 03: In my first example, you have a step up of one which correlates with five contracts being sold. [00:16:08] Speaker 03: How can there be a correlation to risk of loss from the trade that was just done if one and five get the same number and nine [00:16:20] Speaker 03: could get the zero instead of the one. [00:16:23] Speaker 03: Now, what the PTAB did, first of all, the standard review and appeal, this is an anticipation ruling with respect to tilfers, substantial evidence. [00:16:34] Speaker 03: So Mr. Murray, I would suggest in order to try to avoid the problems with the standard of review, is trying to characterize the problem as the PTAB having changed its claim construction. [00:16:44] Speaker 03: And I would direct the court first to what the PTAB itself said. [00:16:47] Speaker 03: They said repeatedly that they did not change their claim construction. [00:16:51] Speaker 01: They said... Well, how could they not change the claim construction? [00:16:54] Speaker 01: I mean, the claim construction said, you know, measuring, calculating in any way, and then it said you have to have particular parameters. [00:17:04] Speaker 01: I mean, how is that not different? [00:17:06] Speaker 03: What it is, Your Honor, is the PTAB explaining its reasoning in concluding that TILFERS did not meet the claim limitations. [00:17:14] Speaker 03: And I know this court wants PTAB judges to explain their reasoning. [00:17:18] Speaker 03: My mother always told me, you can't get in trouble if you keep your mouth shut. [00:17:22] Speaker 03: But you probably don't want the PTAB keeping their mouth shut and giving conclusions. [00:17:26] Speaker 03: What they did here is they said, here's the agreed upon claim construction, calculated, measured, or otherwise obtained value of exposure to the possibility of loss. [00:17:36] Speaker 03: And then they examined in detail whether the interpretation that ISC was putting on tilfers [00:17:44] Speaker 03: met that agreed upon construction. [00:17:47] Speaker 03: They said, is there a value of exposure to the possibility of loss? [00:17:52] Speaker 03: And they went through exactly the analysis that we've been talking about in great detail. [00:17:56] Speaker 03: And by the way, this issue was fleshed out in enormous detail at the trial. [00:18:01] Speaker 03: This is what all the questioning was about. [00:18:03] Speaker 03: Did that number one in Tilfer's correlate to a value of exposure to the possibility of loss? [00:18:09] Speaker 03: And there were questions of both sets of attorneys on [00:18:12] Speaker 03: Well, what does the one really mean? [00:18:14] Speaker 03: What if there are more contracts traded, less contracts traded under this circumstance, that circumstance? [00:18:21] Speaker 03: So the PTAB was drilling down doing exactly what you would want them to do to see if Tilford's met that agreed upon claim construction. [00:18:28] Speaker 01: But is that saying, I mean, it's possible that Tilford's calculates some risk of loss but doesn't do it very well. [00:18:36] Speaker 01: That doesn't mean that it wouldn't anticipate, right? [00:18:39] Speaker 03: Well, I think what the PTAB concluded [00:18:42] Speaker 03: and I believe it was completely correct, is that Tilfer's didn't calculate a risk of loss. [00:18:48] Speaker 03: What it did is it asked the question, should there be a step up or not? [00:18:57] Speaker 03: It's a yes or no question. [00:18:59] Speaker 03: And it has no relationship to the volume. [00:19:03] Speaker 03: It has no relationship to the price. [00:19:05] Speaker 03: And your honor asked about where do you get volume and price from with respect to [00:19:09] Speaker 03: to risk of loss. [00:19:10] Speaker 03: It's in the patent specification. [00:19:11] Speaker 03: Column 12 has a section entitled risk measurement and risk thresholds. [00:19:17] Speaker 03: And not surprisingly, in talking about the different types of risks, this is down at lines 55, 56, 57, 58, it's talking about the number of contracts, the number of shares, the price, the change in price. [00:19:31] Speaker 03: I mean, that's what you have when you're talking about risk of loss. [00:19:34] Speaker 03: It's mostly [00:19:35] Speaker 03: volume and price. [00:19:36] Speaker 03: It can be other things too. [00:19:37] Speaker 03: It can be how far up the contracts are. [00:19:40] Speaker 03: Maybe it can be the rate of change in the price. [00:19:44] Speaker 03: There were all sorts of variations. [00:19:46] Speaker 03: But