Ex Parte Lara

Board of Patent Appeals and Interferences

May 25, 2010

10208515 (B.P.A.I. May. 25, 2010)

UNITED STATES PATENT AND TRADEMARK OFFICE 1
___________ 2
3
BEFORE THE BOARD OF PATENT APPEALS 4
AND INTERFERENCES 5
___________ 6
7
Ex parte ADONAY LARA 8
___________ 9
10
Appeal 2009-008883 11
Application 10/208,515 12
Technology Center 3600 13
___________ 14
15
Decided: May 25, 2010 16
___________ 17
18
Before MURRIEL E. CRAWFORD, HUBERT C. LORIN, and 19
ANTON W. FETTING, Administrative Patent Judges. 20
FETTING, Administrative Patent Judge. 21
DECISION ON APPEAL 22
23
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STATEMENT OF THE CASE 1
Adonay Lara (Appellant) seeks review under 35 U.S.C. § 134 (2002) of 2
a final rejection of claims 1-23, the only claims pending in the application on 3
appeal. 4
We have jurisdiction over the appeal pursuant to 35 U.S.C. § 6(b) 5
(2002). 6
SUMMARY OF DECISION1 7
We AFFIRM. 8
THE INVENTION 9
The Appellant invented a method for hedging risk to achieve a 10
guaranteed return by buying and selling certain securities instruments such 11
as options to achieve a position (Specification 1:4-7). 12
An understanding of the invention can be derived from a reading of 13
exemplary claims 1 and 23, which are reproduced below [bracketed matter 14
and some paragraphing added]. 15
1. An investing method for a market maker to realize a short 16
term gain comprising: 17
[1] buying an instrument near a market price; 18

1 Our decision will make reference to the Appellant’s Appeal Brief (“App.
Br.,” filed November 12, 2008) and Reply Brief (“Reply Br.,” filed February
23, 2009), and the Examiner’s Answer (“Ans.,” mailed December 17, 2008),
and Final Rejection (“Final Rej.,” mailed October 30, 2007).
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[2] selling a first short term protection device covering a 1
market increase near an ask price, said short term protection 2
having a first strike price and first term; 3
[3] buying a second short term protection device covering a 4
market decrease near a bid price, said short term protection 5
having a second strike price and a second term and wherein said 6
ask price is greater than said bid price; 7
[4] exercising said second short term protection device if the 8
market has decreased by the end of said first or second term, 9
said market maker receiving a gain of said ask price minus said 10
bid price minus said market price plus said first or second strike 11
price. 12
13
23. A method for market investing comprising the steps of: 14
[1] choosing a row in a stock option quote table by a pair of 15
indices for each row in said table by performing the steps of: 16
[2] computing a first index according to: put ask price minus 17
call bid price plus strike price minus market price; 18
[3] computing a second index according to: call ask price 19
minus put bid price minus strike price plus market price; 20
[4] choosing a row with either a first index or a second index 21
larger than a predetermined amount; 22
[5] if said first index of said row is greater than said second 23
index, performing the steps of: 24
[6] buying said stock long at a market price; 25
[7] buying a put option at said put bid price; 26
[8] selling a call option at said call ask price; 27
[9] exercising said put if the market declines during a term of 28
said options, there being a profit equal to said first index; 29
[10] if said second index of said row is greater than said first 30
index, performing the steps of: 31
[11] selling said stock short at a market price; 32
[12] buying a call option at said call bid price; 33
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[13] selling a put option at said put ask price; 1
[14] exercising said call if the market increases during a term 2
of said options, there being a profit equal to said second index. 3
4
THE REJECTIONS 5
The Examiner relies upon the following prior art: 6
Peter Ritchken. Options: Theory, Strategy, and Applications. Scott, 7
Foresman, and Company. p.36-254. 8
Claims 1-23 stand rejected under 35 U.S.C. § 101 as being directed 9
towards non-statutory subject matter. 10
Claim 21 stands rejected under 35 U.S.C. § 112, second paragraph, for 11
failing to particularly point out and distinctly claim the subject matter which 12
the Appellant regards as the invention. 13
Claims 1-23 stand rejected under 35 U.S.C. § 103(a) as unpatentable 14
over Ritchken. 15
ISSUES 16
The issue of whether the Examiner erred in rejecting claims 1-23 under 17
