Tony E. Kelly et al.

Patent Trials and Appeals Board

Aug 2, 2019

12651976 - (D) (P.T.A.B. Aug. 2, 2019)

UNITED STATES PATENT AND TRADEMARK OFFICE
UNITED STATES DEPARTMENT OF COMMERCE
United States Patent and Trademark Office
Address: COMMISSIONER FOR PATENTS
P.O. Box 1450
Alexandria, Virginia 22313-1450
www.uspto.gov
APPLICATION NO. FILING DATE FIRST NAMED INVENTOR ATTORNEY DOCKET NO. CONFIRMATION NO.
12/651,976 01/04/2010 Tony E. Kelly 30431-16201 1218
758 7590 08/02/2019
FENWICK & WEST LLP
SILICON VALLEY CENTER
801 CALIFORNIA STREET
MOUNTAIN VIEW, CA 94041
EXAMINER
TINKLER, MURIEL S
ART UNIT PAPER NUMBER
3692
NOTIFICATION DATE DELIVERY MODE
08/02/2019 ELECTRONIC
Please find below and/or attached an Office communication concerning this application or proceeding.
The time period for reply, if any, is set in the attached communication.
Notice of the Office communication was sent electronically on above-indicated "Notification Date" to the
following e-mail address(es):
PTOC@Fenwick.com
PTOL-90A (Rev. 04/07)

UNITED STATES PATENT AND TRADEMARK OFFICE
____________

BEFORE THE PATENT TRIAL AND APPEAL BOARD
____________

Ex parte TONY E. KELLY, LELAND C. CLEMONS, and
COLE B. FEINBERG
__________

Appeal 2017-0116051
Application 12/651,9762
Technology Center 3600
____________

Before BRADLEY B. BAYAT, TARA L. HUTCHINGS, and
ROBERT J. SILVERMAN, Administrative Patent Judges.

BAYAT, Administrative Patent Judge.

DECISION ON APPEAL

Appellants appeal under 35 U.S.C. § 134(a) from the Examiner’s
Final Rejection of claims 1, 3–7, 12, 13, 15, 17, and 19, which are all the
claims pending in the Application, under 35 U.S.C. § 101 as directed to non-
statutory subject matter. We have jurisdiction under 35 U.S.C. § 6(b).
We AFFIRM.

1 Our Decision references Appellants’ Appeal Brief (“Br.,” filed Apr. 10,
2017), the Examiner’s Answer (“Ans.,” mailed June 28, 2017), and Final
Office Action (“Final Act.,” mailed Oct. 7, 2016).
2 Appellants identify “BlackRock Fund Advisors” as the real party in
interest. Br. 2.
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Appellants requested an oral hearing in this matter, in a filing
received by the Office on June 16, 2017. A Notice of Hearing issued
on May 21, 2019, stating, in part:
CONFIRMATION OF ATTENDANCE OR WAIVER
OF THE HEARING IS REQUIRED WITHIN 21 DAYS
OF THE MAILING DATE OF THIS NOTICE. Failure
to respond may subject Appellant(s) to waiver of the oral
hearing. If Appellant is no longer interested in having an
oral hearing, Appellant must still file a waiver of oral
hearing with the Board. This allows the panel to
promptly act on the appeal without waiting for the oral
hearing date.
Appellants failed to respond to the Notice of Hearing, as
required, and no representative for the Appellants appeared before the
Board panel, on the date and time identified in the Notice of Hearing
(July 12, 2019). We remind the Appellants and their representatives
to provide all responses required by the Office and to do so in a timely
manner.

