Ex Parte KALOTAY

Patent Trial and Appeal Board

Feb 27, 2019

13398655 (P.T.A.B. Feb. 27, 2019)

UNITED STA TES p A TENT AND TRADEMARK OFFICE
APPLICATION NO. FILING DATE
13/398,655 02/16/2012
21839 7590 03/01/2019
BUCHANAN, INGERSOLL & ROONEY PC
POST OFFICE BOX 1404
ALEXANDRIA, VA 22313-1404
FIRST NAMED INVENTOR
Andrew J. KALOTAY
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
ATTORNEY DOCKET NO. CONFIRMATION NO.
1033487-000003 2868
EXAMINER
SHAIKH, MOHAMMAD Z
ART UNIT PAPER NUMBER
3694
NOTIFICATION DATE DELIVERY MODE
03/01/2019 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):
ADIPDOC 1@BIPC.com
PTOL-90A (Rev. 04/07)
UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE PATENT TRIAL AND APPEAL BOARD
Ex parte ANDREW J. KALOTA Y
Appeal2018-001020
Application 13/398,655
Technology Center 3600
Before CARLL. SILVERMAN, ALEX S. YAP, and JASON M. REPKO,
Administrative Patent Judges.
REPKO, Administrative Patent Judge.
DECISION ON APPEAL
STATEMENT OF THE CASE
Appellant1 appeals under 35 U.S.C. § 134(a) from the Examiner's
rejection of claims 1-20. Br., cover page. 2 We have jurisdiction under
35 U.S.C. § 6(b).
We affirm.
1 According to Appellant, the real party in interest is Andrew Kalotay
Associates Inc. Br. 1.
2 Throughout this opinion, we refer to the Final Rejection ("Final Act."),
mailed June 3, 2016; the Appeal Brief ("Br."), filed August 24, 2016; and
the Examiner's Answer ("Ans."), mailed November 30, 2016.
Appeal2018-001020
Application 13/398,655
THE INVENTION
Appellant's invention calculates the borrowing cost of municipal debt.
Spec. ,r 11. Municipal-debt securities can be issued as a series of individual
bonds. Id. ,r 2. These bonds may have different maturity dates and coupons.
Id. Current practice represents the cost of borrowing with the True Interest
Cost (TIC). Id. ,r 4. TIC is a single discount rate that equates the portfolio-
based debt service of the proposed issue to the proceeds received by the
municipality. Id. But TIC does not take options into account. Id. ,r 10.
To solve this problem, the invention calculates the option-adjusted
TIC (OATIC) by adding the option value V to the proceeds P and finds the
single discount rate that equates the present value of the debt service to P+V.
Id. ,r 11. The option value V can be calculated using industry-standard
methods. Id. ,r 12.
Claim 1 is reproduced below:
1. A method of calculating the borrowing cost of municipal debt,
compnsmg:
receiving, by a valuation module of a processor of a
computing device, terms, yield curve and interest rate volatility
data for a plurality of municipal debt offerings;
specifying, by the valuation module of the processor of the
computing device, an evolution of interest rates for each of the
plurality of municipal debt offerings;
calculating, by the valuation module of the processor of
the computing device, an option value V for each of the plurality
of municipal debt offerings;
determining, by the valuation module of the processor of
the computing device, proceeds P for each of the plurality of
municipal debt offerings; and
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calculating, by a calculation module of the processor of the
computing device, an Option-Adjusted True Interest Cost
(OATIC) for each of the plurality of municipal debt offerings by:
adding the respective option value V to the
respective proceeds P; and
finding a single discount rate that equates a present
value of respective debt service for the plurality of
municipal debt offerings to P+ V.
