International Securities Exchange, LLCv.Chicago Board Options Exchange, Incorporated

Patent Trial and Appeal Board

Mar 2, 2015

09475534 (P.T.A.B. Mar. 2, 2015)

Trials@uspto.gov
571.272.7822  
Paper No. 53
Filed: March 2, 2015

UNITED STATES PATENT AND TRADEMARK OFFICE
____________

BEFORE THE PATENT TRIAL AND APPEAL BOARD
____________

INTERNATIONAL SECURITIES EXCHANGE, LLC,
Petitioner,

v.

CHICAGO BOARD OPTIONS EXCHANGE, INC.,
Patent Owner.
____________

Case CBM2013-00049
Patent 7,356,498 B2
____________

Before JUSTIN T. ARBES, RAMA G. ELLURU, and
JAMES B. ARPIN, Administrative Patent Judges.
ELLURU, Administrative Patent Judge.

FINAL WRITTEN DECISION
35 U.S.C. § 328(a) and 37 C.F.R. § 42.73

CBM2013-00049
Patent 7,356,498 B2

2 

I. BACKGROUND
Petitioner, International Securities Exchange, LLC, filed a second
corrected Petition (Paper 9, “Pet.”) requesting review under the transitional
program for covered business method patents of claims 1–28 of U.S. Patent
No. 7,356,498 B2 (Ex. 1001, “the ’498 patent”). Patent Owner, Chicago
Board Options Exchange, Inc., filed a Preliminary Response (Paper 16,
“Prelim. Resp.”). On March 4, 2014, pursuant to 35 U.S.C. § 324, we
instituted this trial as to claims 1–28 on one ground of unpatentability,
35 U.S.C. § 101 (Paper 17, “Dec. to Inst.”).
Subsequent to institution, Patent Owner filed a Patent Owner
Response (Paper 26, “PO Resp.”), a First Supplemental Response (Paper 39,
“PO First Supp. Resp.”), a Second Supplemental Response (Paper 51, “PO
Second Supp. Resp.”), a Motion to Amend (Paper 25, “Mot.”), and a Reply
in support of its Motion (Paper 42, “PO Reply”). Petitioner filed a Reply
(Paper 36, “Pet. Reply”) to Patent Owner’s Response, a First Supplemental
Reply (Paper 41, “Pet. First Supp. Reply”), a Second Supplemental Reply
(Paper 52, “Pet. Second Supp. Reply”), and an Opposition to Patent Owner’s
Motion to Amend (Paper 37, “Opp.”).
An oral hearing was held on August 22, 2014, and a transcript of the
hearing is included in the record (Paper 49, “Tr.”).
We have jurisdiction under 35 U.S.C. § 6(c). This Final Written
Decision is issued pursuant to 35 U.S.C. § 328(a) and 37 C.F.R. § 42.73.
For the reasons that follow, we determine that Petitioner has shown by
a preponderance of the evidence that claims 1–28 of the ’498 patent are
unpatentable.
CBM2013-00049
Patent 7,356,498 B2

3 

A. The ’498 Patent
The ’498 patent, titled “Automated Trading Exchange System Having
Integrated Quote Risk Monitoring and Integrated Quote Modification
Services,” issued on April 8, 2008, based on U.S. Patent Application No.
09/475,534 (“the ’534 application”), filed on December 30, 1999.1
The ’498 patent relates to automated trading systems for option
contracts (“options”). Ex. 1001, 1:8–12, Abstract. Specifically, the claimed
invention is directed to methods for managing the risk of a maker of an
options market in an automated trading system. Id. at 1:8–12.
Options are traded publicly on exchanges. Id. at 1:17. Each option
covers certain rights to buy or sell an underlying security at a fixed price for
a specified period of time. Id. at 1:18–21. The potential loss to the buyer of
an option is no greater than the initial premium paid for the option,
regardless of the performance of the underlying security. Id. at 1:27–29. On
the contrary, in exchange for the premium, the seller of the option (“the
market-maker”) assumes the risk of being assigned the obligation to buy or
sell the underlying security, according to the option terms, if the contract is
exercised. Id. at 1:30–34. Thus, writing options may entail large risks to the
market-maker. Id. at 1:34–35.

1 U.S. Patent Application No. 12/035,996 (“the ’996 application”) is a
continuation of the ’534 application, and issued as U.S. Patent No. 7,980,457
B2 (“the ’457 patent”). U.S. Patent Application No. 13/178,289 (“the ’289
application”) is a continuation of the ’996 application and issued as U.S.
Patent No. 8,266,044 B2 (“the ’044 patent”). The ’498 patent also is the
subject of IPR2014-00097. The ’457 patent is the subject of CBM2013-
00050 and IPR2014-00098. The ’044 patent is the subject of CBM2013-
00051. Final Written Decisions are entered in these cases concurrently with
this Decision.
CBM2013-00049
Patent 7,356,498 B2

4 

Many option trading systems utilize an “open outcry” method. Id. at
1:43–44. In such systems, market-makers are required to make a two-sided
market by providing an order and an offer quote. Id. at 1:44–46. In a non-
automated open outcry system, a market-maker communicates verbally with
traders indicating their willingness to buy and sell various quantities of
securities. Id. at 1:46–49. Because a market-maker in such systems has
personal control over the types and number of options traded, the market-
maker can manage risk associated with his or her options portfolio. Id. at
1:49–53. A market-maker manages risk by adjusting quotes for options to
favor trades that tend to hedge against unwanted risk. Id. at 1:52–55.
The ’498 patent Specification states that an automated trading
environment already was known in the art. Id. at 1:56–58, 61–65. An
automated, computer-based trading system typically records quotes and
automatically matches them with orders that enter the system. Id. at 1:58–
61. One disadvantage of known automated trading systems is that the
systems execute trades so rapidly that a market-maker may be unable to
withdraw or modify his quotes in a timely manner. Id. at 1:61–2:5.
Software tools that assess trading option portfolio risk and recommend quote
modifications also were known. Id. at 2:6–12. An automated trading
system, however, processes transactions in the order received. Id. at 2:16–
19. Thus, even if a market-maker uses such software tools to modify quotes,
those tools may be unable to act in time, given the speed at which the
automated trading exchange system executes orders. Id. at 2:12–16. For
example, an automated trading exchange may have a message queue
containing additional orders that must be processed before the automated
exchange receives and processes the market-maker’s quote modification
CBM2013-00049
Patent 7,356,498 B2