35 U.S.C. § 101 as being directed towards non-statutory subject matter turns 18
on whether the claimed methods satisfy the machine-or-transformation 19
threshold test and are therefore statutory processes. 20
The issue of whether the Examiner erred in rejecting claim 21 under 35 21
U.S.C. § 112, second paragraph, for failing to particularly point out and 22
distinctly claim the subject matter which the Appellant regards as the 23
invention turns on whether the Appellant argues the Examiner’s findings. 24
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The issue of whether the Examiner erred in rejecting claims 1-23 under 1
35 U.S.C. § 103(a) as unpatentable over Ritchken turns on whether Ritchken 2
describes or suggests the method to realize a gain independent of market 3
changes as required in claim 1 and whether Ritchken describes claim 23. 4
5
FACTS PERTINENT TO THE ISSUES 6
The following enumerated Findings of Fact (FF) are believed to be 7
supported by a preponderance of the evidence. 8
Facts Related to Appellant’s Disclosure 9
01. A wholesaler can buy an option at the bid price and sell an 10
option at an ask price and such a wholesaler will be called a 11
market maker (Spec. 2:2-4). 12
02. A call is an agreement whereby the holder of the call has the 13
right for a limited period of time to purchase a certain number of 14
shares of a stock or other instrument at a predetermined, fixed 15
price called the strike price (Spec. 2:8-12). 16
03. The holder of a put has the right for a limited period of time to 17
sell a certain number of shares of a stock or other instrument at a 18
predetermined, fixed price also called the strike price (Spec. 2:13-19
16). 20
21
22
23
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Facts Related to the Prior Art 1
Ritchken 2
04. Ritchken is directed to strategies involving the purchase and 3
sale of financial securities (Ritchken 36). 4
05. Ritchken describes the general properties associated with 5
options (Ritchken 36). Options may be used to produce payouts 6
that best reflect the expectations that an investor has for the future 7
prospects of a security (Ritchken 36). Ritchken further describes 8
timing the market in order to smooth out the fluctuations of 9
portfolios (Ritchken 36). 10
06. Ritchken specifically describes four option positions: 1) naked 11
positions, which involve the purchase or sale of a single security, 12
2) hedge positions, which involve the purchase of a stock with an 13
options that provide partial to full protection from unfavorable 14
outcomes, 3) spread options, which consist of a long position in 15
one option and a short position in another option on the same 16
security, and 4) combinations of all of these positions (Ritchken 17
37). Call and put options are utilized strategically to gain the most 18
profit from an option (Ritchken 39-41). For example, for a stock 19
priced at $40 an investor may rather place a 40 put for $4 rather 20
than leave an open order at $36 (Ritchken 41). The advantage of 21
writing a put over placing an open buy order is that the strategy 22
generates income when the stock price does not fall to the 23
purchase level (Ritchken 41). 24
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07. Ritchken describes that options have a premium associated with 1
them and the premiums are typically a fraction of the stock price 2
(Ritchken 39). 3
08. Ritchken further describes the use of spreads (Ritchken 48). 4
There are three types of spreads: vertical, horizontal, and diagonal 5
(Ritchken 48). A vertical spread involves the simultaneous 6
purchase and sale of options, identical in all aspects except for the 7
strike price (Ritchken 48). Horizontal spreads involve the 8
simultaneous purchase and sale of options identical in all aspects 9
except time to expiration (Ritchken 51). A diagonal spread 10
involves the simultaneous purchase and sale of options that differ 11
in both strike and time to maturity (Ritchken 51). 12
PRINCIPLES OF LAW 13
101 - Bilski 14
The law in the area of patent-eligible subject matter for process claims 15
has recently been clarified by the Federal Circuit in In re Bilski, 545 F.3d 16
943 (Fed. Cir. 2008) (en banc), petition for cert. filed, 77 USLW 3442 (U.S. 17
Jan. 28, 2009) (No. 08-964). 18
The en banc court in Bilski held that “the machine-or-transformation test, 19
properly applied, is the governing test for determining patent eligibility of a 20
process under § 101.” Bilski, 545 F.3d at 956. The court in Bilski further 21
