Ex Parte Kownacki et al

Board of Patent Appeals and Interferences

May 24, 2012

10925416 (B.P.A.I. May. 24, 2012)

UNITED STATES PATENT AND TRADEMARK OFFICE 1
___________ 2
3
BEFORE THE BOARD OF PATENT APPEALS 4
AND INTERFERENCES 5
___________ 6
7
Ex parte MICHAEL KOWNACKI and CONSTANTINE SKONDRAS 8
___________ 9
10
Appeal 2010-010173 11
Application 10/925,416 12
Technology Center 3600 13
___________ 14
15
16
Before ANTON W. FETTING, JOSEPH A. FISCHETTI, and 17
BIBHU R. MOHANTY, Administrative Patent Judges. 18
FETTING, Administrative Patent Judge. 19
DECISION ON REQUEST FOR REHEARING 20
21
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STATEMENT OF CASE 1
This is a decision on rehearing in Appeal No. 2010-010173. We have 2
jurisdiction under 35 U.S.C. § 6(b). 3
Requests for Rehearing are limited to matters misapprehended or 4
overlooked by the Board in rendering the original decision. 37 C.F.R. 5
§ 41.52. 6
ISSUES ON REHEARING 7
Appellants raise three issues in the Request for Rehearing. The first 8
issue relates to whether the Board’s Decision should have been denominated 9
as a new ground of rejection. The second issue relates to whether the art’s 10
description of financial instruments would include or at least predictably 11
extend to such instruments viewed as distressed. The third issue relates to 12
whether, if a new ground is not denominated, the Board must consider newly 13
entered declaration evidence and must respond to six questions posed 14
regarding the application of the Paperwork Reduction Act to 37 C.F.R. § 15
41.37. 16
ANALYSIS 17
We found in our decision that claims1, 28, and 57-72 were properly 18
rejected under 35 U.S.C. § 103(a) as unpatentable over Lutnick, Gerhard, 19
and Smorodinsky. Decision 12. 20
First Issue – New Ground of Rejection 21
In the Request for Rehearing, the Appellants argue that the Board 22
applied reasoning different than that relied upon by the Examiner to affirm 23
the rejection, therefore resulting in a new ground of rejection. Request 1-5. 24
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Specifically, the Appellants urge that “[t]he dispute before the examiner was 1
entirely an issue of claim interpretation. Appellant had no notice whatsoever 2
that interpretation of the references would be an issue, and therefore had no 3
opportunity to argue those issues, or to present evidence.” Id. at 3. 4
It is well established that there is no new ground of rejection when the 5
basic thrust of the rejection remains the same such that an appellant has been 6
given a fair opportunity to react to the rejection. In re Kronig, 539 F.2d 7
1300,1302-03 (CCPA 1976). 8
Moreover, where the statutory basis for the rejection remains the same 9
and the evidence relied upon in support of the rejection remains the same, a 10
change in the discussion of, or rationale in support of, the rejection does not 11
necessarily constitute a new ground of rejection. Kronig at 1303 (reliance 12
upon fewer references in affirming a rejection under 35 U.S.C. § 103 does 13
not constitute a new ground of rejection). 14
More recently, it was held that 15
The thrust of the Board’s rejection changes when, as here, it 16
finds facts not found by the examiner regarding the differences 17
between the prior art and the claimed invention, and these facts 18
are the principal evidence upon which the Board’s rejection was 19
based. 20
In re Leithem, 661 F.3d 1316 ,1320 (Fed. Cir. 2011). However, that same 21
Decision also 22
acknowledged the right of the Board to make additional 23
findings of fact based upon the Board’s own knowledge and 24
experience to “fill in the gaps” that might exist in the 25
examiner’s evidentiary showing. 26
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Id. at 319. Thus, the real issue Appellants raise is whether the panel relied 1
on facts not found by the Examiner as the principal evidence upon which the 2
rejection was based. This is a far narrower criterion than Appellants 3
suggest.1 4
Claim 1 5
We initially observe that in the rejection under review in this appeal the 6
Examiner rejected claim 1, finding 7
Lutnick teaches a method comprising: receiving a request to 8
acquires(sic) risk protection for at least one distressed 9
instrument (stock or other default risk instrument, col. 4, lines 10
9-12). 11
Final Rejection at 3. The Examiner simply found that distressed instruments 12
were within the scope of Lutnick’s instruments. Therefore, the underlying 13
statutory and evidentiary basis for the rejection has not changed. Appellants 14
had not raised the issue regarding the showing of distressed instruments in 15
particular in the immediately preceding amendment and arguments filed 16
October 29, 2008. 17
So, without the issue being before the Examiner at the time of the Final 18
Rejection, Appellants then raised the issue that none of the references 19