THE EVIDENCE
The Examiner relies on the following as evidence:
Chen
Butcher, III
US 2003/0023525 Al
US 7,373,328 Bl
Jan.30,2003
May 13, 2008
W.M. Boyce & A.I. Kalotay, Optimum Bond Calling and Refunding,
INTERFACES, pp. 36-49 (Nov. 1979) ("Boyce");
The Municipal Finance Opportunity Cost (2004) ("Municipal");
WM Financial Strategies, Bond Pricing - The Problem With Premium
Pricing, http://www.munibondadvisor.com/PremiumPricing.htm (Mar. 23,
2007) ("WM");
Andrew J. Kalotay & Qi Fu, A Financial Analysis of Consumer Mortgage
Decisions (June 2009) ("Kalotay").
THE REJECTIONS
Claims 1-20 stand rejected under 35 U.S.C. § 101 as directed to
patent-ineligible subject matter. Final Act. 16-19.
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Claims 1, 9, 16, and 17 stand rejected under 35 U.S.C. § 103(a) as
unpatentable over Applicant-Admitted Prior Art (AAP A), Chen, and WM. 3
Final Act. 19-31.
Claims 2, 10, and 18 stand rejected under 35 U.S.C. § 103(a) as
unpatentable over AAPA, Chen, WM, and Municipal. Final Act. 31-35.
Claims 3 and 19 stand rejected under 35 U.S.C. § 103(a) as
unpatentable over AAPA, Chen, WM, and Butcher. Final Act. 35-36.
Claims 4, 11, and 20 stand rejected under 35 U.S.C. § 103(a) as
unpatentable over AAPA, Chen, WM, and Boyce. Final Act. 36-37.
Claims 5-8 and 12-15 stand rejected under 35 U.S.C. § 103(a) as
unpatentable over AAPA, Chen, WM, Boyce, and Kalotay. Final Act. 37-
40.
THE REJECTION UNDER 35 U.S.C. § 101
Principles of Law
An invention is patent-eligible if it claims a "new and useful process,
machine, manufacture, or composition of matter." 35 U.S.C. § 101.
However, the Supreme Court has long interpreted 35 U.S.C. § 101 to include
implicit exceptions: "[l]aws of nature, natural phenomena, and abstract
ideas" are not patentable. E.g., Alice Corp. v. CLS Bank Int 'l, 573 U.S. 208,
216 (2014).
In determining whether a claim falls within an excluded category, we
are guided by the Supreme Court's two-step framework, described in Mayo
and Alice. Id. at 217-18 ( citing Mayo Collaborative Servs. v. Prometheus
3 The Examiner takes Official Notice of certain features in the rejections of
claims 8, 11, 15-18, and 20. Final Act. 27-31, 35--40.
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Labs., Inc., 566 U.S. 66, 75-77 (2012)). In accordance with that framework,
we first determine what concept the claim is "directed to." See Alice, 573
U.S. at 219 ("On their face, the claims before us are drawn to the concept of
intermediated settlement, i.e., the use of a third party to mitigate settlement
risk."); see also Bilski v. Kappas, 561 U.S. 593, 611 (2010) ("Claims 1 and 4
in petitioners' application explain the basic concept of hedging, or protecting
against risk.").
Concepts determined to be abstract ideas, and thus patent ineligible,
include certain methods of organizing human activity, such as fundamental
economic practices (Alice, 573 U.S. at 219-20; Bilski, 561 U.S. at 611 );
mathematical formulas (Parker v. Flook, 437 U.S. 584, 594--95 (1978)); and
mental processes ( Gottschalk v. Benson, 409 U.S. 63, 69 (1972)). Concepts
determined to be patent eligible include physical and chemical processes,
such as "molding rubber products" (Diamond v. Diehr, 450 U.S. 175, 191
( 1981) ); "tanning, dyeing, making water-proof cloth, vulcanizing India
rubber, smelting ores" (id. at 182 n.7 (quoting Corning v. Burden, 56 U.S.
252, 267---68 (1854))); and manufacturing flour (Benson, 409 U.S. at 69
(citing Cochrane v. Deener, 94 U.S. 780, 785 (1876))).