5 

request. Id. at 2:19–23. These known, automated trading exchange systems,
therefore, limit a market-maker’s ability to manage risk. Id. at 2:24–32. The
’498 patent Specification recognizes the need for a method that
automatically modifies quotes under certain trading conditions in an
automated trading exchange system. Id. at 2:33–35.
The invention of the ’498 patent is directed to methods for modifying
quotes in an automated exchange trading system, where the system provides
integrated quote risk monitoring and quote modification services. Id. at
2:39–41. Thus, one aspect of the invention is an apparatus that implements
the method using a computer having memory, a processor, and a
communication port. Id. at 2:41–44.
The computer receives orders and quotes, wherein a quote has
associated trading parameters, such as a risk threshold. Id. at 2:44–47. The
computer then may generate a trade by matching the received orders and
quotes to previously received orders and quotes. Id. at 2:54–56. If a trade is
not generated, the computer stores each of the received orders and quotes.
Id. at 2:56–57. The computer determines whether a market-maker’s quote
has been filled as a result of the generated trade, and, if so, determines a risk
level and aggregate risk level associated with the trade. Id. at 2:57–61. The
computer then compares the aggregate risk level with the market-maker’s
risk threshold for a quote; if the threshold is exceeded, the computer
automatically modifies at least one of the market-maker’s remaining quotes.
Id. at 2:61–64.
CBM2013-00049
Patent 7,356,498 B2

6 

B. Illustrative Claim
Of the challenged claims, claims 1 and 8 are independent claims.
Claim 1 of the ’498 patent, reproduced below, is illustrative of the
challenged claims.
1. A method of modifying quotes in an automated exchange trading
system comprising the steps of:
receiving orders and quotes, wherein specified ones of
said quotes belong to a quote group, and wherein said specified ones of said
quotes have associated trading parameters comprising a risk threshold;
generating a trade by matching said received orders and quotes to
previously received orders and quotes;
storing each of said orders and quotes when a trade is not generated;
determining whether a quote having associated trading parameters has
been filled as a result of the generated trade, and if so, determining a risk
level and an aggregate risk level associated with said trade;
comparing said aggregate risk level with said risk threshold; and,
automatically modifying at least one of the remaining said specified ones of
said quotes in the quote group if said threshold is exceeded.
II. ANALYSIS
A. Claim Construction
Consistent with the statute and the legislative history of the AIA,2 the
Patent Trial and Appeal Board (“Board”) interprets claims of an unexpired
patent using the broadest reasonable construction in light of the specification
of the challenged patent. See Office Patent Trial Practice Guide, 77 Fed.
Reg. 48,756, 48,766 (Aug. 14, 2012); 37 C.F.R. § 42.300(b); In re Cuozzo
Speed Techs., LLC, No. 2014-1301, 2015 WL 448667, at *5–8 (Fed. Cir.
Feb. 4, 2015). There is a “‘heavy presumption’ that a claim term carries its

2 Leahy-Smith America Invents Act, Pub. L. No. 11229, 125 Stat. 284
(2011) (“AIA”).
CBM2013-00049
Patent 7,356,498 B2

7 

ordinary and customary meaning.” CCS Fitness, Inc. v. Brunswick Corp.,
288 F.3d 1359, 1366 (Fed. Cir. 2002) (internal citation omitted). In our
Decision to Institute, we determined that our analysis did not require an
express interpretation of any term. Dec. to Inst. 7. The parties do not
contest that determination. See, e.g., Tr. 61:6–17, 102:12–103:18. We
likewise determine that, for purposes of this Final Written Decision, our
analysis does not require us to provide an express interpretation for any
claim term. Nevertheless, to the extent any claim construction is applicable,
that construction is consistent with the constructions presented in the
contemporaneously issued Decisions in related inter partes reviews
IPR2014-00097 and IPR2014-00098. Those constructions are as follows.
Claim Term Construction
“risk level . . .
associated with said
trade”
“a calculated, measured, or otherwise
obtained value of exposure to the possibility of
loss related to said trade”
“aggregate risk
level associated with
said trade”
“a calculated, measured, or otherwise
obtained aggregate value (e.g., combination, sum,
weighed sum, difference) of exposure to the
possibility of loss related to such trade”
“automatically
modifying at least one
of the remaining said
specified ones of said
quotes in the quote
group if said threshold
is exceeded”
“automatically cancelling or revising a price
or quantity of at least one of the received specified
quotes still available for execution”

B. Claims 1–28 of the ’498 Patent are Unpatentable as Directed
to Non-Statutory Subject Matter
Petitioner challenges claims 1–28 of the ’498 patent under 35 U.S.C.
§ 101, as directed to patent-ineligible subject matter. Pet. 24–33. Patent
CBM2013-00049
Patent 7,356,498 B2

