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Court Reverses Claim Construction Not Supported by Claim Language and Specification

11-1267
May 07, 2012

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Last Month at the Federal Circuit - June 2012

Judges: Rader, Wallach (author), Fogel (district judge sitting by designation)

[Appealed from: N.D. Ill., Judge Lefkow]

In Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC, Nos. 11-1267, -1298 (Fed. Cir. May 7, 2012), the Federal Circuit vacated the district court’s judgment of noninfringement and remanded for further proceedings based on its interpretation of the claim terms “system memory means,” “matching,” and “automated exchange.”

International Securities Exchange, LLC (“ISE”) is the owner of U.S. Patent No. 6,618,707 (“the ’707 patent”), directed to an automated exchange for the trading of options contracts that allocates trades among market professionals and that assures liquidity. The ’707 patent distinguishes an “automated” exchange from the traditional, floor-based “open-outcry” system for trading options contracts.

ISE sued Chicago Board Options Exchange, Inc. (“CBOE”) for infringement of the ’707 patent in the Southern District of New York. Subsequently, CBOE sued ISE in the Northern District of Illinois seeking, among other relief, a DJ that the ’707 patent is invalid, is not infringed by CBOE, and is unenforceable because of inequitable conduct before the PTO. The New York action eventually was transferred to the Northern District of Illinois where the cases were consolidated.

After the district court issued its final claim construction order, CBOE moved for SJ of noninfringement based on the district court’s construction of the terms “system memory means,” “matching,” and “automated exchange.” The district court denied the portion of CBOE’s motion based upon the “automated exchange” limitation, but granted the motion with respect to the “system memory means” and “matching” limitations. ISE appealed on claim construction and the resulting SJ decision.

On appeal, the Federal Circuit first reviewed claim construction. With regard to the means-plus-function term “system memory means,” the parties agreed on the function of this claim limitation but disputed the corresponding disclosed structure. ISE contended that “system memory” is sufficient. CBOE argued, and the district court agreed, that the structure associated with the claim limitation also includes the bid-matching process and the offer-matching process because those processes store allocating parameters pertaining to public customer orders while the system memory stores allocating parameters related to professional orders. CBOE further contended that the bid-matching process and the offer-matching process “store” allocation parameters because they “apply” and “contain” allocation parameters. The Court found that the specification did not support CBOE’s position. The Court explained that system memory is the disclosed structure clearly associated with “system memory means,” and the language in the specification shows that the bid-matching process and the offer-matching process “apply,” not “store,” allocation parameters. The Court further explained that the general presumption that different terms have different meanings remain because nothing in the ’707 patent suggests that “storing” and “applying” are used interchangeably in reference to allocation parameters.

Next, the Court disagreed with the district court’s conclusion that the claim term “matching” may be based on price only. The Court found that the plain language of the ’707 patent shows that “matching” cannot be based on price only. Claim 35, for example, recites “matching a remaining portion of the incoming order or quotation . . . against professional orders and quotations with larger size based on the allocating parameter.” Accordingly, the Court construed “matching” as “identifying a counterpart order or quotation for an incoming order or quotation.” Slip op. at 14 (citation omitted).

The Federal Circuit then agreed with the district court that “matching” and “allocating” are distinct processes. Applying the doctrine of claim differentiation, the Court observed that claim 1 recites “allocating” functions, while claim 2, depending on claim 1, recites a “matching” function. The Court explained that these claims indicate that “matching” and “allocating” are distinct because “the presence of a dependent claim that adds a particular limitation gives rise to a presumption that the limitation in question is not present in the independent claim.” Id. at 17 (quoting Phillips v. AWH Corp., 415 F.3d 1303, 1315 (Fed. Cir. 2005) (en banc)). The Court also found the same support in the specification.

Next, with regard to the term “automated exchange,” the Court found that the district court erred in determining that this term describes a “method” but affirmed the district court’s finding that the ’707 patent disavowed traditional floor-based trading with respect to this limitation. First, the Federal Circuit agreed with ISE’s contention that the district court erred in construing “automated exchange” as a method rather than a system for trading. The Court noted that proper claim construction may not vary from the patent’s own description of “automated exchange” as being a system because the independent method claims conduct certain steps on the “automated exchange,” and the specification also describes the “automated exchange” as a system. Second, the Court explained that the ’707 patent disavows traditional floor-based trading because the specification made clear that the invention does not include this feature, even though the claim language, when read without reference to the specification, might be considered broad enough to encompass this feature. As an example, the Court observed that the ’707 patent proposes an automated exchange for the express purpose of remedying a number of perceived deficiencies.

Accordingly, the Federal Circuit vacated the district court’s judgment of noninfringement and remanded for further proceedings based on its claim construction.

Summary authored by Sherry Wu, Esq.