STATEMENT OF THE CASE
Claimed Subject Matter
Appellants’ “invention relates generally to financial services and
products, and more particularly to pricing systems for exchange-traded
funds.” Spec. ¶ 2.
Independent claim 1, reproduced below with added bracketed matter
and formatting, is illustrative of the subject matter on appeal.
1. A method performed by a trading system for trading
shares of an ETF in a secondary market, the method
comprising:
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[(a)] receiving in the trading system a market not-held
buy order for a number of shares of an ETF, the ETF based on
an underlying basket of financial instruments;
[(b)] determining, by the trading system, a first trade
cost estimate by:
[(i)] determining a price to purchase a set of
financial instruments comprising financial instruments
from the underlying basket of financial instruments, and
[(ii)] determining the first trade cost estimate
based on the price to purchase the set of financial
instruments and a cost to use a creation process
associated with the ETF to create the ordered number of
shares of the ETF;
[(c)] accessing a listing of offers for the ETF on the
secondary market, each listed offer specifying an offer price for
the ETF and a number of shares available at that offer price, the
listing of offers accessed by the trading system;
[(d)] determining a a [sic] second trade cost estimate to
buy the ordered number of shares using the listed offers, the
minimum price determined by the trading system;
[(e)] determining a suggested trade cost for the ordered
number of shares of the ETF, the suggested trade cost
determined by a processor of the trading system and equal to
the lesser of the first trade cost estimate and the second trade
cost estimate; and
[(f)] electronically placing a marketable limit buy order
into the secondary market for the ordered number of shares of
the ETF at the suggested trade cost, the marketable limit buy
order electronically placed by the trading system.

Br. 22–23 (Claims App.).

ANALYSIS
35 U.S.C. § 101 rejection
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Principals of Law
An invention is patent-eligible if it claims a “new and useful process,
machine, manufacture, or composition of matter.” 35 U.S.C. § 101.
However, the Supreme Court has long interpreted 35 U.S.C. § 101 to include
implicit exceptions: “[l]aws of nature, natural phenomena, and abstract
ideas” are not patentable. E.g., Alice Corp. v. CLS Bank Int’l, 573 U.S. 208,
216 (2014).
In determining whether a claim falls within an excluded category, we
are guided by the Supreme Court’s two-step framework, described in Mayo
and Alice. Id. at 217–18 (citing Mayo Collaborative Servs. v. Prometheus
Labs., Inc., 566 U.S. 66, 75–77 (2012)). In accordance with that framework,
we first determine what concept the claim is “directed to.” See Alice, 573
U.S. at 219 (“On their face, the claims before us are drawn to the concept of
intermediated settlement, i.e., the use of a third party to mitigate settlement
risk.”); see also Bilski v. Kappos, 561 U.S. 593, 611 (2010) (“Claims 1 and 4
in petitioners’ application explain the basic concept of hedging, or protecting
against risk.”).
If the claim is “directed to” an abstract idea, we turn to the second
step of the Alice and Mayo framework, where “we must examine the
elements of the claim to determine whether it contains an ‘inventive
concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-
eligible application.” Alice, 573 U.S. at 221 (quotation marks omitted). “A
claim that recites an abstract idea must include ‘additional features’ to
ensure ‘that the [claim] is more than a drafting effort designed to
monopolize the [abstract idea].’” Id. (alterations in original) (quoting Mayo,
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566 U.S. at 77). “[M]erely requir[ing] generic computer implementation[]
fail[s] to transform that abstract idea into a patent-eligible invention.” Id.
The Federal Circuit has described the Alice step-one inquiry as
looking at the “focus” of the claims, their “character as a whole,” and the
Alice step-two inquiry as looking more precisely at what the claim elements
add--whether they identify an “inventive concept” in the application of the
ineligible matter to which the claim is directed. See Elec. Power Grp., LLC
v. Alstom S.A., 830 F.3d 1350, 1353 (Fed. Cir. 2016); Enfish, LLC v.
Microsoft Corp., 822 F.3d 1327, 1335–36 (Fed. Cir. 2016); Internet Patents
Corp. v. Active Network, Inc., 790 F.3d 1343, 1346 (Fed. Cir. 2015).
USPTO § 101 Guidance
The USPTO recently published revised guidance on the application of
§ 101. USPTO’s 2019 Revised Patent Subject Matter Eligibility Guidance,
84 Fed. Reg. 50 (Jan. 7, 2019) (“Guidance”). Under Step 2A, Prong One, of
the Guidance, we determine if the claim recites a judicial exception,
including particular groupings of abstract ideas (i.e., mathematical concepts,
certain methods of organizing human activity, or mental processes). Id. at
52–53. If so, we then analyze the claim to determine whether the recited
judicial exception is integrated into a practical application of that exception
under Step 2A, Prong Two of the Guidance. Id. at 53–55; MPEP
§§ 2106.05(a)–(c), (e)–(h) (9th ed. Rev. 08.2017, Jan. 2018).
Only if the claim fails to integrate the exception and thus is “directed
to” the judicial exception, do we then look to whether the claim adds a
specific limitation beyond the judicial exception that is not well-understood,
routine, and conventional activity in the field or whether the claim simply
appends well-understood, routine, and conventional activities previously
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known to the industry, specified at a high level of generality, to the judicial
exception. Guidance, 84 Fed. Reg. at 56.
Alice Step 1
Does the claim recite a judicial exception?
Under the first step of the Alice inquiry, the Examiner determined “the
claims are directed to electronically executing trades on an exchange using
pricing strategies.” Final Act. 6 (citing Spec. ¶¶ 12–13). According to the
Examiner, manipulation and comparison of data “can be performed
mentally,” and “trading shares of an EFT [sic] in a secondary market (see
claims), which is considered to be an abstract idea inasmuch as such activity
is considered both a fundamental economic practice (i.e. agreements
between people/contracts), and/or a method of organizing human activity
(i.e. managing transactions, sales activities, etc.).” Id.
Appellants argue claims 1, 3–7, 12, 13, 15, 17, and 19 as a group. See
Br. 7–21. We select independent claim 1 as the representative claim for this
group, and, thus, claims 3–7, 12, 13, 15, 17, and 19 stand or fall with claim
1. 37 C.F.R. § 41.37(c)(1)(iv). Specifically, Appellants argue: (1) the
Examiner’s proposed abstract idea does not qualify as a judicial exception,
and (2) the claims are not directed to trading ETF shares on a secondary
market. Br. 8–17. Appellants’ arguments are not persuasive.
Claim 1 recites “[a] method . . . for trading shares of an ETF in a
secondary market . . . comprising:” (a) “receiving . . . a market not-held buy
order for a number of shares of an ETF;” (b) “determining . . . a first trade
cost estimate by:”
(i) determining a price to purchase a set of
financial instruments comprising financial instruments
from the underlying basket of financial instruments, and
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(ii) determining the first trade cost estimate
based on the price to purchase the set of financial
instruments and a cost to use a creation process
associated with the ETF to create the ordered number of
shares of the ETF;