8 

Owner maintains that its claims are directed to patent-eligible processes
because, for example, the claims include specific meaningful limitations that
must be performed on programmed computers, electronic exchanges that
incorporate the claimed features were an improvement over systems without
them, the claimed steps cannot be performed manually, the claims are not
directed to similar or substantially similar methods of managing risk market-
makers previously used, and the claims do not preempt hedging risk
management techniques. PO Resp. 35–79.
1. 35 U.S.C. § 101 Patentability Analysis
Under 35 U.S.C. § 101, we must first identify whether an invention
fits within one of the four statutorily provided categories of patent-
eligibility: “processes, machines, manufactures, and compositions of
matter.” Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 713–714 (Fed. Cir.
2014). Here, each of the challenged claims recites a “process,” e.g., a
method, under § 101.
Section 101 of the Patent Act defines subject matter eligibility, and
the Supreme Court has “long held that this provision contains an important
implicit exception: Laws of nature, natural phenomena, and abstract ideas
are not patentable.” Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347,
2354 (2014) (citing Assoc. for Molecular Pathology v. Myriad Genetics,
Inc., 133 S.Ct. 2107, 2116 (2013) (internal quotation marks and brackets
omitted)). “The ‘abstract ideas’ category embodies the longstanding rule
that ‘[a]n idea of itself is not patentable.’” Alice Corp., 134 S.Ct. at 2355
(citing Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (quotations omitted)).
In Alice Corp., the Supreme Court emphasized the “Mayo
framework,” which provides “a framework for distinguishing patents that
CBM2013-00049
Patent 7,356,498 B2

9 

claim laws of nature, natural phenomena, and abstract ideas from those that
claim patent-eligible applications of those concepts.” Id. (citing Mayo 
Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1298
(2012)). Under the Mayo framework, “[w]e must first determine whether
the claims at issue are directed to a patent-ineligible concept.” Id. Next,
“we consider the elements of each claim both individually and ‘as an
ordered combination’ to determine whether the additional elements
‘transform the nature of the claim’ into a patent-eligible application.” Id.
(citing Mayo, 132 S.Ct. at 1297–98). To be patentable, a claim must do
more than simply state the law of nature or abstract idea and add the words
“apply it.” Mayo, 132 S.Ct. at 1294; see Benson, 409 U.S. at 67.
Furthermore, “the mere recitation of a generic computer cannot transform a
patent-ineligible abstract idea into a patent-eligible invention.” Alice Corp.,
134 S.Ct. at 2358; DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245,
1256 (Fed. Cir. 2014) (“And after Alice, there can remain no doubt:
recitation of generic computer limitations does not make an otherwise
ineligible claim patent-eligible.”) (citation omitted). “Thus, if a patent’s
recitation of a computer amounts to a mere instruction to ‘implemen[t]’ an
abstract idea ‘on . . . a computer,’ that addition cannot impart patent
eligibility.” Alice Corp., 134 S.Ct. at 2358 (internal citation omitted).
A challenged claim must incorporate sufficient meaningful limitations
to ensure that it claims more than just an abstract idea and is not merely a
“‘drafting effort designed to monopolize the [abstract idea].’” Id. at 2357
(quoting Mayo, 132 S.Ct. at 1297). “Simply appending conventional steps,
specified at a high level of generality,” is not “enough” for patent eligibility.
Id. (quoting Mayo, 132 S.Ct. at 1292). Further, the “prohibition against
CBM2013-00049
Patent 7,356,498 B2

10 

patenting abstract ideas ‘cannot be circumvented by attempting to limit the
use of the formula to a particular technological environment’ or adding
‘insignificant postsolution activity.’” Bilski v. Kappos, 561 U.S. 593, 610–
11 (2010) (quoting Diamond v. Diehr, 450 U.S. 175, 191–92 (1981)).
Thus, we analyze the claims to determine whether the claims embody
a patent-eligible application of an abstract idea or are directed merely to
nothing more than the abstract idea itself.
2. Claims 1–28 of the ’498 Patent Are Unpatentably
Abstract
In accordance with the Supreme Court’s framework, we must first
“determine whether the claims at issue are directed to” an abstract idea.
Alice Corp., 134 S.Ct. at 2355. The patents at issue in Alice claimed “a
method of exchanging financial obligations between two parties using a
third-party intermediary to mitigate settlement risk.” Id. at 2356. Like the
method of hedging risk in Bilski, 130 S.Ct. at 3240—which the Court
deemed “a method of organizing human activity”—Alice’s “concept of
intermediated settlement” was held to be “‘a fundamental economic practice
long prevalent in our system of commerce.’” Alice Corp., 134 S.Ct. at 2356
(citations omitted). With respect to the first step of the “Mayo framework,”
the Supreme Court concluded in Alice Corp. that “there is no meaningful
distinction between the concept of risk hedging in Bilski and the concept of
intermediated settlement” in Alice Corp. and that “[b]oth are squarely within
the realm of ‘abstract ideas’ as we have used that term.” Id. at 2357.
Here, Petitioner argues that Patent Owner’s claims are directed to the
abstract concept of “managing trading risk  expressed in the claims as
automatically modifying pending quotes so that market makers do not
accumulate unacceptable amounts of risk,” similar to the “hedging risk”
CBM2013-00049
Patent 7,356,498 B2

