Ex Parte Browne et al

Patent Trial and Appeal Board

Mar 20, 2017

13069141 (P.T.A.B. Mar. 20, 2017)

United States Patent and Trademark Office
UNITED STATES DEPARTMENT OF COMMERCE
United States Patent and Trademark Office
Address: COMMISSIONER FOR PATENTS
P.O.Box 1450
Alexandria, Virginia 22313-1450
www.uspto.gov
APPLICATION NO. FILING DATE FIRST NAMED INVENTOR ATTORNEY DOCKET NO. CONFIRMATION NO.
13/069,141 03/22/2011 Sid Browne GOLDl 1-00005 9568
132787 7590
Docket Clerk-GOLD
P.O. Drawer 800889
Dallas, TX 75380
EXAMINER
SHRESTHA, BIJENDRA K
ART UNIT PAPER NUMBER
3691
NOTIFICATION DATE DELIVERY MODE
03/22/2017 ELECTRONIC
Please find below and/or attached an Office communication concerning this application or proceeding.
The time period for reply, if any, is set in the attached communication.
Notice of the Office communication was sent electronically on above-indicated "Notification Date" to the
following e-mail address(es):
j ohn. maxin @ gs. com
patents @ munckwilson. com
PTOL-90A (Rev. 04/07)
UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE PATENT TRIAL AND APPEAL BOARD
Ex parte SID BROWNE and ARTHUR MAGHAKIAN
Appeal 2016-003562
Application 13/069,141
Technology Center 3600
Before HUBERT C. LORIN, BIBHU R. MOHANTY, and
BRADLEY B. BAYAT, Administrative Patent Judges.
BAYAT, Administrative Patent Judge.
DECISION ON APPEAL
STATEMENT OF THE CASE
Appellants1 appeal under 35 U.S.C. § 134 the decision to reject claims
17—30 under 35 U.S.C. § 101 as being directed to non-statutory subject
matter. We have jurisdiction under 35 U.S.C. § 6(b).
SUMMARY OF DECISION
We AFFIRM.
1 Appellants identify “Goldman, Sachs & Co.” as the real party in interest.
Appeal Br. 2.
Appeal 2016-003562
Application 13/069,141
THE INVENTION
Appellants’ claimed invention relates to stress testing simulations of
financial instrument behavior by varying components of an evolving
volatility surface for the instruments at issue. (Spec. 1:7—9). Claim 17,
reproduced below with bracketed matter added, is illustrative of the subject
matter on appeal.
17. A processor-implemented method for simulating the
behavior of a financial instrument, which is a derivative of an
underlying financial instrument, in response to unusual market
conditions comprising:
providing a volatility surface model representing implied
volatility for the derivative relative to A and T values to be used
during simulation of the instrument’s behavior, the surface
model defining a volatility surface using a plurality of surface
parameters fio,...,fin, n > 0, each surface parameter being
associated with at least one attribute of the modeled volatility
surface, the surface model having a form:
o(A,T)=F An,..., A,T)
where (i) o is a measure of the volatility for a derivative with a
given A, which is a ratio of a change in derivative price to a
change in security price and T, which is a term remaining for the
derivative and (ii)
F is a function of A, T and the surface parameters fi„fin,
determining normal surface values for surface parameters
fionormai,—, fin normal, under normal market conditions to allow the
volatility surface model to
approximate a set of historical volatilities for a plurality of
derivatives on the underlying financial instrument;
determining whether one or more additional surface parameters
should be included in the surface model to more closely
approximate the set of historical volatilities;
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determining the normal surface values for the one or more
additional surface parameters and the surface parameters to allow
the volatility surface model to more closely approximate the set
of historical volatility data;
adjusting the determined normal surface values fix, normai by a
respective stress value /?x,stress to alter a skew of the volatility
surface to more accurately reflect the unusual market conditions;
generating via a processor the volatility surface based on the
provided volatility surface model and a set of the determined
normal surface parameter values with the adjustment by the
stress value; and
extracting a volatility from the generated volatility surface;
wherein the plurality of surface parameters comprise at least one
surface parameter associated with an offset of the volatility
surface relative to the A and T axes, at least one surface
parameter associated with changes in the volatility surface with
respect to the A of the derivative, and at least one surface
parameter associated with changes in the volatility surface with
respect to the term of the derivative;
wherein the extracted volatility is used in a pricing model to
provide a price of the particular instrument.
ANALYSIS
Appellants argue that “the Examiner failed to comply with the Mayo
test” (Appeal Br. 12). Appellants’ challenge to the rejection fails to show
error in the rejection.
The Examiner analyzed the claims in accordance with the two-step
framework for determining whether claimed subject matter is judicially-
excepted from patent eligibility under § 101 as articulated in Alice Corp.
Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014). See Final Act.
2—6; Ans. 1—10. In accordance therewith, the Examiner determined that
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“claims 17—30 are directed to system and method for simulating the
behavior of a financial instrument” and “such activity is considered both a
mathematical relationships/formulas and a method of organizing human
activity” (Final Act. 3). Under step 2 of the Alice framework, the Examiner
found that the claimed invention “does not amount to significantly more than
the abstract idea itself’ and “merely amounts to the application or
instructions to apply the abstract idea ... on a computer, and is considered to
amount to nothing more than requiring a generic computer system to merely
carry out the abstract idea” (Final Act. 4; see also Ans. 3—4). According to
the Examiner, the claims are directed to “nothing more than purely
conventional computerized implementation of [AJpplicanf s formula, when
considered as a ordered combination and the claims do not purport to
improve any another technology or technical field, or to improve the
functioning of a computer itself and do not move beyond a general link of
the use of an abstract idea to a particular technological environment. ” (Ans.
3). From this, the Examiner determined that the claimed subject matter runs
afoul of 35 U.S.C. § 101.
Appellants contend that the claimed invention is not directed to an
abstract idea under step 1 of Alice (Appeal Br. 12—14), and that the claims
are directed to significantly more than an abstract idea under Alice step 2
(Appeal Br. 14—18).
The Specification describes the invention as “a method and system for
stress testing simulations of financial instrument behavior by varying
components of an evolving volatility surface for the instruments at issue.”
(Spec, at 1, lines 7—9).
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Application 13/069,141
Independent claim 17 is directed to a “processor-implemented method
for simulating the behavior of a financial instrument, which is a derivative of
an underlying financial instrument, in response to unusual market
conditions” (Appeal Br. 25, Claims Appendix). Independent claim 24 is
directed to a corresponding “system for simulating the behavior of a
financial instrument, which is a derivative on an underlying financial
instrument, in response to unusual market conditions” (Appeal Br. 29,
Claims Appendix).
The method of claim 17 comprises seven steps (a) providing a first
information (“a volatility surface model”), (b) determining a second
information (“determining normal surface values”), (c) determining a third
information (“determining whether one or more additional surface
parameters should be included in the surface model”), (d) determining a
fourth information (“determining the normal surface values”), (e) adjusting
the fourth information (“adjusting the determined normal surface values”),
(f) generating a fifth information from the first and fourth information
(“generating via a processor the volatility surface”), and (g) extracting a
sixth information from the fifth information (“extracting a volatility”), and
further requires in the final two “wherein” clauses that the parameters satisfy
certain mathematical relationships and that the extracted information “is
used in a pricing model to provide a price of the particular instrument.” The
system of claim 24 comprises a data store containing the first information
above, and a processor “configured via computer software” to perform
functions that correspond to steps (b) through (g) of claim 17.
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The subject matter of claims 17 and 24, as reasonably broadly
construed, are drawn to a mathematical simulation of risk for a financial
instrument derivative; that is, the claims are drawn to a methodology
whereby mathematical formula are applied to information about a derivative
on an underlying financial instrument to create a mathematical model and
generate a price for a particular derivative from the model that measures, and
thus protects against, “the potential risk of future losses which is inherent in
a given financial position” (Spec, at 1, line 13). Evidence will show that the
concept of determining prices for financial instruments is a well-established
fundamental economic practice. Because we find that claims 17 and 24, as
reasonably broadly construed, are directed to the concept of financial
instrument pricing according to mathematical formulas, i.e., a fundamental
economic practice, claims 17 and 24 are directed to a patent-ineligible
abstract idea.
Appellants argue that “the claims contain elements beyond simply
simulating the behavior of a financial instrument” (Appeal Br. 12).
According to Appellants, “[cjlaim 17 recites a specific process that uses
specific data in a manner never done before to (among other things) use a
model and adjustments to more accurately reflect unusual market conditions,
generate a volatility surface using the model, and use an extracted volatility
in a pricing model to provide a price of a particular instrument” (Appeal Br.
14).
We agree with Appellants that the claims require applying specific
mathematical functions to specific data. The problem with this argument is
that applying specific mathematical formulas to specific data does not make
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an abstract idea patent-eligible. Each step of the method of claim 17 is
directed to gathering and manipulating information according to
mathematical formulas. For example, as described in the Specification,
extracting a volatility from a volatility surface is fundamentally a
mathematical operation. See Spec, at 13, lines 11—14 (“To extract the
implied volatility for an individual option during simulation, the simulated
price of the underlying security and the time before the option expires are
used to determine a point on the simulated volatility surface”). The Supreme
Court has held that mathematical formulas are not patent-eligible, no matter
how narrowly a claim may be drafted. “[I]f a claim is directed essentially to
a method of calculating, using a mathematical formula, even if the solution
is for a specific purpose, the claimed method is nonstatutory.” Parker v.