(c) “accessing a listing of offers for the ETF on the secondary market,
each listed offer specifying an offer price for the ETF and a number of
shares available at that offer price;” (d) “determining a . . . second
trade cost estimate to buy the ordered number of shares using the
listed offers;” (e) “determining a suggested trade cost for the ordered
number of shares of the ETF, the suggested trade cost . . . equal to the
lesser of the first trade cost estimate and the second trade cost
estimate;” and (f) “placing a marketable limit buy order into the
secondary market for the ordered number of shares of the ETF at the
suggested trade cost.” Claim 1 supra.
Under the broadest reasonable interpretation of claim 1, steps
(a) receiving a buy order for shares of an ETF and (f) placing a buy order
into the secondary market for the ordered number of shares describe a
financial transaction or an agreement between a buyer and seller to exchange
an asset for payment (trading shares in a secondary market), which is similar
to the fundamental economic practices found by the courts to be abstract
ideas (e.g., hedging in Bilski or mitigating settlement risk in financial
transactions in Alice) and falls within the Guidance’s certain methods of
organizing human activity grouping. See Spec. ¶ 13 (“Embodiments of the
invention provide a trading system that enables investors to execute trades
electronically on an exchange at prices that are chosen in consideration of
the derivative nature of ETFs as a portfolio of securities.”).
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The remaining determinations in steps (b) thru (e) can be practically
performed in the human mind and also recite an abstract idea within the
Guidance’s mental-process grouping. The claimed trading process
determines two trade cost estimates: (b) a first trade cost estimate and a (d)
second trade cost estimate. The first trade cost estimate is the trade cost
estimate for purchasing financial instruments that comprise the ETF’s
underlying basket of financial instruments and to use a creation process
associated with the ETF to create the ordered number of shares. Spec.
¶¶ 21, 27. The second trade cost estimate is the cost of purchasing the
ordered number of shares on the secondary market from other investors by
(c) accessing a list of offers. Id. ¶¶ 10, 21. The first trade cost estimate can
be calculated by adding up the value of all assets in the fund, subtracting any
liabilities, and then dividing that value by the number of outstanding shares
in the ETF, which is also an evaluation that can practically be performed in
the mind. See id. ¶¶ 27–32. The second trade cost estimate is determined by
viewing ETF market price offers at which requested shares can be bought on
the exchange, which is also an evaluation that can practically be performed
in the mind. See id. ¶¶ 27–28. The final suggested trade cost determination
in step (e) is a comparison and selection of the lower of the two trade cost
estimates in (b) and (d), which is a simple evaluation that can practically be
performed in the mind. See id. ¶ 28.
For all the above reasons, claim 1 recites a judicial exception under
the Guidance’s groupings of abstract ideas.