In Diehr, the claim at issue recited a mathematical formula, but the
Supreme Court held that "[a] claim drawn to subject matter otherwise
statutory does not become nonstatutory simply because it uses a
mathematical formula." Diehr, 450 U.S. at 176; see also id. at 191 ("We
view respondents' claims as nothing more than a process for molding rubber
products and not as an attempt to patent a mathematical formula."). Having
said that, the Supreme Court also indicated that a claim "seeking patent
protection for that formula in the abstract ... is not accorded the protection
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of our patent laws, ... and this principle cannot be circumvented by
attempting to limit the use of the formula to a particular technological
environment." Id. ( citing Benson and Flook); see, e.g., id. at 187 ("It is now
commonplace that an application of a law of nature or mathematical formula
to a known structure or process may well be deserving of patent
protection.").
If the claim is "directed to" an abstract idea, we tum to the second
step of the Alice and Mayo framework, where "we must examine the
elements of the claim to determine whether it contains an 'inventive
concept' sufficient to 'transform' the claimed abstract idea into a patent-
eligible application." Alice, 573 U.S. at 221. "A claim that recites an
abstract idea must include 'additional features' to ensure 'that the [claim] is
more than a drafting effort designed to monopolize the [abstract idea]."' Id.
( quoting Mayo, 566 U.S. at 77). "[M]erely requir[ing] generic computer
implementation[] fail[ s] to transform that abstract idea into a patent-eligible
invention." Id.
The PTO recently published revised guidance on the application of
§ 101. USPTO's January 7, 2019 Memorandum, 2019 Revised Patent
Subject Matter Eligibility Guidance ("Memorandum"). Under that
guidance, we first look to whether the claim recites:
( 1) any judicial exceptions, including certain groupings of abstract
ideas (i.e., mathematical concepts, certain methods of organizing
human activities such as a fundamental economic practice, or mental
processes); and
(2) additional elements that integrate the judicial exception into a
practical application (see MPEP § 2106.05(a}-(c), (e}-(h)).
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Only if a claim (1) recites a judicial exception and (2) does not integrate that
exception into a practical application, do we then look to whether the claim:
(3) adds a specific limitation beyond the judicial exception that is not
"well-understood, routine, conventional" in the field (see MPEP
§ 2106.05(d)); or
(4) simply appends well-understood, routine, conventional activities
previously known to the industry, specified at a high level of
generality, to the judicial exception.
See Memorandum.
The Judicial Exception
The Examiner determines that representative4 claim 1 is directed to an
abstract idea of calculating the borrowing cost of municipal debt, which is a
fundamental economic principle and a mathematical concept. Final Act. 10,
16. We agree.
Claim 1 recites a method that receives terms, a yield curve, and
interest-rate volatility data for municipal debt offerings. The recited method
also specifies the evolution of the interest rates. For each municipal debt
offering, the method obtains two values, then adds those values together.
The first value is an option value ("V"). The second value is the proceeds
("P"). According to the Specification, the invention overcomes problems of
conventional calculations because it includes the option's value in the
calculation of the borrowing cost. Spec. ,r 11.
4 Appellant argues claims 1-20 as a group. See Br. 7-17. We select
independent claim 1 as representative of claims 1-20. See 37 C.F.R.
§ 4I.37(c)(l)(iv).
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Calculating borrowing cost is at least a fundamental economic
principle or practice. In this way, the claim is similar to other concepts held
to be abstract ideas. See Alice, 573 U.S. at 219-20 (intermediated
settlement); Bilski, 561 U.S. at 611 (hedging). Apart from the limitations to
the valuation module, all other recited features are included in this abstract
idea because they merely support the calculation by gathering the
information. See Ans. 3--4; Final Act. 10 ( discussing the fundamental
economic principle).
Also, the claim expressly recites the mathematical calculation for
OATIC. In this way, the OATIC calculation is a recited abstract idea.