held that “the ‘useful, concrete and tangible result’ inquiry is inadequate [to 22
determine whether a claim is patent-eligible under § 101.]” Bilski, 545 F.3d 23
at 959-60. 24
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The court explained the machine-or-transformation test as follows: “A 1
claimed process is surely patent-eligible under § 101 if: (1) it is tied to a 2
particular machine or apparatus, or (2) it transforms a particular article into a 3
different state or thing.” Bilski, 545 F.3d at 954 (citations omitted). The 4
court explained that “the use of a specific machine or transformation of an 5
article must impose meaningful limits on the claim’s scope to impart patent-6
eligibility” and “the involvement of the machine or transformation in the 7
claimed process must not merely be insignificant extra-solution activity.” 8
Bilski, 545 F.3d at 961-62 (citations omitted). 9
The court declined to decide under the machine implementation branch 10
of the inquiry whether or when recitation of a computer suffices to tie a 11
process claim to a particular machine. Bilski, 545 F.3d at 962. As to the 12
transformation branch of the inquiry, however, the court explained that 13
transformation of a particular article into a different state or thing “must be 14
central to the purpose of the claimed process.” Bilski, 545 F.3d at 962. As to 15
the meaning of “article,” the court explained that chemical or physical 16
transformation of physical objects or substances is patent-eligible under § 17
101. Bilski, 545 F.3d 962. The court also explained that transformation of 18
data is sufficient to render a process patent-eligible if the data represents 19
physical and tangible objects, i.e., transformation of such raw data into a 20
particular visual depiction of a physical object on a display. Bilski, 545 F.3d 21
at 962-63. The court further noted that transformation of data is insufficient 22
to render a process patent-eligible if the data does not specify any particular 23
type or nature of data and does not specify how or where the data was 24
obtained or what the data represented. Bilski, 545 F.3d at 962 (citing In re 25
Abele, 684 F.2d 902, 909 (CCPA 1982) (process claim of graphically 26
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displaying variances of data from average values is not patent-eligible) and 1
In re Meyer, 688 F.2d 789, 792-93 (CCPA 1982) (process claim involving 2
undefined “complex system” and indeterminate “factors” drawn from 3
unspecified “testing” is not patent-eligible)). 4
5
Indefiniteness 6
The test for definiteness under 35 U.S.C. § 112, second paragraph, is 7
whether “those skilled in the art would understand what is claimed when the 8
claim is read in light of the specification.” Orthokinetics, Inc. v. Safety 9
Travel Chairs, Inc., 806 F.2d 1565, 1576 (Fed. Cir. 1986)(citations omitted). 10
11
Obviousness 12
A claimed invention is unpatentable if the differences between it and 13
the prior art are “such that the subject matter as a whole would have been 14
obvious at the time the invention was made to a person having ordinary skill 15
in the art.” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 406 (2007); Graham 16
v. John Deere Co., 383 U.S. 1, 13-14 (1966). 17
In Graham, the Court held that that the obviousness analysis is 18
bottomed on several basic factual inquiries: “[(1)] the scope and content of 19
the prior art are to be determined; [(2)] differences between the prior art and 20
the claims at issue are to be ascertained; and [(3)] the level of ordinary skill 21
in the pertinent art resolved.” Graham, 383 U.S. at 17. See also KSR, 550 22
U.S. at 406. “The combination of familiar elements according to known 23
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methods is likely to be obvious when it does no more than yield predictable 1
results.” KSR, 550 U.S. at 416. 2
ANALYSIS 3
Claims 1-23 rejected under 35 U.S.C. § 101 as being directed towards 4
non-statutory subject matter 5
The Examiner found that claims 1-23 fail to recite a statutory process 6
because the claims fail to recite another statutory class and fail to transform 7
a physical object (Ans. 3-4). The Appellant contends that it is impossible to 8
buy and sell a stock or an option without the use of a computer by the buyer, 9
broker, or market maker and therefore the claims are implicitly require a 10
computer (App. Br. 8 and Reply Br. 2). 11
We disagree with the Appellant. Claims 1-23 recite method or process 12
