(CN) - In seven-year battle over trading technology, a federal judge improperly gutted the claim of a patent owned by International Securities Exchange, the Federal Circuit ruled.
The patent at issue discloses an "automated exchange" for trading financial instruments, and the previously invalidated claim says "processor means further comprises means for matching the remaining portion with professional orders or quotations in the book memory means on a pro rata basis."
ISE asserted the patent against Chicago Board Options Exchange in November 2006, with regard to CBOE's Hybrid Trading System, which integrates manual open outcry and electronic trading into a single exchange. CBOE in turn sued for declaratory judgment.
As a patent case, its appeals face scrutiny by a three-judge panel of the Federal Circuit.
The Washington-based court heard the case once before after a federal judge in Chicago denied CBOE summary judgment.
On remand, ISE stipulated to noninfringement because it felt that certain pretrial rulings prevented it from proving whether Hybrid lacked an "automated exchange."
The Federal Circuit construed that term as meaning "a system for executing trades of financial instruments that is fully computerized, such that it does not include matching or allocating through the use of open-outcry."
There was some trouble arriving at a jury instruction regarding that term, however, and the court found that claim 2, a computer-implemented means-plus-function claim, was indefinite because the specification failed to disclose an algorithm for performing the recited function.
In a partial reversal Monday, the Federal Circuit found that claim 2 is not indefinite because the specification discloses an algorithm for matching the remaining orders on a pro rata basis.
"The District Court erred in finding that there was clear and convincing evidence that the specification did not disclose sufficient structure such that a person of ordinary skill in the art would know how to match on a pro rata basis," Judge Jimmie Reyna wrote for the court. "While it is true that the specification also discusses pro rata allocating, this does not detract from the disclosure of pro rata matching such that claim 2 is indefinite."
ISE also can pursue infringement claims against Hybrid's fully screen-based trading system CBOEdirect, according to the ruling
The pretrial ruling expressly invites "ISE to show that CBOEdirect was independent of the open-outcry aspects of Hybrid, as required by this court's construction of 'automated exchange,'" Reyna wrote.
"The Hybrid system does utilize, at least to some extent, 'matching or allocating through the use of open-outcry,'" she added. "Thus, ISE must demonstrate that CBOEdirect is separate from the open-outcry aspects of Hybrid. The District Court recognized this unresolved factual issue on more than one occasion."
CBOE Holdings CEO Edward Tilly applauded the finding of "what we always knew to be true - CBOE does not infringe ISE's asserted patent."
"Our unique Hybrid trading system, which combines the best features of electronic and open outcry trading, is just one of the many innovations that have made CBOE the leader in the options industry," he said in a statement.
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