Final Act. 10 ( discussing mathematical formulas). Such mathematical
calculations have been determined to be abstract ideas. SAP Am., Inc. v.
InvestPic, LLC, 898 F.3d 1161, 1163 (Fed. Cir. 2018) (holding that claims to
a "series of mathematical calculations" are directed to an abstract idea).
Contrary to Appellant's argument (Br. 6-9), we see no error in the
Examiner's characterization of the recited steps as "calculating the
borrowing cost of municipal debt." Each recited function either involves
gathering data for this calculation (i.e., receiving and specifying) or
calculating the cost itself (i.e., calculating option value V, proceeds P, and
the corresponding OATIC).
Thus, claim 1 recites an abstract idea.
Integration into a Practical Application
The recited abstract idea is not integrated into a practical application.
Indeed, claim 1 recites features in addition to the abstract idea of calculating
the borrowing cost of municipal debt. Namely, claim 1 recites a "valuation
module of a processor of a computing device" and a "calculation module of
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the processor of the computing device." As we discuss below, these
additional elements do not integrate the judicial exception into a practical
application. See Memorandum 20-22 (citing MPEP § 2106.05(a}-(c), (e}-
(h)).
Claim 1 does not purport to improve the functioning of the computer
itself or any other technology or technical field. See Alice, 573 U.S. at 210,
cited in MPEP § 2106.05(a). For example, Appellant has not shown that the
recited modules improve a computer's operating efficiency. Rather, claim 1
purportedly improves the borrowing-cost calculations for debt instruments
with an option. See, e.g., Br. 8; Spec. ,r,r 10-11. Claim 1 only uses a
computer as a tool for calculating.
For instance, Appellant argues that claim 1 offers "a technical solution
to the technical problem of determining borrowing costs of municipal debt
for instruments that have optionality." Br. 8. We disagree that this is a
technical problem. Rather, current industry practice represents the cost of
borrowing using TIC. Spec. ,r 4. But TIC does not take options into
account. Id. ,r 10. So the claimed invention calculates the OATIC. Id. ,r 11.
Yet claim 1 's method does not recite a technical solution for doing so. The
recited method merely adds "the respective option value V to the respective
proceeds P." Then the method finds "a single discount rate that equates a
present value of respective debt service for the plurality of municipal debt
offerings to P+V." Essentially, the computer is used for its basic calculating
function.
Appellant argues that the claimed technical solution requires
"specifically configured computer networks." Br. 10-11. According to
Appellant, existing computer networks do not "consider optionality in
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determining the effectiveness and suitability of municipal debt instruments."
Id. at 10.
But claim 1 does not recite how the computer or network
meaningfully contributes to the claimed data gathering or calculations.
Instead, claim 1 merely adds "a calculation module of the processor" to
perform the calculations. The recited modules are merely generic computer
components. See Spec. ,r,r 107-108. Such generic components are
insufficient to integrate the judicial exception into a practical application.
See MPEP § 2106.05(a).
Although a computer is recited, claim 1 does not apply or use the
abstract idea in a "particular machine." See Bilski, 561 U.S. at 604. A
general-purpose computer that merely executes the judicial exception using
conventional computer functions, as is the case here, is not a particular
machine. Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 716-17 (Fed. Cir.
2014), cited in MPEP § 2106.05(b). Thus, we agree with the Examiner that
claim 1 does not recite an improvement to computer technology.
Final Act. 18.
Appellant further contends that the claim's "core features" and the
"technical result" show that claim 1 is not directed to an abstract idea.
Br. 8-9. The identified "core features," however, merely obtain data for the
calculation (terms, yield curve, volatility date, and interest-rate evolution)
and then perform the calculation ( calculating an option value, determining
proceeds, and calculating OATIC). As such, these features are part of the
abstract idea itself.