what the PTAB did is it looked at three things. [00:19:49] Speaker 03: It looked at admissions made by ISE during the trial. [00:19:53] Speaker 03: This was Mr. Murray's admission that if you have, no matter how many contracts are traded, no matter how many contracts are traded, if there's a step up, the value is always one under his interpretation. [00:20:06] Speaker 03: Number two, they looked at CBOE's expert. [00:20:10] Speaker 01: If you wanted the board to conclude that determining a risk level, an aggregate risk level, necessarily included or required the consideration of particular parameters based on, you know, the overall view of the specification, why didn't you ask for that? [00:20:31] Speaker 03: I think the claim, I think the agreed upon claim construction was fairly clear. [00:20:35] Speaker 03: It's risk of loss associated with risk value of exposure to the possibility of loss related to said trade. [00:20:43] Speaker 03: And it wouldn't necessarily be limited just to volume and price. [00:20:48] Speaker 03: Volume and price were the two examples that the PTIP used. [00:20:52] Speaker 03: And if we look at, I believe it's page A14 in the record, the PTIP when talking about this says such as, and then ends the statement with et cetera. [00:21:01] Speaker 03: It's giving examples of how you can have a correlation [00:21:05] Speaker 03: between the risk of loss on the prior trade, how you can have that correlation, and the examples they gave were price and volume. [00:21:15] Speaker 03: What they then did in their decision was they analyzed based on the testimony of Dr. Steele, who was our expert, and it's cited in the PTAB decision, based on the admissions made by Dr. O'Hara, ISE's expert, based on the admissions made by Mr. Murray, at least these three things they looked at, and they said, [00:21:34] Speaker 03: there isn't a correlation between this number one and the possibility of the risk of loss associated with the prior trade. [00:21:43] Speaker 03: Now, Mr. Murray is only talking about the second element here, and that's the aggregate risk of loss. [00:21:48] Speaker 03: He says if you get one, one, one, you get five, then something must be going on. [00:21:52] Speaker 03: The system is being gamed. [00:21:54] Speaker 03: But there's a separate element, which is the risk of loss associated with the prior trade. [00:22:00] Speaker 03: That's where they fall down. [00:22:01] Speaker 03: They also fall down [00:22:03] Speaker 03: On the aggregate risk level, if you were to look at the joint appendix at A773, Dr. O'Hara has asked this question, where in TILFRS does it expressly describe the aggregate risk level? [00:22:17] Speaker 03: Answer, I'm not sure it does. [00:22:20] Speaker 03: So even on the aggregate risk level, which is what Mr. Murray spent 80% of his time talking about, their own experts said TILFRS does not expressly disclose that. [00:22:29] Speaker 03: Is step up any indication of risk? [00:22:33] Speaker 03: I don't think so. [00:22:34] Speaker 03: And more importantly, the PTAB didn't think so, and its conclusion was supported by substantial evidence. [00:22:42] Speaker 03: Experts on both sides and admissions. [00:22:44] Speaker 03: And here's the reason. [00:22:45] Speaker 03: I go back to these same examples again. [00:22:48] Speaker 03: If you have 20 contracts out there, and you sell nine of them, you have 11 left, under the assumption that 10 is the required minimum, you've sold nine contracts, and your step up is zero. [00:23:03] Speaker 03: You don't have to step up because you're already higher than the required minimum. [00:23:07] Speaker 03: On the other hand, if you have 10 contracts out there and you sell one, you're going to have to step up. [00:23:14] Speaker 03: So your step up will be one. [00:23:16] Speaker 03: So you've got a risk level of one, a value of one for a transaction involving one contract, but a risk level or a value of zero selling nine contracts. [00:23:29] Speaker 03: It doesn't make any sense. [00:23:32] Speaker 03: It seems to be completely backwards. [00:23:35] Speaker 03: Shouldn't the risk if nine were traded be higher than the risk if one were traded? [00:23:40] Speaker 03: That's the sort of analysis that PTAB went into in depth that explained its reasoning over a course of four or five pages. [00:23:46] Speaker 03: It, again, cited the experts on both sides and the admissions that were made at the trial, and it reached this conclusion, which I would submit is supported by