1 Appellants cite In re Moore, 444 F.2d 572,574-75, (CCPA 1971) for the
proposition that any new "finding of a new fact," even from the same
reference, even solely in support of an alternative to the preexisting
rationale, requires that the applicant be given an opportunity to respond.
Appeal Br. 4 Footnote 5. The Moore Decision does not support this
proposition. Rather, Moore found that a finding supporting “an alternative
ground for sustaining the examiner's rejection, and apparently based on
nothing more than a bare allegation of scientific fact, does everything but cry
out for an opportunity to respond.” Id.
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explicitly refer to distressed instruments at Appeal Brief 12-14, and the right 1
to receive payment based on a distressed instrument at Appeal Brief 14-15. 2
To this, the Examiner found that the Specification stated that a distressed 3
instrument would include any instrument for which default might be feared 4
within its scope. Ans. 6. That is, because any security might be subjectively 5
perceived by someone to be in danger of default at one time or another for 6
any number of reasons, any security was potentially within the scope of a 7
distressed instrument. The Examiner also found that Specification ¶ 0005 8
admitted that hedging distressed instruments was already part of the existing 9
set of known practices. Ans. 6-7. The scope of such distressed instruments 10
was therefore very broad as the Specification does not lexicographically 11
define a distressed instrument to narrow that scope, and the motivation to 12
hedge risk related to distressed instruments was demonstrably within the 13
knowledge of one of ordinary skill. 14
Additionally, in rejecting the claims, the Examiner then found that 15
Lutnick explicitly teaches financial instruments such as credit or default risk 16
instruments (citing Lutnick 4:9-12 and 32-38). Ans. 7. Such instruments at 17
least made application of Lutnick to instruments that would be potentially 18
distressed predictable, and so by extension, instruments currently perceived 19
as distressed as well. 20
Then the Examiner made the critical finding that the method steps 21
recited in the claims would be performed the same way as taught by Lutnick 22
regardless of the “type” of financial instrument. Id. 2 That is, the process 23

2 Appellants argued that the Examiner did not support this finding at Reply
Br. 10, but the background art put option steps evidenced by Lutnick are
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steps themselves, apart from the nature of the target of those steps, are 1
exactly described by Lutnick. 2
Appellants responded with five arguments, only the first of which was 3
nominally directed to claim construction, and then only to contend the 4
Examiner’s construction was overly broad. Reply Br. 6-10. 5
Thus, Appellants are incorrect in contending that the 6
dispute that was briefed by both Appellant and examiner was 7
solely claim interpretation. The Board's second error was to 8
fail to decide the issue presented 9
and the 10
dispute before the examiner was entirely an issue of claim 11
interpretation. Appellant had no notice whatsoever that 12
interpretation of the references would be an issue, and therefore 13
had no opportunity to argue those issues, or to present evidence. 14
Request 2-3. It is the Examiner’s basis for the rejection, not Appellants’ 15
arguments, that is at issue. The Examiner never joined a claim construction 16
argument, as the Examiner found that the steps were the same irrespective of 17
the nature of the security, effectively mooting any issue regarding the 18
construction of the term “distressed” because it is the set of steps of a 19
process that define the process, not the input that the steps act upon. This is 20
not an instance of a chemical input that introduces the potential for 21
unpredictability in the process operation. 22
The Examiner did find that any security that was simply perceived by 23
someone as in distress would be within the scope of the claimed distressed 24

simply independent of the underlying security. There is a counterparty
required, and that will vary by security, but not the actual steps themselves.
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instrument, thus finding that a distressed instrument was a predictable target 1
of the known steps. Ans. 6. 2
The issue then was squarely whether the Examiner’s rejection was 3
proper3. This turned squarely on whether the steps were described by 4
Lutnick, and potentially also on whether one of ordinary skill understood 5
and would have envisaged distressed instruments to be within the scope of 6
Lutnick’s instruments. The Examiner found the steps were the same and 7
distressed instruments were predictably within the scope because any of 8
Lutnick’s instruments might be distressed depending only on the subjective 9
perception of any one observer, and this same perception would be an 10
incentive for one to seek to hedge as in Lutnick. More critically, the panel 11
did not rely on facts not found by the Examiner as the principal evidence 12
upon which the rejection was based. 13
These facts support the conclusion that the Examiner regarded and 14
informed the Appellants that one of ordinary skill would have envisaged the 15
securities of Lutnick as encompassing distressed securities. 16
17