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Is the claim “directed to” the recited judicial exception?
Because claim 1 recites abstract ideas, we next determine whether the
recited judicial exception is integrated into a practical application. Guidance,
84 Fed. Reg. at 51. When a claim recites a judicial exception and fails to
integrate the exception into a practical application, the claim is “directed to”
the judicial exception. Id. The claim may integrate the judicial exception
when, for example, it reflects an improvement to technology or a technical
field. Id. at 55.
In Enfish, the Federal Circuit noted “[s]oftware can make non-abstract
improvements to computer technology just as hardware improvements
can[.]” Enfish, 822 F.3d at 1335. The court asked “whether the focus of the
claims is on [a] specific asserted improvement in computer capabilities . . .
or, instead, on a process that qualifies as an ‘abstract idea’ for which
computers are invoked merely as a tool.” Id. at 1335–36. There, the “plain
focus of the claims” was on an improvement to computer functionality itself,
a self-referential table for a computer database designed to improve the way
a computer carries out its basic functions of storing and retrieving data. Id.
And, the court in McRO3 asked whether the claims as a whole “focus on a
specific means or method that improves the relevant technology” or are
“directed to a result or effect that itself is the abstract idea and merely invoke
generic processes and machinery.” 837 F.3d at 1314. We determine that
claim 1 as a whole is focused on a result; that is, determining a suggested
trade cost for trading shares of an ETF based on the lesser of a determined
first and second trade cost estimate, for which a computer is invoked merely