11 

claims in Bilski. Pet. 26; Pet. Reply 1, 3–4. Patent Owner does not dispute
that the ’498 patent claims are directed to an abstract idea. See PO Resp. 41
(“Patent Owner respectfully submits that the claims are not merely to an
abstract idea, but rather provide a specific application of risk management
with many specific, meaningful limitations.” (emphasis added)); Ex. 1001,
1:8–12. Similar to the concept of intermediated settlement in Alice Corp.
and the concept of risk hedging in Bilski, we conclude that the concept of
managing trading risk (“risk management”) is an economic practice long
prevalent in our system of commerce and squarely within the realm of
abstract ideas. As the ’498 patent itself explains, in the prior art “open
outcry” exchanges, market-makers adjusted their trading strategies in order
to manage their exposure, or risk, associated with their holdings by adjusting
their quotes to favor trades that would tend to hedge away unwanted
exposure. Ex. 1001, 1:42–55. Furthermore, the claims recite, for example,
“receiving orders and quotes,” “generating a trade,” “determining a risk
level and an aggregate risk level associated with said trade,” “comparing
said aggregate risk level” with a risk threshold, and “automatically
modifying” one of the remaining quotes if the threshold is exceeded (claim
1). Accordingly, we analyze the ’498 patent claims to determine whether
they incorporate sufficient meaningful limitations to ensure that the claims
are more than just an abstract idea. Mayo, 132 S.Ct. at 1297.
3. Claims 1–28 of the ’498 Patent Are Not Meaningfully
Limited Under 35 U.S.C. § 101
Step two of the Supreme Court’s “Mayo framework” requires that we
consider the elements of the claim and determine whether there is “an
element or combination of elements that is ‘sufficient to ensure that the
patent in practice amounts to significantly more than a patent upon the
CBM2013-00049
Patent 7,356,498 B2

12 

[ineligible concept] itself.’” Alice Corp., 134 S.Ct. at 2355 (quoting Mayo,
132 S.Ct. at 1294).
The relevant inquiry here is whether “additional substantive
limitations . . . narrow, confine, or otherwise tie down the claim so that, in
practical terms, it does not cover the full abstract idea itself.” Accenture
Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1344–45
(Fed. Cir. 2013) (internal quotations and citation omitted). As we noted
above, the Supreme Court in Alice Corp. cautioned that merely limiting the
use of an abstract idea “to a particular technological environment” or
implementing the abstract idea on a “wholly generic computer” is not
sufficient as an additional feature to provide “practical assurance that the
process is more than a drafting effort designed to monopolize the [abstract
idea] itself.” Alice Corp., 134 S.Ct. at 2358 (citations omitted).
Patent Owner argues that the challenged independent claims “do not
merely incorporate a general purpose computer to perform standard
computing functions” (PO Resp. 55), but rather require “specific
programming in exchange trading system computers” (id. at 45). Patent
Owner acknowledges that “[w]hile the specific hardware and software
modules that interact to perform each of the claimed steps are not expressly
recited in the claims, the need for involved specific electronic interactions
between computer systems over a computer network are plainly present in
the claims.” Id. In support, Patent Owner refers extensively to the
Declaration of Dr. Tuomas Sandholm (Ex. 2017). See e.g., id. at 46, 56, 63
(citing Ex. 2017). Petitioner disagrees and argues that the claims “do
nothing but ‘apply’ an abstract idea of risk management using generic
functions of a generic computer.” Pet. Reply 9; see CyberSource Corp. v.
CBM2013-00049
Patent 7,356,498 B2

13 

Retail Decisions, Inc., 654 F.3d 1366, 1373 (Fed. Cir. 2011) (Section 101
does not embrace a process defined by using a computer to perform a series
of mental steps). We are persuaded by Petitioner’s argument.
The challenged claims do not require any specialized hardware. As
Petitioner contends, the challenged independent claims do not recite any
computer-related limitations, such as a computer, processing unit, etc., and
the term “automated exchange trading system” only appears in the
preambles as the environment where the claimed method is performed. Pet.
Reply 2. “[A] preamble does not limit claim scope if it ‘merely states the
purpose or intended use of an invention.’” Digitech Image Techs., LLC v.
Elecs. for Imaging, Inc., 758 F.3d 1344, 1351(Fed. Cir. 2014) (affirming a
finding that the recitation of “in a digital image reproduction system” in the
preamble of the claims did not limit the claims and that the claims were
directed to a patent ineligible abstract idea) (quoting Bicon, Inc. v.
Straumann Co., 441 F.3d 945, 952 (Fed. Cir. 2006)). Here, the recitation “in
an automated exchange trading system” in the preamble of claims 1 and 8
merely states the intended use of the claimed invention and does not provide
any antecedent basis for limitations in the body of the claim. Catalina Mktg.
Int’l, Inc. v. Coolsavings.com, Inc., 289 F.3d 801, 808 (Fed. Cir. 2002)
(preamble is not limiting “where a patentee defines a structurally complete
invention in the claim body and uses the preamble only to state a purpose or
intended use for the invention”) (quotation omitted). Therefore, we
determine that the recitation of “automated exchange trading system” in the
preambles of claims 1 and 8 does not meaningfully limit the claims.
Further, even if the term was limiting, the ’498 patent Specification
discloses that the claimed methods can be performed by a generic purpose
CBM2013-00049
Patent 7,356,498 B2

14 

computer in a generic programming and processing environment. For
example, the ’498 patent Specification states: “In accordance with a first
aspect of the invention, an apparatus is implemented using at least one
computer, having memory, a processor, and a communication port.” Ex.
1001, 2:41–44. The Specification also makes clear that “[v]arious types of
general purpose or specialized computer apparatus or computing device may
be used with or perform operations in accordance with the teachings
described herein.” Id. at 17:35–38 (emphasis added). The ’498 patent
Specification likewise explains that “system 100 . . . includes a plurality of
computers, which may be one or more work-stations, servers, mainframes,
or other computer hardware platforms that provides sufficient resources to
meet the desired trading volume and desired transaction-processing rate.”
Id. at 3:22–28 (emphasis added). Thus, the Specification indicates that the
automated trading system can be built using a general purpose computer and
that the complexity of the system depends only on the volume and rate of
trading desired.
Furthermore, the Specification explains that the claimed methods can
be performed using known off-the-shelf computer hardware. For example,
the Specification states that preferable servers are off-the-shelf “SUN
EnterpriseTM” or “StarfireTM” servers. Id. at 3:34–37; Tr. 37:13–17. Our
review of the patent does not indicate that specialized computer hardware is
necessary to implement the claimed methods, similar to the claims at issue in
Alice Corp. See Alice Corp., 134 S.Ct. at 2360 (determining that the
hardware recited in the claims was “purely functional and generic,” and did
not “offer[] a meaningful limitation beyond generally linking the use of the
CBM2013-00049
Patent 7,356,498 B2