substantial evidence. [00:23:58] Speaker 03: The one is something. [00:24:00] Speaker 03: It's a number. [00:24:01] Speaker 03: I don't believe that it's a risk level associated with the trade, and I don't believe it's a calculated, measured, or otherwise obtained value of exposure. [00:24:10] Speaker 01: What if the number's eight? [00:24:13] Speaker 03: Well, first, Mr. Murray has not postulated any circumstance under which Tilford teaches that the risk level associated with the trade can be anything other than one or zero. [00:24:24] Speaker 03: Now, he talks about aggregate risk level, but that is a separate claim. [00:24:28] Speaker 03: What he says Tilfer's teaches is that you look at, it's a binary thing. [00:24:32] Speaker 03: You look to see if there's a step up required. [00:24:35] Speaker 03: The step up is required, then the value is one. [00:24:38] Speaker 03: If the step up is not required, the value is zero. [00:24:42] Speaker 03: It couldn't be eight. [00:24:44] Speaker 03: Dave never argued that. [00:24:45] Speaker 03: He may say if it happens eight times, that's the aggregate risk level. [00:24:48] Speaker 03: But again, Maureen O'Hara, their expert said, that's not disclosed in Tilfer's. [00:24:53] Speaker 03: And the PTIB was entitled to rely on that. [00:24:55] Speaker 03: So two separate independent bases, no aggregate risk level, no risk level associated with a particular trade. [00:25:09] Speaker 03: Now, we also know, Your Honor, well, I think that addresses the points that I wanted to hit if the Court has no further questions. [00:25:19] Speaker 00: I'm having a hard time. [00:25:21] Speaker 00: I understand your argument, but I just [00:25:25] Speaker 00: I just don't see how, like if you have the step-up process is used several times, the step-up parameters, that that doesn't affect price. [00:25:41] Speaker 00: It just seems to me that there is a correlation between the value that you're talking about [00:25:48] Speaker 00: And ultimately with price. [00:25:50] Speaker 03: So again, let me go back to the same example and explain why I think there's absolutely no correlation between the two of them and why the PTAB was perfectly justified in reaching that same conclusion. [00:26:01] Speaker 03: Let's go back to the same example. [00:26:03] Speaker 03: If you have 20 contracts out there, you have 20 contracts out there and you sell nine of them, or you have 100 contracts out there and you sell 89 of them, you end up with 11 contracts. [00:26:18] Speaker 03: That's above the exchange minimum. [00:26:21] Speaker 03: So the step up there is zero. [00:26:23] Speaker 03: You sell 89 contracts, you sell nine contracts, the risk is zero under ISC's articulation. [00:26:31] Speaker 03: On the other hand, if you had 10 contracts out there and you sell one, you've got to do a step up, the risk level is one. [00:26:38] Speaker 03: There isn't a correlation. [00:26:39] Speaker 03: Now maybe he can make up a theoretical case about how [00:26:46] Speaker 03: One could intuit on a Tuesday if the weather is 68 degrees and the Giants had won the previous weekend that one could correlate with this. [00:26:52] Speaker 03: But correlation means correlation. [00:26:56] Speaker 03: And the PTAB properly found that there was no such correlation, which is why Tilfer's did not anticipate, did not meet this claim limitation. [00:27:07] Speaker 03: Thank you, Your Honors. [00:27:08] Speaker 01: OK. [00:27:08] Speaker 01: Thank you. [00:27:15] Speaker 02: First, Your Honor, now that we've been talking about the IPR for a while, I'd just like to sort of bring it back to the CBM. [00:27:21] Speaker 02: We have not been talking about open outcry because open outcry was not considered by the board in terms of the IPR. [00:27:30] Speaker 02: So that's why the result in the IPR really is not at all inconsistent with the conclusions that the board drew in the CBM that the basic method of this claim [00:27:41] Speaker 02: was used in open outcry. [00:27:43] Speaker 02: There's no inconsistency here, because we didn't ask the board in the IPR to reject the claims based on what happened in open outcry. [00:27:52] Speaker 02: You can't use 102A type prior art. [00:27:55] Speaker 02: So the board has not been at all inconsistent. [00:27:58] Speaker 02: Now, the step up is, I can see it is not precise. [00:28:03] Speaker 02: It is not a precise measure of risk. [00:28:05] Speaker 02: It certainly relates to the trade. [00:28:08] Speaker 02: The trade causes the step