3 Thus, we are unpersuaded by Appellants’ argument that the panel failed to
decide the issue presented. Further, with regard to Appellants’ invocation of
5 U.S.C. § 555(b), this section relates to “[a] person compelled to appear in
person before an agency or representative thereof.” There is no appearance
compulsion in patent appeal procedure. For example, Appellants voluntarily
declined the opportunity to appear at the oral hearing they requested.
As to the necessity for a prompt decision from Appellants’ invocation of 5
U.S.C. § 555(e), the panel decision was mailed 1 month and 2 days after the
scheduled oral hearing date, a shorter period than Appellants required for
this Request.
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The Appellants had fair opportunity to respond to the rejection, 1
evidenced in that the Reply Brief contains a response to the rejection. The 2
relative positions of the Examiner and the Appellants were considered in the 3
Decision, which concluded that “there is no difference between a distressed 4
financial instrument and a non-distressed financial instrument in the intrinsic 5
aspects of the instrument.” Decision 10. 6
The Decision relied upon the reasoning of the Examiner in the Final 7
Rejection and Answer. None of the art applied, law applied, nor reasoning 8
used, is different in a meaningful way, and the thrust of the rejection did not 9
change. Accordingly, this first argument is unpersuasive. 10
Claims 57-60 and 65-68 11
Appellants contend Examiner was silent as to these claims and there was 12
no rejection against these claims in the Final Rejection. Request 5. The 13
Final Rejection stated as follows 14
Claims 1, 28 and 57-72 are rejected under 35 U.S.C. 103(a) as 15
being unpatentable over Lutnick (US 7379911) in view of 16
Gerhard (US 6952683) and further in view of Smorodinsky et 17
al (US 5884290). 18
Final Rejection 3. Thus, Appellants err in contending there was no rejection 19
against these claims in the Final Rejection. The Answer at 4 presented a 20
similar rejection. Apparently Appellants refer to the fact that the Examiner 21
consolidated his analysis of the rejection against these claims. This analysis 22
was then expanded at Answer 7-9 where specific findings supporting these 23
rejections were made. Claims 57, 58, 65, and 66 merely describe steps in a 24
put option and claims 59, 60, 67, and 68 merely characterize the underlying 25
instrument as collateralized or non-collateralized, a distinction deserving no 26
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patentable weight, and in any event certainly known to most lay people 1
much less one of ordinary skill. Thus, the essential thrust does not change as 2
the Examiner found that Lutnick describes such options and encompasses 3
such instrument variations, and the Examiner did in fact make substantive 4
findings supporting that rejection. 5
Second Issue – Predictability of Distressed Instruments 6
Appellants contend that the panel erred in using the principle of 7
inherency in an obviousness analysis and using the characteristic of distress 8
in segmenting portions of a genus. The panel found that 9
[a] distressed financial instrument is a financial instrument. 10
Because Lutnick’s hedging applies to any financial instrument, 11
it necessarily, and therefore inherently, applies to a distressed 12
financial instrument. 13
Decision 9. The panel did no more than apply a simple syllogism. Lutnick 14
applies hedging to all tradable financial instruments. A distressed 15
instrument whose value is determinable is a tradable financial instrument 16
(otherwise market value would be indeterminate). Therefore, Lutnick 17
applies hedging to distressed instruments whose value is determinable. As 18
to the use of inherency in an obviousness analysis, “[t]he inherent teaching 19
of a prior art reference, a question of fact, arises both in the context of 20
anticipation and obviousness.” In re Napier, 55 F.3d 610, 613 (Fed. Cir. 21
1995) (affirmed a 35 U.S.C. 103 rejection based in part on inherent 22
disclosure in one of the references). See also In re Grasselli, 713 F.2d 731, 23
739 (Fed. Cir. 1983). 24
As to the use of a characteristic in segmenting portions of a genus, 25
separate species are only relevant in the manner that their characteristics are 26
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relevant. This is not a case of separate chemical compositions each of 1
whose physical properties are potentially unknowable. This is a case of 2
securities whose characteristics are required to be made known publically. 3
Which particular company issued such a security is irrelevant to this 4
analysis, only whether someone considered that security to be in danger of 5
default. Thus, this is not an instance of thousands of relevant species, but 6
only two, viz. distressed and non-distressed. 7
As the danger of default is a widely recognized problem, as evidenced 8
by the Appellants’ own admission that such danger has been routinely 9
hedged before this application was filed, this is clearly a case where the only 10
issue is whether one of ordinary skill would have understood Lutnick’s 11
hedging methods to be applicable to both distressed and non-distressed 12