15 

[method] to a particular technological environment, that is, implementation
via computers”) (citations and internal quotation marks omitted).
Patent Owner refers extensively to the declaration of its witness,
Dr. Sandholm, in support of its position that the claimed methods require
specialized and customized hardware and software. PO Resp. 55–64 (citing
Ex. 2017 ¶¶ 25–36, 38–39, 41, 44). We do not find Dr. Sandholm’s
testimony persuasive, however, because it generally relates to commercial
embodiments and is not supported by the ’498 patent Specification. See,
e.g., Ex. 2017 ¶ 26. For example, Dr. Sandholm states that “[a]utomated
exchange trading systems include extremely large server networks with
extensive processing capabilities” (Ex. 2017 ¶ 25), but the claims do not
require any particular network size or extent of processing capability.
Further, the ’498 patent Specification explains otherwise. According to the
Specification, the preferred embodiment of the invention “includes a
plurality of computers, which may be one or more work-stations, servers,
mainframes, or other computer hardware platforms that provide sufficient
resources to meet the desired trading volume and desired transaction-
processing rate.” Ex. 1001, 3:20–28 (emphasis added), 3:28–37.
Patent Owner also argues that, although the ’498 patent Specification
recognizes that generic hardware can provide the starting materials needed
to implement the claimed methods, the hardware must be programmed
specifically to perform the claimed methods. PO Resp. 77–78. The
Supreme Court, however, has stated expressly that simply executing an
abstract concept on a computer does not render a computer “specialized,”
nor does it automatically transform a patent-ineligible claim into a patent-
eligible one. See Alice Corp., 134 S.Ct. at 2358 (“[T]he mere recitation of a
CBM2013-00049
Patent 7,356,498 B2

16 

generic computer cannot transform a patent-ineligible abstract idea into a
patent-eligible invention. . . . Given the ubiquity of computers, wholly
generic computer implementation is not generally the sort of additional
featur[e] that provides any practical assurance that the process is more than a
drafting effort designed to monopolize the [abstract idea] itself.”) (citations
and quotation marks omitted); Bancorp Servs., L.L.C. v. Sun Life Assurance
Co., 687 F.3d 1266, 1280 (Fed. Cir. 2012). Consequently, we determine that
the challenged claims’ purported use of a generic computer, programmed to
perform the steps of the methods, does not confer patent eligibility, similar
to the claims at issue in Alice Corp. See Dealertrack, Inc. v. Huber, 674
F.3d 1315, 1334 (Fed. Cir. 2012) (“In considering patent eligibility under
§ 101, one must focus on the claims.”).
Patent Owner further argues that the challenged claims include many
steps that define the relationship of the various limitations and how the
claimed processes are accomplished within the automated exchange,
demonstrating that those claims are directed to an application of an abstract
idea. PO Resp. 42–49. Patent Owner emphasizes that the claims require at
least 13 specific steps and sub-steps. Id. at 44. Patent Owner notes, for
example, the claims are limited to an “‘automated exchange trading system,’
wherein a ‘risk threshold’ is associated with quotes and used by the
exchange trading system to ‘automatically modify[] at least one of the
remaining [quotes] if said threshold is exceeded.’” PO First Supp. Resp. 3;
PO Resp. 42, 46. Patent Owner contends that “there was nothing routine or
conventional about an exchange trading system adapted to determine an
aggregate risk level, compare that risk level with a risk threshold, and then
CBM2013-00049
Patent 7,356,498 B2

17 

automatically modify one or more quotes.” PO Resp. 47. We are not
persuaded by Patent Owner’s argument.
The claims contemplate using a generic computer to perform “‘well-
understood, routine, conventional activit[ies]’ previously known to the
industry.” Alice Corp., 134 S.Ct. at 2359 (quoting Mayo, 132 S.Ct. at 1294);
see Mayo, 132 S.Ct. at 1300 (“simply appending conventional steps,
specified at a high level of generality, to laws of nature, natural phenomena,
and abstract ideas cannot make those laws, phenomena, and ideas
patentable”). The ’498 patent explains that, in the known open outcry
method of trading, market-makers had personal control over the types and
number of contracts traded, and could “adjust their trading strategies” as
their positions changed. Ex. 1001, 1:43–52. Thus, they managed their
exposure, or risk, associated with their holdings by “adjusting their quotes”
to favor trades that would tend to hedge away unwanted exposure. Id. at
1:52–55. The ’498 patent Specification also recognizes that software
analysis tools were available in the prior art to evaluate the “risk associated
with stock and option portfolios.” Id. at 2:6–12. That it was well known to
manage trading risk is supported by the testimony of Dr. Maureen O’Hara,
Petitioner’s witness. Ex. 1004 ¶ 45 (stating that the challenged claimed
methods of claims 1 and 8 are “exactly the same method of managing risk
that market makers have been performing manually for years prior to the
December 1999 filing date of the ’498 patent . . . selectively accounting for
past trades and current holdings and/or evaluating greek values”) (internal
footnote omitted). Also, the claimed “risk threshold” of claims 1 and 8 is
recited at a high level of generality, and as Petitioner argues, emulates the
personal behavior and risk tolerance level of a market-maker with respect to
CBM2013-00049
Patent 7,356,498 B2