up. [00:28:10] Speaker 02: I've never really understood this argument. [00:28:12] Speaker 02: If there's a quote there for 50 contracts and a trade comes in for 20 contracts, that trade would cause a step up in that example. [00:28:25] Speaker 02: So the fact that a step up has happened is, of course, related to that trade. [00:28:29] Speaker 02: The trade causes the step up. [00:28:31] Speaker 01: Right. [00:28:32] Speaker 01: But what's your response to his argument that while it may ultimately [00:28:37] Speaker 01: get to something that correlates to an aggregate risk level. [00:28:41] Speaker 01: It does not determine the risk level. [00:28:45] Speaker 02: The risk level of the claim just has to be an indication of risk related to the trade. [00:28:50] Speaker 02: So there are two possible values here. [00:28:54] Speaker 02: And I can see eight isn't one of them for risk level, zero and one. [00:29:00] Speaker 02: Now, if the value is zero, that tells the market maker that there's been no step up associated with that trade. [00:29:05] Speaker 02: So no volume has been added to the contract. [00:29:09] Speaker 02: So let's say the original contract was, or the original quote, was for 100 contracts, the exchange minimum is 50, and the order was for 20. [00:29:18] Speaker 02: So it goes down to 80. [00:29:20] Speaker 02: So there wouldn't be a step up there, right? [00:29:21] Speaker 02: Because it didn't fall below the minimum. [00:29:24] Speaker 02: So the risk level there would be zero. [00:29:28] Speaker 02: That tells the market maker, don't worry, we have not added any volume to the quote that you have out there. [00:29:34] Speaker 02: Now, if there's another trade against that quote that brings it down below 50, and now the system is adding volume to the market maker's quote, the risk level becomes one, which is a different value. [00:29:45] Speaker 02: That tells something very meaningful to the market maker. [00:29:48] Speaker 02: It tells the market maker that volume has been added to the contract. [00:29:51] Speaker 02: And volume means contracts that people can buy, and that market makers would have to honor those contracts and sell stock, for example, if it's a call option. [00:30:01] Speaker 02: So knowing that volume has been added to a quote, or whether or not it's been added to a quote, is very important to a market maker. [00:30:09] Speaker 02: And yes, I can see that it's not precise. [00:30:11] Speaker 02: We can talk about lots of different examples where different volumes would result in the same risk level of one or zero. [00:30:19] Speaker 02: So it's sort of a blunt instrument, if you will, to tell the market maker that something's happening here that you should be concerned about. [00:30:27] Speaker 02: Volume is being added to your quote. [00:30:29] Speaker 02: And the market maker in advance can say, OK, as long as that doesn't happen five times, don't worry about it. [00:30:35] Speaker 02: You can keep going, electronic exchange. [00:30:38] Speaker 02: But if it happens five times, change my price to protect me. [00:30:43] Speaker 02: So that is what Tilfer's teaches. [00:30:45] Speaker 02: It's precisely what claim one talks about. [00:30:49] Speaker 02: You have a risk level. [00:30:50] Speaker 02: You add them up. [00:30:51] Speaker 02: When you get over a threshold, you change the price. [00:30:54] Speaker 02: That's the very basic [00:30:56] Speaker 02: sort of economic method that's at issue in these claims, it was exactly done in tilfers. [00:31:04] Speaker 02: The argument that Dr. O'Hara admitted that there's no discussion in tilfers of aggregate risk level is really unavailing. [00:31:12] Speaker 02: If you look at the question, it said, does tilfers explicitly disclose aggregate? [00:31:19] Speaker 02: And Dr. O'Hara knew that the word aggregate isn't in tilfers. [00:31:23] Speaker 02: So she said, no, it doesn't explicitly talk about aggregate. [00:31:26] Speaker 02: But if you look at the entire transcript, she of course says that counting step-ups is an aggregate risk level because you're adding them up. [00:31:35] Speaker 02: And that's what the claim requires, that you add up the risk levels to get to some aggregate risk level. [00:31:41] Speaker 02: Exactly the same as the claim, Your Honor. [00:31:44] Speaker 01: Okay. [00:31:44] Speaker 01: Any more questions? [00:31:46] Speaker 02: No. [00:31:46] Speaker 02: All right. [00:31:46] Speaker 02: Thank you. [00:31:47] Speaker 01: Those cases will be submitted.