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

March 2, 2011


The opinion of the court was delivered by: Judge Joan H. Lefkow


Chicago Board Options Exchange, Inc. ("CBOE") filed suit against International Securities Exchange ("ISE") on January 31, 2007, seeking, among other relief, a declaratory judgment that U.S. Patent No. 6,618,707 ("the '707 patent") is invalid and is not infringed by CBOE. ISE is the holder of the '707 patent, entitled "Automated Exchange for Trading Derivative Securities," which was issued on September 9, 2003. Prior to CBOE's filing of its complaint, ISE had sued CBOE in the Southern District of New York alleging infringement of the '707 patent. The earlier action, now designated No. 07 CV 4709 (N.D. Ill.), was transferred to the Northern District of Illinois and assigned to this court. The court issued its Markman rulings on the disputed claims of the '707 patent on January 25, 2010.*fn1 Before the court is CBOE's motion for summary judgment of noninfringement. For the reasons stated below, the motion [#309] is granted.


Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). To determine whether any genuine issue of fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(c) Advisory Committee's notes. The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In response, the nonmoving party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598--99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the nonmoving party as well as view all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

In a patent infringement action, an accused infringer seeking summary judgment of noninfringement may meet its initial burden by providing evidence that would preclude a finding of infringement or by showing that the evidence fails to establish a material issue of fact essential to the patentee's case. Vivid Techs. v. Am. Sci. & Eng'g, Inc., 200 F.3d 795, 807 (Fed. Cir. 1999). A court may grant summary judgment of noninfringement if, after viewing the alleged facts in the light most favorable to the patentee and drawing all reasonable inferences in the patentee's favor, there is no genuine issue as to whether the patent claims encompass the accused device. Novartis Corp. v. Ben Venue Labs., 271 F.3d 1043, 1046 (Fed. Cir. 2001).


CBOE, the first United States options exchange, was founded in 1973. From its beginnings, it has used a floor-based, open outcry model, where trading occurs through oral communications between market professionals on the floor of the exchange. CBOE has taken steps, however, to incorporate technological advances into its model. To that end, it began developing a fully screen-based trading system in the mid-1990s. In October 2001, CBOE introduced CBOEdirect as the platform for its Screen-Based Trading System ("SBT"), a fully computerized system used only for early morning trading. In 2002, CBOE began developing the Hybrid Trading System ("Hybrid"). Hybrid was officially introduced in 2003. Like SBT, Hybrid uses a version of CBOEdirect as its trading platform,*fn2 but it differs in that it combines automated and open outcry trading.

CBOE has described Hybrid as an integrated single market system that "blends the elements of open outcry and electronic execution." Ex. 10 to Doyle Decl. 63:9--10; Ex. 10 to DeVincenzo Decl. at CBOE000257520. It has been presented as "a marriage of two trading environments." Ex. 22 to Doyle Decl. 69:4--5. Somewhat at odds with these representations, however, CBOE has also touted Hybrid as "provid[ing] customers with a choice between a pure electronic system . . . and open outcry," Ex. 2 to DeVincenzo Decl. at CBOE000295468, essentially giving them "the best of both worlds." Ex. 11 to DeVincenzo Decl. at CBOE000296000.

In Hybrid, orders may be placed either electronically or through open outcry. They are entered into CBOEdirect's electronic book ("the eBook") and then routed pursuant to an established order routing system. Orders eligible for automatic (electronic) execution are compared with orders and quotations stored on the eBook. They will only be executed electronically if the eBook is at the national best bid or offer ("NBBO"); if not, they are routed to open outcry. See CBOE Rule 6.13(b)(iv), attached as Ex. 20 to Doyle Decl.; Ex. 13 to DeVincenzo Decl. at CBOE001787984. Those at NBBO are executed electronically according to the Ultimate Matching Algorithm ("UMA"). UMA parameters require that orders be executed first against public customer orders in the eBook, after which any remainder is shared among professional orders and quotations on a pro rata basis. If there is still a remainder, what happens next depends on whether the order is a limit order*fn3 or a market order.*fn4 If it is a limit order, the remainder is stored in the eBook. See Ex. B to Smith Decl. If it is a market order, the remainder is sent to open outcry for further execution. See id. During this process, split price execution may occur, as "[t]he balance of the electronic order [is] eligible to be filled . . . either electronically . . . or manually." CBOE Rule 6.45A(a)(i), attached as Ex. 16 to Doyle Decl. For orders entered through open outcry, public customer orders in the eBook are given first priority, with the balance executed through open outcry. The rules used by CBOEdirect for allocating to both public customer and professional orders are stored together in mass storage on one or more computers. These rules are loaded into memory for use by CBOEdirect.

CBOE holds two patents related to Hybrid, U.S. Patent No. 7,552,083 ("the '083 patent"), entitled "Hybrid Trading System for Concurrently Trading Through Both Electronic and Open-Outcry Trading Mechanisms," and U.S. Patent No. 7,613,650 ("the '650 patent"), entitled "Hybrid Trading System for Concurrently Trading Securities or Derivatives Through Both Electronic and Open-Outcry Trading Mechanisms." The '707 patent is cited as a reference in both CBOE patents. In allowing the '650 patent, the patent examiner wrote,

[N]othing in the prior art teaches or even suggests the integration of traditional open-outcry methods with automated electronic order execution. The instant invention is patentably distinct over the prior art because of the unique rule-based order routing algorithm which integrates the features of open-outcry trade execution with electronic order trade execution.

Ex. 25 to Doyle Decl.


A patent infringement analysis involves a two-step process in which the court first construes the scope and claims of the patent claims asserted. Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1581--82 (Fed. Cir. 1996) (citing Markman v. Westview Instruments, Inc., 52 F.3d 967, 979 (Fed. Cir. 1995), aff'd 517 U.S. 370, 134 L. Ed. 2d 577, 116 S. Ct. 1384 (1996)). Rather than repeat all its rulings on claim construction here, the court refers the parties to its Markman order, Dkt. Nos. 286, 300, and will reference its constructions only as necessary. Second, the fact finder compares the properly construed claims to the accused product. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454 (Fed. Cir. 1998) (en banc). Unless every limitation of a ...

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