18 

a type of risk. Pet. Reply 5, 7. Lastly, there is no dispute that the prior art
included “automated and computer-based trading system[s].” Ex. 1001,
1:59–60. The claimed methods integrate an automated exchange trading
system, already known in the art, with methods that mitigate the risks of a
market-maker, also already known in the art. Id. at 2:39–41. In sum, the
claims amount to nothing more than instructions to apply previously known
methods of electronic trading and trade risk management using a generic
computer to perform generic computer functions—calculating a risk and
determining if that risk exceeds a threshold, and, if so, automatically
modifying a quote. See Alice Corp., 134 S.Ct. at 2359.
Moreover, we agree with Petitioner that the challenged claims are
patent ineligible because the claims “do nothing more than automate an
abstract and mental risk management technique used by market makers in
open outcry exchanges for decades.” Pet. Reply 4 (citing Bancorp, 687 F.3d
at 1279 (“[u]sing a computer to accelerate an ineligible mental process does
not make that process patent-eligible”)). As discussed above, in the prior art
outcry options trading systems, market-makers determined and hedged their
risks mentally. Ex. 1001, 1:42–55; Ex. 1004 ¶ 45; Ex. 1005, 244:24–245:20.
We do not find persuasive Patent Owner’s arguments that the claimed
methods cannot be performed manually because a human “cannot perform
the functions of an exchange trading system,” and that the claims include
limitations that “must be performed on the exchange-side.” PO Resp. 72
(emphasis omitted). Patent Owner’s argument that a human cannot handle
millions, or hundreds of millions, of orders and quotes each day misses the
point. See Tr. 69:22–73:13. The claims are not limited to a certain quantity
of trading, and the claimed invention’s ability to handle a large amount of
CBM2013-00049
Patent 7,356,498 B2

19 

orders and quotes is the function of a generic computer. Also, reciting that
the claimed steps be performed in an “automated exchange trading system,”
a system that was indisputably known in the art, and which the patent makes
clear can be a generic computer system, does not confer patent eligibility.
See Mayo, 132 S.Ct. at 1300 (simply appending conventional steps,
specified at a high level of generality, to abstract ideas cannot make those
ideas patent eligible); Tr. 59:8–61:7 (Patent Owner arguing that we need not
define the claim term “automated exchange trading system” precisely). 
Relying on the Supreme Court’s decision in Alice Corp., Patent
Owner argues that the claimed invention is patent eligible because it effects
an improvement in the technological area of automated exchange trading
systems. See, e.g., PO Resp. 51; PO Second Supp. Resp. 1–2; Tr. 44:16–
46:12, 47:20–23, 48:22–50:6, 55: 13–56:2, 60:25–61:2; see Alice Corp., 134
S.Ct. at 2359 (distinguishing patent ineligible method claims at issue from
claims that “effect an improvement in any other technology or technical
field”). Patent Owner contends that the claimed invention solves a new risk
posed by electronic trading systems that was not present in prior art open
outcry trading systems. See Tr. 105:15–16 (Petitioner agreeing that
automated exchanges are a technical field). Patent Owner refers to the
patent to explain the new risk posed by automated trading systems. PO
Resp. 70.
The ’498 patent Specification explains that with computerized trading
systems and increased communication speeds, the speed and rapidity of
trades may exceed the market-maker’s ability to adapt his or her position,
resulting in an unacceptable risk being assumed by a market-maker. Ex.
1001, 1:56–2:3. “That is, the trades may occur so rapidly that the market-
CBM2013-00049
Patent 7,356,498 B2

20 

maker is unable to withdraw or modify his quotes in a timely manner.” Id.
at 2:3–5; Tr. 58:23–25 (Patent Owner arguing that “when you say an
automated trading system, it means something that allows for . . . automated,
fast, fast trading”); Tr. 72:16–23 (Patent Owner stating that in an automated
trading system, quotes can get satisfied “before the market maker even has
the opportunity to know that it is going on,” so the market-maker “doesn’t
have the chance to do any calculations”). Thus, Patent Owner contends that
an automated exchange trading system that incorporates the claimed features
is an “improvement over exchange trading systems without them.” PO
Resp. 51. We determine that the invention, even as characterized by Patent
Owner, does not fall within the scope of patent eligible subject matter as
described by the Supreme Court.
The “new risk” described by Patent Owner is the result of automated
trading. See Tr. 79:10–12. The claimed invention solves the problem by
automating risk management, i.e., “automatically” modifying quotes. See
PO Resp. 71 (Patent Owner emphasizes that the present invention
automatically modifies quotes). Whereas in the open outcry system, the
market-maker was aware of each trade and could make a decision about the
trade, in the claimed invention, the computer is aware of each trade that
takes place and makes the risk calculation based on those trades,
automatically modifying quotes to protect the trader against a risk which did
not exist in the open outcry system. Tr. 73:4–20. The function of
“automatically” modifying quotes, however, is the result of integrating risk
calculation and quote modification into an automated trading exchange
system. That integration allows the computer to make quote modifications
at a faster pace. In other words, “it is the [automation of the abstract idea of
CBM2013-00049
Patent 7,356,498 B2