3 McRO, Inc. v. Bandai Namco Games Am., 837 F.3d 1299 (Fed. Cir. 2016).
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as a tool to carry out the recited mental processes. We find no parallel
between claim 1 and the claims in Enfish, nor any comparable aspect in
claim 1 that represents an improvement to computer functionality. Unlike
Enfish, claim 1 is not focused on an improvement to computer capabilities or
functionality (i.e., an improved processor). Cf. In re TLI Commc’ns LLC
Patent Litig., 823 F.3d 607, 613 (Fed. Cir. 2016) (The claims’ focus “was
not on an improved telephone unit or an improved server.”). There is a
fundamental difference between computer functionality improvements, on
the one hand, and uses of existing computers as tools to perform a particular
task, on the other. Appellants’ assertion that claim 1 reflects “an
improvement to the purchasing of ETF shares on the secondary market” (Br.
14) by determining the price at which the ETF shares will be purchased (id.
at 13) is admittedly not focused on a specific means or process that improves
computer technology, but rather, on improving a financial transaction
decision making process as recited in step (b)–(e), for which a computer is
used as a tool in its ordinary capacity. According to Appellants, these
improvements use the characteristics of ETFs and the availability of
authorized participants to generate shares of the ETFs to improve prices for
retail investors.” Br. 14 (citing McRO). Unlike McRO, the advance over the
prior art here lies in helping a retail trader “avoid paying a higher market
price per share than the price a broker can provide for accessing the basket
of underlying portfolio securities specific to that ETF” (Spec. ¶ 12), which is
an improvement in managing a financial transaction, instead of an
improvement in computer technology. In other words, the claimed invention
compares trade cost estimates “for allowing a retail trader to purchase ETF
shares at either the cost on the primary market or the secondary market.” Br.
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4. Using collected data to determine and recommend a suggested trade cost
is unlike the technology-based integration in McRO, which focused on a
specific asserted improvement in computer animation.
We agree with the Examiner that the additional elements “a trading
system” and a “processor” do no more than generally link the use of a
judicial exception to a particular technological environment or field of use.
Final Act. 7 (citing Spec. ¶ 38). There is no indication that the combination
of these elements improves the functioning of the processor or the trading
system. In view of Appellants’ Specification, and consistent with the
Examiner’s determinations, we conclude that claim 1 does not integrate the
judicial exception into a practical application.
We agree with the Examiner that claim 1 is directed to a judicial
exception.
Alice Step 2
Under step two of the Alice framework, Appellants argue that the
claims recite significantly more than the proposed abstract idea because “the
claims are limited to methods for buying ETF shares on a secondary
market, and does not encompass all trading of ETF shares.” Br. 18.
Appellants’ argument as to the lack of preemption is unpersuasive. Cf. OIP
Techs., Inc. v. Amazon.com, Inc., 788 F.3d 1359, 1362-63 (Fed.
Cir.) (“[T]hat the claims do not preempt all price optimization or may be
limited to price optimization in the e-commerce setting do not make them
any less abstract.”), cert, denied, 136 S. Ct. 701 (2015). Although
“preemption may signal patent ineligible subject matter, the absence of
complete preemption does not demonstrate patent eligibility.” Ariosa
Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1379 (Fed. Cir. 2015).
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“Where a patent’s claims are deemed only to disclose patent ineligible
subject matter” under the Alice framework, “preemption concerns are fully
addressed and made moot.” Id.
We also find unpersuasive Appellants’ argument that the claims recite
significantly more than the abstract idea because “[s]etting a price for a
marketable limit buy order at the lesser of the price on the primary market
and the price on the secondary market is not a conventional step for trading
ETF shares on the secondary market. Instead, these limitations allow a retail
investor to purchase shares of an ETF on the secondary market for the lower
of the cost of orders on the secondary market and the cost of purchasing the
ETF shares through the creation process.” Br. 18–19. The “determining”
steps, though, are part of the abstract idea itself. See supra. “It has been
clear since Alice that a claimed invention’s use of the ineligible concept to
which it is directed cannot supply the inventive concept that renders the
invention ‘significantly more’ than that ineligible concept.” BSG Tech LLC
v. BuySeasons, Inc., 899 F.3d 1281, 1290 (Fed. Cir. 2018). The limitations
on the mental process do not make claim 1 any less abstract. None of these
limitations provide an inventive concept in the non-abstract application
realm. Indeed, this type of activity has been found to be well-understood,
routine, conventional activity when they are claimed in a merely generic
manner (e.g., at a high level of generality). Cf. OIP Techs., 788 F.3d at
1362–63 (Determining an estimated outcome and setting a price).
Appellants’ reliance on the Examiner’s withdrawal of all prior art
rejections as “further evidence that the claims recite significantly more than
the proposed abstract idea” is misplaced. Br. 19. We note: (1) “the concept
of inventiveness is distinct from that of novelty;” and (2) “[t]he
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inventiveness inquiry of [section] 101 should therefore not be confused with
the separate novelty inquiry of [section] 102 or the obviousness inquiry of
§ 103.” Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1311
(Fed. Cir. 2016). We may even assume that the techniques claimed are
“[g]roundbreaking, innovative, or even brilliant,” but that is not enough for
patent eligibility under § 101. Association for Molecular Pathology v.
Myriad Genetics, Inc., 569 U.S. 576, 591 (2013), accord buySAFE, Inc. v.
Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). Indeed, it is not enough
for subject-matter eligibility that claimed techniques be novel and
nonobvious in light of prior art under 35 U.S.C. §§ 102 and 103. See Mayo
Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 89–90
(2012); Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1151 (Fed.
Cir. 2016) (“[A] claim for a new abstract idea is still an abstract idea. The
search for a [section] 101 inventive concept is thus distinct from
demonstrating [section] 102 novelty.”); Intellectual Ventures I LLC v.
Symantec Corp., 838 F.3d 1307, 1315 (Fed. Cir. 2016) (same for
obviousness).
Accordingly, we sustain the rejection of independent claim 1, and
claims 3–7, 12, 13, 15, 17, and 19, which fall with claim 1.

DECISION
The rejection under 35 U.S.C. § 101 is affirmed.
No time period for taking any subsequent action in connection with
this appeal may be extended under 37 C.F.R. § 1.136(a).

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AFFIRMED