Just How Open Is that Automated Exchange?


Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC

Addressing allegations that a lower court made erroneous pretrial rulings regarding the nature of the accused product, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s judgment of non-infringement, finding that the lower court did not improperly limit the product that could be accused of infringement.  Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC, Case No. 13-1326 (Fed. Cir., Apr. 7, 2014) (Reyna, J.).

International Securities Exchange (ISE) sued the Chicago Board Options Exchange (CBOE) for infringement of a patent directed to an automated exchange for trading financial instruments.  ISE alleged that CBOE’s Hybrid Trading System, which included a fully automated component called CBOEdirect, as well as a manual element that relied on open-outcry aspects of trading, infringed the automated trading patent.  CBOE moved for summary judgment of non-infringement, and the district court granted the motion.  ISE appealed.

The Federal Circuit reversed the lower court’s finding of non-infringement based on interpretation of certain key claim terms, including “automated exchange,” and remanded the case for further proceedings.  (See IP Update, Vol. 15, No. 5.)

On remand, the parties could not agree on the proper jury instruction for the term “automated exchange.”  Ultimately, the court issued an instruction, adopting the Federal Circuit’s previous claim construction which required that an automated exchange be fully computerized and does not include manual open-outcry aspects for matching or allocating trades.  The district court concluded that the issue for the jury revolved around whether CBOE’s systems included open-outcry aspects.  In view of the court’s description of the factual dispute for trial, ISE stipulated to non-infringement and appealed.

In this appeal, ISE argued that the court erred by limiting the scope of the accused product to CBOE’s Hybrid Trading System, which included open-outcry aspects, as opposed to the more narrow CBOEdirect system, which did not.

The Federal Circuit found that the district court’s pretrial rulings were not in error and that the district court correctly framed the factual issue for the jury in requiring a showing by ISE that the accused CBOE system did not include any open-outcry aspects. The Court found that the district court did not improperly limit the accused product to the Hybrid system, but instead “expressly invited ISE” to show that either the Hybrid system as whole, or the more narrow CBOEdirect system infringed the claims.  Thus, the Federal Circuit found that in order to prevail, ISE must demonstrate that CBOE direct is separate from the open-outcry aspects of Hybrid.  The Court also found that this factual issue was unresolved during the previous appeal.  Accordingly, the Court found that allowing the unresolved issue to go to the jury did not violate the Federal Circuit mandate to the district from the prior appeal.

The Federal Circuit also addressed the district court’s ruling that one of the claims (a means plus function claim) was invalid for indefiniteness for failing to disclose corresponding structure.  The Court reversed the ruling, finding that “the specification discloses an algorithm for matching the remaining orders on a pro rata basis.”  Accordingly, the Court found that the district court erred in finding that there was clear and convincing evidence that the specification did not disclose sufficient corresponding structure.

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McDermott Will & Emery on:

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