21 

risk management] that is ‘integral to [the] claims at issue,’ not the computer
machinery that may be used to accomplish it.” See Bancorp. Servs., 687
F.3d at 1279 (citation omitted). As Petitioner argues, “[e]ven if [Patent
Owner] came up with a wonderful new risk hedging technique, it is still an
abstract concept.” Tr. 23:22–24.
In further support of its position that the claims lack a meaningful
limitation, Petitioner maintains that the claims preempt all practical uses of
the abstract idea of the known risk management technique. Pet. Reply 3; see
also Pet. Second Supp. Reply 1–2 (contending that the recent Ultramercial
decision makes it clear that Patent Owner’s arguments regarding pre-
emption “are not a substitute for the proper two-part test under Alice”).
Patent Owner disagrees, maintaining instead that the challenged claims do
not preempt the “entire field” of managing trading risk. PO Resp. 74.
Specifically, Patent Owner argues that the claims cover only “specific
applications of this idea,” and do not preempt the entire idea of managing
trading risk. Id. at 75; PO First Supp. Resp. 3. In this vein, Patent Owner
contends that the independent and dependent claims should not rise and fall
together. PO First Supp. Resp. 4. Specifically, Patent Owner contends that
dependent claims 17–19 “are directed to alternative methods for modifying
quotes.” Id. at 4–5. Thus, argues Patent Owner, “if one could either modify
by cancelling (claim 17) or by revising bid and offer values (claim 19),
neither ‘pre-empt[s] all practical uses.’” Id. at 5. Patent Owner’s argument
is unpersuasive.
As Petitioner argues, the issue is whether the claims preempt the
abstract idea of risk management “that is claimed.” Pet. First Supp. Reply 2
(emphasis omitted). The abstract idea of the dependent claims is not only
CBM2013-00049
Patent 7,356,498 B2

22 

risk management in general, but also the specific type of risk management
claimed in each claim. Id. Furthermore, limiting an abstract idea to a
specific field of use or adding token post-solution activity does not make an
abstract idea patentable. Diehr, 450 U.S. at 191–92; Parker v. Flook, 437
U.S. 584, 590 (1978) (“[t]he notion that post-solution activity, no matter
how conventional or obvious in itself, can transform an unpatentable
principle into a patentable process exalts form over substance”). We further
agree with Petitioner (Pet. First Supp. Reply 3–4) that the dependent claims
add conventional and/or token post-solution activity to the abstract idea of
risk management claimed in the independent claims. For example, the
dependent claims identified by Patent Owner in its Supplemental Response
limit the claimed step of “automatically modifying” a quote to “canceling”
the quote (claim 17), “reducing the quantity associated” with the quote
(claim 18), or “revising at least one of the bid and offer values” of the quote
(claim 19). These limitations are recited at a high level of generality.
Therefore, we determine that the limitations of the dependent claims do not
meaningfully limit the claims beyond the claimed abstract idea of risk
management, and, in practical terms, preempt the same risk management
idea of the independent claims.
For the foregoing reasons, we conclude that Petitioner has
demonstrated by a preponderance of the evidence that the challenged claims
are directed to patent-ineligible subject matter under § 101.
C. 35 U.S.C. § 101 is a Condition of Unpatentability
Lastly, Patent Owner maintains that 35 U.S.C. § 101 is not a proper
ground for covered business method patent review. PO Resp. 79–80. We
CBM2013-00049
Patent 7,356,498 B2

23 

addressed this issue in our Decision to Institute. Dec. to Inst. 13–15. We
adhere to that determination.
The Supreme Court has recognized § 101 as a condition for
patentability. See, e.g., Mayo, 132 S.Ct. at 1305 (addressing invalidity under
§ 101 when it was raised as a defense to an infringement claim); Graham v.
John Deere Co., 383 U.S. 1, 12 (1966) (stating that the 1952 Patent Act “sets
out the conditions of patentability in three sections” (emphasis added), citing
35 U.S.C. §§ 101, 102, and 103). The Federal Circuit also has recognized
that § 101 is a condition for patentability that can be raised as an affirmative
defense under 35 U.S.C. § 282(b)(2). For example, in Dealertrack, the
majority rejected the dissent’s contention that § 101 is not a “condition for
patentability,” stating that “the ‘defenses provided in the statute,’ § 282,
include not only the ‘conditions of patentability’ in §§ 102 and 103, but also
those in § 101.” 674 F.3d at 1330 n.3 (citing Aristocrat Techs. Austl. PTY
Ltd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008) (“It has long
been understood that the Patent Act sets out the conditions for patentability
in three sections: sections 101, 102, and 103.”) (emphasis added) (citations
omitted))). In addition, the Board’s consideration of § 101 challenges in
covered business method patent reviews also is consistent with the
legislative history of the AIA. See SAP Am., Inc. v. Versata Dev. Grp., Inc.,
Case CBM2012-00001, slip op. at 32–35 (PTAB Jan. 9, 2013) (Paper 36)
(discussing the legislative history of the AIA as it relates to covered business
method patent reviews covering § 101 challenges).
D. Contingent Motion to Amend Independent Claims 1 and 8 is
Denied
Because we determine that claims 1–28 are unpatentable, we turn to
Patent Owner’s contingent request to enter proposed substitute independent
CBM2013-00049
Patent 7,356,498 B2

24 

claims 29 and 30 as replacements for original independent claims 1 and 8,
respectively. Mot. 1–2. Proposed independent claims 29 and 30 are
reproduced below with underlining to indicate additions relative to original
claims 1 and 8, respectively:
29. A computer-implemented method of modifying
quotes in an automated exchange trading system comprising the
steps of:
at least one server receiving, from one or more client
servers over a communication network, orders and quotes,
wherein specified ones of said quotes belong to a quote group,
and wherein said specified ones of said quotes have associated
trading parameters comprising a risk threshold;
the at least one server generating a trade by matching
said received orders and quotes to previously received orders
and quotes;
the at least one server storing each of said orders and
quotes when a trade is not generated; 
the at least one server determining whether a quote
having associated trading parameters has been filled as a result
of the generated trade, and if so, determining a risk level and an
aggregate risk level associated with said trade;
the at least one server comparing said aggregate risk level
with said risk threshold; and,
the at least one server automatically modifying at least
one of the remaining said specified ones of said quotes in the
quote group if said threshold is exceeded.
30. A computer-implemented method of modifying
quotes in an automated exchange trading system that receives
orders and quotes from remote computers, matches the orders
and quotes to generate trades, and stores orders and quotes that
are unmatched, comprising the steps of:
at least one server receiving, from one or more client
servers, trading parameters comprising a risk threshold;
CBM2013-00049
Patent 7,356,498 B2