claims that must be evaluated under the threshold machine-or-transformation 13
test set forth in Bilski. See Bilski, 545 F.3d at 954. Independent claims 1, 14
11, and 21-23 recite methods for market investing. These independent 15
claims only recite steps and do not tie these steps to a particular machine or 16
apparatus. The Appellant contends that the use of a computer is inherent in 17
market transactions (App. Br. 8). Although some of the steps recite 18
computing values and selecting rows based on index values, these steps are 19
not limited to a specific machine or apparatus. Even if the Appellant’s 20
argument that a computer is inherent to market trading is correct, this would 21
be a mere nominal use of a general purpose computer and the claimed steps 22
are not tied to a particular machine. 23
Additionally, the steps recited by the claims are for market investing. A 24
market investing decision does not transform an article into a different state 25
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or thing. These steps merely receive input variables and output a result. As 1
such, claims 1-23 fail to satisfy the both prongs of the machine-or-2
transformation test and are rejected under 35 U.S.C. § 101 as being directed 3
towards non-statutory subject matter. 4
5
Claim 21 rejected under 35 U.S.C. § 112, second paragraph, for failing 6
to particularly point out and distinctly claim the subject matter which the 7
Appellant regards as the invention 8
The Examiner found there is insufficient antecedent basis for the term 9
“said market maker” in claim 21 (Ans. 3). The Appellant acknowledges this 10
deficiency and proposes to cure this deficiency (App. Br. 8 and Reply Br. 2). 11
Since no arguments have been asserted against this rejection, we summarily 12
sustained the Examiner’s rejection. 13
14
Claims 1-23 rejected under 35 U.S.C. § 103(a) as unpatentable over 15
Ritchken 16
The Appellant first contends that (1) Ritchken fails to describe a market 17
maker, an investing method for a market maker to make a gain, buying at or 18
near an ask price, selling at or near a bid price, and receiving a gain of an ask 19
price minus a bid price minus the market price plus the strike price (Ans. 8-20
14). The Appellant specifically argue that the claimed invention is 21
distinguished because it creates a fixed gain independent of market changes 22
(Ans. 8-10). 23
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We disagree with the Appellant. Claim 1 requires that a market maker 1
purchase an instrument near market price, selling a first short term market 2
increase protection device, buying a second short term market decrease 3
protection device, and realizing a gain of the ask price minus the bid price 4
and market price, plus the strike price. In other words, claim 1 requires 5
purchasing an instrument at market price, selling a call, buying a put, and 6
realizing a gain of the difference between the put and call premiums plus the 7
ask price, and the difference between this result and the strike price. 8
Ritchken describes market investing strategies that involve the use of 9
call and put devices to smooth out market fluctuations (FF 05-06). Ritchken 10
explicitly describes that these instruments can be used to maximize the gain 11
realized by a market participant (FF 05-06). Ritchken further describes that 12
each of the calls and puts have a premium associated with purchase or sale 13
of these devices (FF 07). The premium is typically a fraction of the price of 14
the security (FF 07). As such, Ritchken describes an investor purchasing an 15
instrument, an investor selling a call, and an investor buying a put. Ritchken 16
further describes the use of spreads that involve the simultaneous purchase 17
and sale of options that may differ in strike price or time to maturity (FF 08). 18
Therefore, Ritchken describes all of the instruments and the exact properties 19
of the instruments required by the claim invention. As noted by the 20
Examiner and argued by the Appellant, Ritchken fails to explicitly describe 21
realizing a gain of the difference between the put and call premiums plus the 22
ask price, all minus the strike price and therefore is not market dependant 23
(Ans. 5 and App. Br. 8-10). However, a person with ordinary skill in the art 24
would have known the mere mathematical algorithm to optimize the 25
difference between the paid and received premiums under specific market 26