Flook, 437 U.S. 584, 595 (1978).
[0]ur cases have not distinguished among different laws of
nature according to whether or not the principles they embody
are sufficiently narrow. See, e.g., Flook, 437 U.S. 584, 98 S.Ct.
2522, 57 L.Ed.2d 451 (holding narrow mathematical formula
unpatentable). And this is understandable. Courts and judges are
not institutionally well suited to making the kinds of judgments
needed to distinguish among different laws of nature. And so the
cases have endorsed a bright-line prohibition against patenting
laws of nature, mathematical formulas and the like, which serves
as a somewhat more easily administered proxy for the underlying
“building-block” concern.
Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 88—89,
(2012). Cf. Bilski v. Kappos, 561 U.S. 593, 611 (2010) (“The concept of
hedging, described in claim 1 and reduced to a mathematical formula in
claim 4, is an unpatentable abstract idea, just like the algorithms at issue in
Benson and k'lookP).
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Appellants argue that “the operations recited in Claim 17 combine to
create an ordered combination that is not well-understood, routine, or
conventional and that is not previously known to the industry.” (Appeal Br.
16; see also Reply Br. 9-10).
That is not a persuasive argument. An abstract idea does not
transform into an inventive concept just because the prior art does not
disclose or suggest it. Cf. Flook, 437 U.S. 584, 592 (“We think this case
must also be considered as if the principle or mathematical formula were
well known.”). Moreover, merely combining abstract ideas and specific
mathematical formulas does not render the combination any less abstract.
Cf. Shortridge v. Found. Constr. Payroll Serv., LLC, No. 14-CV-04850-
JCS, 2015 WL 1739256 (N.D. Cal. Apr. 14, 2015), aff’d, 655 F. App’x 848
(Fed. Cir. 2016).
Appellants argue that “Claim 17 as a whole amounts to significantly
more than simply mathematical relationships/formulas” because it provides
“improvements in the technology of stress testing simulations by varying
components of an evolving volatility surface for an instruments at issue.”
(Appeal Br. 18; see also Reply Br. 9). Appellants argue that “[ujnlike Flook
but like Diehr, the present claims are not directed to a formula in isolation”
(Reply Br. 6). According to Appellants, the claims are more similar to the
claims held patent-eligible in Diamond v. Diehr, 450 US. 175 (1981), and in
DDR Holdings, LLCv. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014)
(Reply Br. 4—6). Appellants also argue that the claimed simulation “is done
in a very specific way that reduces computational cost of determining the
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cross-correlations when compared to traditional techniques” (Reply Br. 5)
(citing pages 4 and 15—16 of the Appellants’ Specification).
Unlike the invention in Diehr, the invention here does not involve any
transformation of a physical article “to a different state or thing” 450 U.S. at
191. Cf. Id. (“A mathematical formula as such is not accorded the protection
of our patent laws, Gottschalk v. Benson, 409 U.S. 63, 93 S. Ct. 253, 34
L.Ed.2d 273 (1972), and this principle cannot be circumvented by
attempting to limit the use of the formula to a particular technological
environment”).
Although the Specification criticizes prior simulation techniques
because “the computational cost of determining the cross-correlations grows
quadratically with the number of factors making it difficult to process
models with large numbers of factors” (Spec, at 4, lines 8—10), the
Specification does not disclose a technological solution to that problem.
Here, “[t]he specification fails to provide any technical details for the
tangible components, but instead predominately describes the system and
methods in purely functional terms.” In re TLI Commc ’ns LLC Patent
Litig., 823 F.3d 607, 612 (Fed. Cir. 2016).
Appellants have not offered any evidence that the computer
implementation is novel or improves the functioning of the computer itself.
In fact, Appellants concede that “each individual step recited in Claim 17
could theoretically be performed by a conventional computing system”
(Appeal Br. 16). The Specification supports the view that the computer
implementation is entirely conventional. The Specification does not
describe a new computing platform, processor, memory, database, or new
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software routines. Rather, the Specification describes a conventional
computer implementation in purely functional terms, as to hardware and
software alike. See, e.g., Spec, at 24, lines 10-12 (“A preferred method of
implementation uses a set of appropriate software routines which are
configured to perform the various method steps on a high-power computing
platform”); Spec, at 24, lines 15—17 (“Appropriate programming techniques
will be known to those of skill in the art and the particular techniques used
depend upon implementation details, such as the specific computing and
operating system at issue”); Spec, at 24, lines 18—20 (“The various steps of
the simulation method are implemented as C++ classes and the intermediate
data and various matrices are stored using conventional file and database
storage techniques”).
This is not sufficient to make the invention “rooted in computer
technology” like the claims in DDR. Cf. Intellectual Ventures ILLC v.