25 

the at least one server associating said trading parameters
with specified ones of received quotes;
the at least one server determining whether a quote
having associated trading parameters has been filled as a result
of a generated trade, and if so, determining a risk level and an
aggregate risk level associated with said trade;
the at least one server comparing said aggregate risk level
with said risk threshold; and,
the at least one server automatically modifying at least
one of the specified ones of received quotes if said threshold is
exceeded. 
Id.
A covered business method patent review is not a patent examination
proceeding or a patent reexamination proceeding. A proposed substitute
claim, in a motion to amend, is not entered automatically and then examined.
If a patent owner’s motion to amend is granted, the claim will be added
directly to the patent, without examination. Therefore, we enter proposed
amended claims only upon a showing by the patent owner that the amended
claims are patentable. See Idle Free Sys., Inc. v. Bergstrom, Inc., Case
IPR2012-00027, slip op. at 33 (PTAB Jan. 7, 2014) (Paper 66); Volusion,
Inc. v. Versata Software, Inc., Case CBM2013-00017, slip op. at 2–3 (PTAB
Dec. 30, 2013) (Paper 19) (Idle Free’s guidance relating to IPRs applies to
CBMs).
Patent Owner as movant bears the burden to demonstrate patentability
and compliance with 37 C.F.R. § 42.221. Patent Owner contends that the
proposed substitute claims are supported by the disclosure in the ’534
application (Ex. 2023), from which the ’498 patent issued. Mot. 3–6.
Patent Owner states that the proposed substitute claims address the sole
ground upon which trial was instituted, patent subject matter eligibility
CBM2013-00049
Patent 7,356,498 B2

26 

under § 101. Id. at 7. In support of its argument, Patent Owner essentially
makes the same arguments it made with respect to the original claims of the
’498 patent. Id. at 7–8; PO Reply 1–4. For example, Patent Owner argues
that the claimed methods must be performed in an “automated exchange,” a
specific computer system (PO Reply 1–3), the claimed method was not
performed mentally by the market-maker in the prior art (id. at 2), and the
claims are limited to a specific application of performing risk management
(id. at 2).
Patent Owner characterizes proposed independent claims 29 and 30 as
reciting at least one server receiving orders, quotes, or trading parameters
from one or more client servers over a communication network,3 and that
each of the method steps is performed by the at least one server. Mot. 7–8.
Thus, Patent Owner maintains that the claims “do not merely use a generic
computer to perform or accelerate a mental process.” Id. at 8. Petitioner
opposes the Motion to Amend arguing that the claims do not recite patent
eligible subject matter for essentially the same reasons raised with respect to
the original claims. Opp. 1–10. We agree and determine that Patent Owner
has not satisfied its burden of demonstrating that the proposed substitute
claims are patentable under § 101.
As explained above, the addition of a limitation regarding generic
computer devices does not limit the claims sufficiently or add concrete ties
to make the claims less abstract. See Alice, 134 S.Ct. at 2358–59; Accenture
Global Servs., 728 F.3d at 1344–45. The limitations requiring that the
method is “computer implemented,” has “at least one server,” and receives
“from one or more client servers” “over a communication network” are

3 We note that proposed claim 30 does not recite a communication network.
CBM2013-00049
Patent 7,356,498 B2

27 

generic and conventional for the same reasons discussed above with respect
to the original claims. In sum, Patent Owner’s proposed amendments are
not specific and do not tie the claims to a concrete apparatus or method;
rather, the added limitations are generic and insufficient to confer patent
eligibility, similar to the claims at issue in Alice (which recited a “data
storage unit” and “computer,” for example), CLS Bank Int’l v. Alice Corp.
Pty. Ltd., 717 F.3d 1269, 1289 (Fed. Cir. 2013), and those at issue in
Accenture Global Servs. (which recited a “database,” “client component,”
“server component,” and “automated method,” for example), 728 F.3d at
1344–45. Thus, Patent Owner has not shown patentability under 35 U.S.C.
§ 101. Given that Patent Owner has not established patent eligibility of the
claimed subject matter, we do not address whether the proposed substitute
claims are patentable over the prior art. See Mot. 8–14.
For the foregoing reasons, Patent Owner has not met its burden of
showing the patent eligibility of proposed substitute claims 29 and 30.
Accordingly, the contingent Motion to Amend is denied.
III. CONCLUSION
This is a Final Written Decision of the Board under 35 U.S.C.
§ 328(a).
We hold Patent Owner’s claims 1–28 of the ’498 patent to be
unpatentable under 35 U.S.C. § 101. Specifically, the claims recite
unpatentable abstract ideas, and the claims do not provide sufficient
meaningful limitations to transform these abstract ideas into patent-eligible
applications of these abstractions.
ORDER
In consideration of the foregoing, it is hereby:
CBM2013-00049
Patent 7,356,498 B2

28 

ORDERED that claims 1–28 of the ’498 patent are cancelled;
FURTHER ORDERED that Patent Owner’s contingent Motion to
Amend is denied; and
FURTHER ORDERED that, because this is a final written decision,
parties to the proceeding seeking judicial review of the decision must
comply with the notice and service requirements of 37 C.F.R. § 90.2.

CBM2013-00049
Patent 7,356,498 B2

29 

PETITIONER:

Michael M. Murray
mmurray@winston.com

Bryan DeMatteo
bdematteo@winston.com

Michael Scheer
mscheer@winston.com

PATENT OWNER:

Joseph A. Hynds
jhynds@rfem.com

Steven Lieberman
cboeipr@rfem.com

Jason M. Shapiro
jshapiro@rfem.com