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Thus, claim 1 does not integrate the judicial exception into a practical
application. On this record, we are unpersuaded that the Examiner erred in
determining that claim 1 is directed to an abstract idea. Final Act. 16-18.
The Inventive Concept
Claim 1 also lacks an inventive concept.
To determine whether claim 1 provides an inventive concept, we
consider the additional elements, individually and in combination, to
determine whether ( 1) they add a specific limitation beyond the judicial
exception that is not well-understood, routine, conventional activity in the
field or (2) simply append well-understood, routine, conventional activities
previously known to the industry, specified at a high level of generality, to
the judicial exception. Memorandum 23.
Here, we agree with the Examiner that claim 1 's additional elements
merely use a generic computer to perform the abstract idea and append well-
understood, routine, conventional activities. Final Act. 18-19. Claim 1
recites a "valuation module of a processor of a computing device" and a
"calculation module of the processor of the computing device." These
components are merely software executing on a generic processor. See
id. at 18 (citing Spec. ,r,r 17, 70, 91-102, 105, 108; Fig. 1). In fact, the
valuation module uses the Black-Derman-Toy or Black-Karasinski process
to specify the evolution of interest rates. Spec. ,r 80. According to the
Specification, these processes are well-understood, routine, conventional
algorithms. See id. ,r 12 ( explaining that these processes are industry
standard).
Appellant argues that the claims are similar to those in DDR Holdings,
LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014). Br. 13-15. In
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Appellant's view, the claims are rooted in computer networks. Id. at 14--15.
For example, Appellant argues that existing computer networks cannot
calculate OATIC. Id. Appellant argues that the Examiner's analysis does
not consider the claimed limitations in combination. Id. at 15-16. We
disagree.
The Examiner explained that the recited abstract idea includes
gathering data and calculating the cost using that data. See Ans. 4;
Final Act. 19. Considering the elements in combination, Appellant has not
shown that the recited calculations improve operating efficiency or
otherwise operate in an unconventional way. Similar to Appellant's claims,
the Federal Circuit has recognized that "an invocation of already-available
computers that are not themselves plausibly asserted to be an advance, for
use in carrying out improved mathematical calculations, amounts to a
recitation of what is 'well-understood, routine, [and] conventional."' SAP
Am., 898 F.3d at 1170 (alteration in original) (citing Mayo, 566 U.S. at 73).
Thus, the additional elements, individually and in combination, do not
provide an inventive concept. See Memorandum 23.
Essentially, Appellant's inventive-concept argument focuses on an
improved borrowing-cost calculation. See Br. 14--16. According to
Appellant, the claimed features improve a network because the calculations
account for a particular feature: "optionality." See, e.g., id. at 14. So claim
1 does not recite any purportedly inventive networking technology. Instead,
Appellant's alleged inventive concept is part of the abstract idea itself. But
"[ w ]hat is needed is an inventive concept in the non-abstract application
realm." SAP Am., 898 F.3d at 1168.
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On this record, Appellant has not persuaded us of error in the rejection
of representative claim 1 under 35 U.S.C. § 101. Thus, we sustain the
Examiner's rejection of claims 1-20, which are argued as a group. Seen. 6
supra.
THE OBVIOUSNESS REJECTION OVER AAP A, CHEN AND WM
Claim 1 recites, in part,
calculating, by a calculation module of the processor of the
computing device, an Option-Adjusted True Interest Cost
(OATIC) for each of the plurality of municipal debt offerings by:
adding the respective option value V to the
respective proceeds P; and
finding a single discount rate that equates a present
value of respective debt service for the plurality of
municipal debt offerings to P+ V.
In the proposed combination of Admitted Prior Art, Chen, and WM,
Examiner finds that WM teaches the recited calculation module.