Capital One Bank (USA), 792 F.3d 1363, 1371 (Fed. Cir. 2015) (“The
patent claims here do not address problems unique to the Internet, so DDR
has no applicability.”). The implementation of the claimed financial
instrument simulation using a conventional computer and “appropriate
programming techniques” to manipulate information does not make the
claimed mathematical formulas patent-eligible. “[IJmplementing a
mathematical principle on a physical machine, namely a computer, [i]s not a
patentable application of that principle.” Mayo, supra, at 1301 (citing
Gottschalkv. Benson, 409 U.S. 63, at 71 (1972)). Cf. Alice, 134 S. Ct. at
2358 (“the mere recitation of a generic computer cannot transform a patent-
ineligible abstract idea into a patent-eligible invention.”). See also Digitech
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Image Techs., LLCv. Elecs. for Imaging, Inc., 758 F.3d 1344, 1351 (Fed.
Cir. 2014) (“Without additional limitations, a process that employs
mathematical algorithms to manipulate existing information to generate
additional information is not patent eligible.”) (citing Flook); OIP Techs.,
Inc. v. Amazon.com, Inc., 788 F.3d 1359, 1363 (Fed. Cir. 2015) (“[Rjelying
on a computer to perform routine tasks more quickly or more accurately is
insufficient to render a claim patent eligible.”) (citing Alice, 134 S. Ct. at
2359).
We therefore find the claimed invention here to be directed to
ineligible fundamental economic practices and mathematical formulas, like
the inventions related to economic practices held ineligible in Bilski (concept
of hedging risk and the application of that concept to energy markets), OIP
Techs, (automatically determining prices for products by testing prices and
gathering statistics) and Versata Development Group v. SAP America, Inc.,
793 F.3d 1306 (Fed. Cir. 2015) (determining a price using organization and
product group hierarchies).
We also are unpersuaded by Appellants’ contention about pre­
emption. Reply Br. 7 (“Claim 17 ‘is not attempting to tie up any such
exception so that others cannot practice if”). While pre-emption “might
tend to impede innovation more than it would tend to promote it, ‘thereby
thwarting the primary object of the patent laws’” {Alice, 134 S. Ct. at 2354
(quoting Mayo, 132 S. Ct. 1289, 1293), “the absence of complete
preemption does not demonstrate patent eligibility” (Ariosa Diagnostics,
Inc. v. Sequenom, Inc., 788 F.3d 1371, 1379 (Fed. Cir. 2015)). See also OIP
Techs., Inc. v. Amazon.com, Inc., 788 F.3d 1359, 1362-63 (Fed. Cir. 2015),
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cert, denied, 136 S. Ct. 701, 193 (2015)(“[T]hat the claims do not preempt
all price optimization or may be limited to price optimization in the e-
commerce setting do not make them any less abstract.”). See also
CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1371 (Fed. Cir.
2011) (“The Court [in Flook] rejected the notion that the recitation of a
practical application for the calculation could alone make the invention
patentable.”).
Appellants also cite Ex Parte Wegman III, 2015 WL 5578687
(P.T.A.B. Sep. 18, 2015) and Ex Parte Fuller, 2015 WL 3467122 (P.T.A.B.
May 28, 2015), two non-precedential decisions in which the Board reversed
rejections under 35 USC § 101 (Reply Br. 3—4). As a matter of course, what
a different panel did in a different situation under a different set of facts has
little bearing on how this case should be disposed of. Although we do not
consider these decisions either controlling or germane, we note that these
cases do not stand for the proposition that claims that recite specific
calculations involving a model are per se patent-eligible. On the record
before us, we find the claims on appeal similar to the claims held ineligible
under controlling precedent (e.g., Benson, Flook, Bilski, and Alice) for the
reasons above.
Independent system claim 24 is directed to similar functionality as
claim 17, implemented by “a computer having a processor and at least one
data store.” As in Alice, “[t]he method claims recite the abstract idea
implemented on a generic computer; the system claims recite a handful of
generic computer components configured to implement the same idea.”
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Alice at 2360. Accordingly, we reach the same conclusion as to system
claim 24.
Appellants make similar arguments with respect to the dependent
claims (see Appeal Br. 18—23). But these arguments are similarly
unpersuasive as to the dependent claims, no matter how narrow or detailed
the mathematical formulas contained therein, as noted by the Court in Mayo.
In view of the foregoing, we sustain the rejection of claims 17—30 as
being directed to non-statutory subject matter.
DECISION
We AFFIRM the Examiner’s decision to reject claims 17—30 under 35
U.S.C. § 101.
No time period for taking any subsequent action in connection with
this appeal may be extended under 37 C.F.R. § 1.136(a).
AFFIRMED
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