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Chicago Board Options Exchange, Inc v. International Securities Exchange

March 6, 2013

CHICAGO BOARD OPTIONS EXCHANGE, INC., PLAINTIFF,
v.
INTERNATIONAL SECURITIES EXCHANGE, LLC, DEFENDANT.



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

FILED UNDER SEAL

OPINION AND ORDER

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," issued on September 9, 2003. On March 2, 2011, this court entered summary judgment in favor of CBOE. See Chicago Bd. Options Exch., Inc. v. Int'l Sec. Exch., LLC, 776 F. Supp. 2d 606 (N.D. Ill. 2011). On appeal, the Federal Circuit affirmed in part, reversed in part, vacated the judgment of noninfringement in favor of CBOE, and remanded. See Chicago Bd. Options Exch., Inc. v. Int'l Sec. Exch., LLC, 677 F.3d 1361 (Fed. Cir. 2012). On remand, this court entered a revised scheduling order, see dkts. #396 and #400, and pursuant to this order ISE timely served CBOE with the opening report of Dr. Moses Ma. CBOE now moves to strike portions of Dr. Ma's report arguing that he improperly introduces new theories of infringement under the doctrine of equivalents and new theories related to commercial success, a secondary consideration of nonobviousness. For the reasons discussed herein, CBOE's motions [#405 and #415] will be granted in part and denied in part.

BACKGROUND

I. Doctrine of Equivalents

CBOE argues that ISE failed to disclose its intended reliance on the doctrine of equivalents to support its infringement contentions for claims 4, 35, 36, and 56. ISE counters that it disclosed its reliance on the doctrine of equivalents in response to CBOE's Interrogatory No. 1 and in its summary judgment brief before this court and, as such, those portions of Dr. Ma's report that rely on the same should stand.

On September 14, 2007, CBOE sent its first round of interrogatories to ISE. Interrogatory No. 1 instructed,

Interrogatory No. 1

Separately, for each of the ISE Patents-in-Suit, identify each claim ISE alleges CBOE directly infringes, contributes to the infringement of, and/or actively induces the infringement of, setting forth for each limitation of each such claim all legal and factual bases for such allegation, the identification of the persons having knowledge of the bases for each such allegation, and whether ISE alleges direct infringement, contributory infringement and/or active inducement of infringement for each such claim. (CBOE Mot. to Strike #405, Ex. A.) ISE first responded to Interrogatory No. 1 on November 7, 2007. It supplemented its response multiple times, including its sixth set of supplemental responses on April 6, 2010. (ISE's Resp. Ex. F.)

A. Claim 4

With respect to claim 4, *fn1 ISE's April 6, 2010 interrogatory responses included an infringement claim chart that disclosed the following language:

Initially, the Accused Exchange did not use the formula expressly recited in the claim. Instead, it used a similar formula, which CBOE named Ultimate Matching Algorithm (UMA) . . . . In that formula, the expression ".5(1/#participants)" is a parity component referred as Component A, and the expression ".5(participant's size/total size") is a pro rata component referred as Component B . . . . It is irrelevant that the Accused Exchange used a formula that included a parity component (Component A) because the '707 Patent teaches that other allocation formulas are possible without departing from the scope of the invention and expressly identifies using formulas that include weighting factors to adjust a pro-rata allocation among the professionals . . . . Notably, this is the purpose of the parity component to UMA. (Id. Ex. F at Ex. A at 20.) ISE also stated in a letter to CBOE on March 30, 2010 that "to the extent CBOE has disputed that claim limitations are literally present in the Accused Exchange, ISE intends to assert the doctrine of equivalents with respect to such limitations." (ISE Resp., Ex. E.)

CBOE requests that the court strike paragraphs 297 through 311 and 315 through 317 of Dr. Ma's report relating to the final limitation of claim 4.*fn2 Dr. Ma states that "[w]hen CBOE launched Hybrid in June 2003, CBOEdirect did not use the formula expressly recited in the claim. Instead, it used a similar formula . . . named Ultimate Marching Algorithm" that included a component referred as Component A and a pro rata component referred as Component B. (ISE Resp., Ex. G ¶ 298.) Dr. Ma concludes that "the presence of the parity component [Component A] in the trade execution algorithm . . . is an insubstantial technical difference with respect to the 'means for matching the remaining portion' . . . claim limitation because the '707 Patent teaches that other allocation formulas are possible without departing from the scope of the invention . . . ." (Id. ¶ 299.) Dr. Ma also notes that "on March 27, 2006 CBOE 'change[d] the UMA calculation [used by CBOEdirect] to a purely pro-rata calculation," but concludes that this calculation "is mathematically equivalent to the formula recited in claim 4." (Id. ¶ 303.) For both of CBOE's formulas, Dr. Ma applies the insubstantial differences test and the function/way/result (triple identity) test to determine infringement under the doctrine of equivalents. (Id. ¶¶ 300--302, 306--309.) Dr. Ma further analyzes an alternative means-plus-function construction of the "means for matching" limitation under the triple identity test to conclude that CBOEdirect satisfies the limitation under the doctrine of equivalents. (Id. ¶¶ 315--317).

B. Claim 35

With respect to claim 35, *fn3 ISE stated in its April 6, 2010 interrogatory responses that CBOE's trading system infringed this claim because it "matches the incoming order and quotation among the previously received orders and quotations stored in the 'eBook.'" (ISE Resp. Ex. F at Ex. A at 26.) ISE also stated that "[i]f multiple customer orders exist at the disseminated price, those customers are filled in FIFO [first in, first out] fashion." (Id.) In its response to CBOE's motion for summary judgment, which ISE filed on May 7, 2010, it further explained the claim limitation at issue stating,

[E]ven under CBOE's application of the Court's construction, a reasonable jury could find that CBOEdirect performs equivalent steps to the matching steps. CBOEdirect performs substantially the same function as these 'matching' steps-namely, CBOEdirect executes trades against a portion of the incoming order or quotation using previously received customer orders and/or professional orders and quotations at the same price to achieve the same incentives as those disclosed in the '707 Patent (public customer protection and rewarding professionals who quote with larger sized) . . . . CBOEdirect performs this function in substantially the same way as that described in the '707 Patent-CBOEdirect used a formula that includes a pro rata component to reward professionals who quote at larger size in the same manner as the '707 Patent . . . . Furthermore, substantially [the] same results are achieved-the previously received professional [sic] are identified for receiving a pro rata portion of the incoming order. (Dkt. #317, ISE Resp. to Mot. for Summ. J. at 25.)

CBOE has moved to strike paragraphs 358 through 361 of Dr. Ma's report relating to claim 35. In these portions of the report, Dr. Ma states that "CBOEdirect operates a process that satisfies [the claim limitation of first matching a first portion of the incoming order or quotation against the public customer order . . . based on the allocating parameter] under the Doctrine of Equivalents." (ISE Resp., Ex. G ¶ 358.) He goes onto analyze infringement under the doctrine of equivalents using the insubstantial difference test and the function/way/result test, concluding that "CBOEdirect has operated and continues to operate a process that satisfies the step of 'first matching an incoming order or quotation to previously received customer orders based on an allocating parameter,' literally or under the Doctrine of Equivalents." (Id. ¶¶ 359--61.)

C. Claim 36

With respect to claim 36,*fn4 in its April 6, 2010 claim chart ISE explicitly referred to infringement under the ...


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