instruments. Thus, the use of the distress attribute in segmenting the genus 13
was both proper and the relevant criterion. 14
Appellants also contend that Lutnick does not use the word “any.” 15
Request 9. 16
Lutnick states that 17
an individual interested in investing in a particular stock may be 18
unwilling to bear potential losses beyond a particular level. 19
Since the price of the stock could drop at any time to 20
undesirable levels, such an investment inherently carries an 21
element of risk. To hedge against such risk, the investor may 22
purchase both the stock and a put option. The put option gives 23
the investor the right to sell the stock at a fixed exercise, or 24
strike, price up until a given expiration date. If the stock price 25
drops below the strike price, the investor may execute the put 26
option and profit the difference between the exercise price of 27
the put option and the market price of the stock at the time the 28
put option is executed. In this manner, the investor may protect 29
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himself against the risk (and the associated losses) that the 1
stock will decrease in price below the strike price of the put 2
option. 3
Lutnick 1:33-48. This refers to “a particular stock” the investor is interested 4
in. Thus, Lutnick applies to any such stock. 5
Further, as Appellants admit, Lutnick states that “[a]vailable instruments 6
112, 122, and 132 may include any financial instrument that is available to 7
be traded in a market.” Lutnick 4:32-34. Here, in Request 9 Footnote 27, 8
Appellants contend that this does not really mean “any” as “many exchanges 9
delist stocks when the company goes into distress.” Id. But not all such 10
securities are delisted prior to becoming distressed. Delisting is a response 11
to the most severe forms of distress. More critically, delisting is not recited 12
in the claim. Lutnick describes operating on tradeable instruments. A 13
security does not have to be listed on an exchange to be traded or tradable. 14
The fact that company shares frequently continue to be traded even during 15
bankruptcy proceedings, even if only in the pink sheets, is sufficient 16
evidence of that. 17
But all this contention simply is not pertinent to the fact that Lutnick’s 18
procedure was known to be able to be applied to any security, irrespective of 19
whether in practice, a particular security would not have had a counter party 20
available. The procedure described by Lutnick did not depend on the 21
security itself. Indeed that is the very purpose of the procedure, to provide a 22
hedge against any generic security. Appellants have not argued that the 23
steps in applying a put option would differ between a distressed instrument 24
and any other instrument. Appellants have only argued that such options 25
would be unavailable. This simply means that it may be that no one desires 26
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to take the other side of the option bet. It does not mean one of ordinary 1
skill did not know that such steps would apply equally to distressed 2
instruments, or even that one would not have thought to do so. 3
While it is true someone must be willing to take the other side of the bet 4
to practice the invention, that has nothing to do with whether one of ordinary 5
skill knew that the ubiquitous put option described by Lutnick could be 6
applied to any such stock, or that it was desirable to do so. The issue is not 7
whether one of ordinary skill wanted to place the bet, but merely whether he 8
knew such a bet was applicable. Appellants’ arguments appear to go to the 9
potential unwillingness to take the bet, not to knowledge of the process. The 10
test of obviousness is one of knowledge and predictability of desire and the 11
steps or structures themselves, not of actual usage. 12
Third Issue – Declaration and Questions Regarding Paperwork 13
Reduction 14
We will not consider the newly submitted Declaration evidence as such a 15
submission is contrary to the rules. 16
Arguments not raised in the briefs before the Board and 17
evidence not previously relied upon in the brief and any reply 18
brief(s) are not permitted in the request for rehearing except as 19
permitted by paragraphs (a)(2) and (a)(3) of this section. 20
37 C.F.R. § 41.52(a)(1). 21
There is no provision in the statutes or rules governing Board practice 22
requiring a panel to answer questions regarding the Paperwork Reduction 23
Act. Such questions are not pertinent to the issues of patentability before us. 24
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Appellants choose the wrong venue for such demand. Accordingly, we 1
decline the invitation to do so. 2
CONCLUSION 3
Nothing in Appellants’ Request has convinced us that we have 4
overlooked or misapprehended the Examiner’s rejections as argued by 5
Appellants. Accordingly, we deny the request. 6
DECISION 7
To summarize, our decision is as follows: 8
 We have considered the REQUEST FOR REHEARING 9
 We DENY the request that we reverse the Examiner as to claims 1, 10
28, and 57-72. 11
 We DENY the request that we designate the rejection as a new 12
ground. 13
14
REHEARING DENIED 15
16
mls 17