Final Act. 21-23. In particular, the Examiner finds that WM calculates
OATIC by adding an option value to the proceeds and finds the recited
discount rate. Id. at 21-22. According to the Examiner, WM's premium
bonds have a "callable option," and WM uses the option in the calculation of
TIC in the last row of the table entitled "Premium Priced Bonds ---Callable in
8 Years at 100%." Ans. 22 (citing WM 2).
Appellant argues that WM does not use an option value for each debt
offering. Br. 19. According to Appellant, WM uses a standard true interest
cost (TIC) for a debt instrument. Id. at 18. Appellant also presents other
arguments (see, e.g., id. at 16-19), but we find Appellant's argument that
WM does not use an option value for each debt offering persuasive and
dispositive of this issue in this rejection.
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Put simply, the Examiner has not supported the finding that WM uses
the option value in the calculation of TIC. Ans. 22. In particular, WM
teaches a premium-pricing strategy. WM 2. For non-callable bonds,
premium pricing is effective because the premium paid proportionately
increases as interest cost rises. Id. In this case, the issuer's interest cost
remains unchanged. Id. But premium pricing is a costly approach for
callable bonds. Id. For example, WM uses a table to illustrate this. Id. The
table shows that when the bond's rate increases, the price paid to the issuer
decreases in proportion to the added debt-service costs and the TIC
increases. Id.
Claim 1, however, requires calculating the OATIC. This involves (1)
adding the option value V and the proceeds P, and (2) finding a single
discount rate that equates a present value of respective debt service for
multiple municipal-debt offerings to P+V. The Examiner has not shown that
WM's TIC involves these steps. See Final Act. 21-23; Ans. 22. To be sure,
WM teaches callable options. Ans. 22. But WM uses TIC instead of
OATIC to calculate the cost of issuing the bond. Br. 18-19. Although
WM's TIC takes into account the underwriter's fees and the interest rate
(WM 3), the Examiner has not shown how WM takes options into account
using the recited OATIC calculations.
On this record, we do not sustain the Examiner's rejection of claim 1.
Nor do we sustain the Examiner's rejection of claims 9, 16 5, and 1 7
for similar reasons, which also recite the above-discussed OATIC
calculation. See Br. 16-20.
5 In rejecting claim 16, the Examiner takes Official Notice that "instructions
for displaying a report identifying the expected cost of the preferred debt
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THE REMAINING OBVIOUSNESS REJECTIONS
As for claims 2-8, 10-15, and 18-20, which depend from claims 1, 9,
and 16, we also do not sustain the rejection of these claims. The Examiner
rejects these dependent claims as being obvious over the same references
used in rejecting claims 1, 9, and 16 along with various combinations of
Butcher, Municipal, Boyce, and Kalotay. Final Act. 31--40. Also, the
Examiner takes Official Notice of certain features in the rejections of claims
8, 11, 15-18, and 20. Id. at 27-31, 35--40. But the additional references are
not relied upon to teach the limitation missing from AP A, WM, and Chen.
See id. at 31--40. Nor has the Examiner taken notice of these features.
Id. at 27-31, 34--37. So the additional references do not cure the deficiency
discussed above regarding WM. See id. For the same reasons discussed
above in connection with claims 1, 9, and 16, we do not sustain the
rejections of claims 2-8, 10-15, and 18-20. See Br. 16-24.
CONCLUSIONS
We sustain the rejection of claims 1-20 under 35 U.S.C. § 101.
We do not sustain the rejection of claims 1-20 under
35 U.S.C. § 103.
DECISION
Because we have affirmed at least one ground of rejection with
respect to each claim on appeal, we affirm the Examiner's decision to reject
claims 1-20. See 37 C.F.R. § 4I.50(a)(l).
instrument selected by the investor" are known. Final Act. 29. This,
however, does not cure the deficiency in WM, which is relied upon to teach
the OATIC calculation. See id.
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No time period for taking any subsequent action in connection with
this appeal maybe extended under 37 C.F.R. § 1.136(a)(l)(iv). See 37
C.F.R. § 4I.50(f).
AFFIRMED
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