In Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC, No. 13-1326 (Fed. Cir. Apr. 7, 2014), the Federal Circuit affirmed the district court's judgment of noninfringement of U.S. Patent No. 6,618,707 ("the '707 patent") by the Chicago Board Options Exchange, Inc. ("CBOE"), and reversed the district court's finding that claim 2 of the '707 patent was indefinite.

International Securities Exchange, LLC ("ISE") is the owner of the '707 patent, which is directed to an "automated exchange" for trading financial instruments, and which distinguishes the "automated" exchange from the traditional, floor-based "open-outcry" system for trading options contracts. ISE brought suit against CBOE for patent infringement based on CBOE's Hybrid Trading System, and CBOE subsequently brought suit against ISE seeking a DJ of noninfringement.

CBOE moved for SJ of noninfringement, and the district court denied the motion. On appeal, the Federal Circuit construed the phrase "automated exchange" to require a fully computerized system for executing financial trades that does not include matching or allocating orders through the use of open outcry, and remanded on the issue of infringement. On remand, the district court made certain evidentiary and other pretrial rulings, including rulings that established a jury instruction for the claimed "automated exchange," and assigned to the jury the question of whether CBOE's accused products represented stand-alone automated exchanges or systems that included matching or allocating through open outcry. The district court also found that claim 2 of the '707 patent, a computer-implemented means-plus-function claim, was indefinite because the specification of the '707 patent failed to disclose a step-by-step algorithm for performing the revised function.

In view of the district court's pretrial rulings, ISE concluded that it could not prove that CBOE's accused products met the "automated exchange" claim limitation, and as such, ISE stipulated to noninfringement. The district court entered final judgment for CBOE based on ISE's stipulation, and ISE appealed.

"We hold that, because this factual issue was unresolved in the previous appeal, the trial court did not violate the mandate rule by allowing this unresolved issue to go to the jury." Slip op. at 11.

In the present appeal, the Federal Circuit first addressed the district court's pretrial rulings, and in particular, ISE's assertions that the district court's pretrial rulings precluded it from accusing certain CBOE products of infringement. Upon review of the record, the Court found no evidence that the district court precluded ISE from accusing certain CBOE products of infringing the claims of the '707 patent. Rather, the Court found that the district court expressly invited ISE to demonstrate the independence of CBOE's products from open-outcry systems, as required by the Court's construction of "automated exchange."

The Court next turned to ISE's assertion that the district court's jury instructions violated the mandate rule by imposing additional limitations to the Court's prior claim construction. The Court again rejected ISE's assertion, noting that the district court correctly framed the factual issue remaining for the jury by requiring ISE to show that CBOE's accused product did not include open outcry. Indeed, the Court held that "because this factual issue was unresolved in the previous appeal, the trial court did not violate the mandate rule by allowing this unresolved issue to go to the jury." Slip op. at 11.

Finally, the Court turned to the district court's finding of indefiniteness regarding claim 2 of the '707 patent. As an initial point, the Court noted that claim 2 represents a computerized means-plus-function claim, and that both CBOE and ISE agreed that the function of claim 2 included "matching" a remaining portion of professional orders or quotations in a book memory means on a "pro rata basis." The Court further observed that the district court's test of indefiniteness of a computerized means-plus-function claim (i.e., the disclosure in the specification of a "step-by-step" algorithm for performing the claimed function) was too restrictive, and noted that such an "algorithm" may be expressed "in any understandable terms including as a mathematical formula, in prose, or as a flow chart, or in any other manner that provides sufficient structure" to a person of ordinary skill in the art. Id. at 12-13 (quoting Finisar Corp. v. DirecTV Grp., Inc., 523 F.3d 1323, 1340 (Fed. Cir. 2008)). Thus, because the specification of the '707 patent described an algorithm for matching the remaining orders on a pro rata basis, which would provide sufficient structure to a person of ordinary skill in the art, the Court found claim 2 of the '707 patent definite and reversed the district court on this issue.

Judges: Rader, Reyna (author), Wallach

[Appealed from N.D. Ill., Judge Lefkowitz]

This article previously appeared in Last Month at the Federal Circuit, May 2014.

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