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conditions. That is, a person with ordinary skill in the art possesses the 1
ability to perform basic mathematical manipulation of purchase and sale 2
price of known financial devices and premiums associated to these devices 3
in order to determine a profit. Since all of the instruments and the premiums 4
associated to them used in the claims invention are known, Ritchken further 5
suggests that a person with ordinary skill in the art would have known to 6
realize an expected gain of the ask price minus the bid price and market 7
price, plus the strike price by purchasing an instrument near market price, 8
selling a first short term market increase protection device, and buying a 9
second short term market decrease protection device. 10
The Appellant further argues that Ritchken fails to describe the concept 11
of a market maker (App. Br. 11-12). The Specification defines a market 12
maker as a wholesaler who can buy an option at the bid price and sell an 13
option at an ask price (FF 01). The claims do not further limit the definition 14
of a market maker. Ritchken describes the concept of an investor and an 15
investor strategically purchases financial instruments to maximize a returned 16
gain (FF 05-06). An investor would attempt to purchase an option as close 17
to the bid price as possible in order to receive the best price for the option. 18
An investor would also attempt to sell an option as close to the ask price as 19
possible in order to receive the best possible price for the option. As such, 20
the investor described by Ritchken is within the definition of the market 21
maker of the claimed invention since both are specifically defined to 22
optimize the purchase and sale prices. Certainly a market maker dealing in 23
wholesale quantities is a predictable investor for executing call spread 24
strategies because of the volumes market makers typically work with. 25
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The Appellant further contends that (2) Ritchken fails to describe the 1
limitation of choosing a row in a stock option table to form a first and 2
second index, and then using this index to decide whether to buy an 3
instrument long, buying a put at bid and selling a cal at ask, or selling an 4
instrument short, buying a call at bid and selling a put at ask, as required by 5
claim 23 (Ans. 14). The Appellant specifically argues that the Examiner 6
ignores the limitations of claim 23 (Ans. 14). We agree with the Appellant. 7
Claim 23 is narrower in breadth than claim 1 thereby require a more specific 8
teaching from Ritchken. The Examiner has failed to provide any rationale as 9
to how Ritchken describes the narrower limitations of claim 23. As such, 10
the Examiner erred in rejecting claim 23. 11
The Examiner did not err in rejecting claims 1-22 under 35 U.S.C. 12
§ 103(a) as unpatentable over Ritchken. 13
The Examiner erred in rejecting claim 23 under 35 U.S.C. § 103(a) as 14
unpatentable over Ritchken. 15
16
CONCLUSIONS OF LAW 17
The Examiner did not err in rejecting claims 1-23 under 35 U.S.C. § 101 18
as being directed towards non-statutory subject matter. 19
The Examiner did not err in rejecting claim 21 under 35 U.S.C. § 112, 20
second paragraph, for failing to particularly point out and distinctly claim 21
the subject matter which the Appellant regards as the invention. 22
The Examiner did not err in rejecting claims 1-22 under 35 U.S.C. 23
§ 103(a) as unpatentable over Ritchken. 24
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The Examiner erred in rejecting claim 23 under 35 U.S.C. § 103(a) as 1
unpatentable over Ritchken. 2
3
DECISION 4
To summarize, our decision is as follows. 5
• The rejection of claims 1-23 under 35 U.S.C. § 101 as being directed 6
towards non-statutory subject matter is sustained. 7
• The rejection of claim 21 under 35 U.S.C. § 112, second paragraph, 8
for failing to particularly point out and distinctly claim the subject 9
matter which the Appellant regards as the invention is sustained. 10
• The rejection of claims 1-22 under 35 U.S.C. § 103(a) as unpatentable 11
over Ritchken is sustained. 12
• The rejection of claim 23 under 35 U.S.C. § 103(a) as unpatentable 13
over Ritchken is not sustained. 14
15
No time period for taking any subsequent action in connection with this 16
appeal may be extended under 37 C.F.R. § 1.136(a)(1)(iv). 17
18
AFFIRMED 19
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22
mev 23
24
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