The laws of trading technology: Patents define the field

April 1, 2015 12:00 PM

Trading technologies

Trading Technologies International Inc. (TT) owns a number of patents, originating in an application filed in 2000, for displaying the bid-and-ask prices for a commodity traded on an electronic exchange. The prior art displays showed the best bid and best ask price for any given commodity, also known as the “inside market.” The invention purported to solve the problem of prices shifting on the screen while an order was being placed.

TT sued eSpeed Inc., by this time owned by Nasdaq OMX Group Inc., for patent infringement after two patents were issued in 2004. Initial court rulings limited the scope of Trading Technologies’ claims because of the court’s conclusion that TT’s technology required a manual command to re-center a “static” price column.

During the legal fight, TT sought additional patent protection, removing the word “static” from the patent and getting new patents as an improvement of the existing patents. They filed three continuation patents (Nos. 7,676,411, 7,693,768 and 7,904,374), which featured claims that removed the word “static” from references to the pricing column.

One additional patent (No. 7,685,055) is a continuation-in-part. TT added 23 printed columns of text to the written description, including a redefinition of static: “static does not mean immovable, but rather means fixed in relation.”

Meanwhile, the case against eSpeed proceeded, reaching the Federal Circuit in 2010. Relevant to the instant case, the court affirmed the claim construction and agreed that prosecution history “estoppel” barred a particular doctrine of equivalents argument proposed by TT. At that point, it looked like eSpeed was in the clear. The word “static” had saved them.

The term “estoppel” indicates a patent filer has narrowed the original patent with amendments to accommodate legal requirements and the filer may be barred from using the doctrine of equivalents. TT filed 12 separate lawsuits against eSpeed and other parties responsible for different online trading system products, including Open E Cry LLC, Stellar Trading Systems Ltd. and TradeStation Securities Inc.

Judge Virginia M. Kendall consolidated the cases and the defendants challenged the patents on the grounds of lack of written description support. Kendall, relying on the Federal Circuit’s eSpeed decision, granted summary judgment in favor of the defendants.


TT appeals

TT’s appeal went in its favor. The judge who wrote for the appellate court, Judge Alan D. Lourie, faulted the district court for “undue reliance on eSpeed,” because “the claims of the patents now before us are different, as are the issues at play, and eSpeed’s ruling on claim construction does not govern the written description inquiry in this case.”

As to the continuation patents, the court said the eSpeed decision was not about whether the specification supported a non-static display. “On the contrary, we merely determined the best construction for a single disputed claim term, a term that is absent from the claims of the ‘411, ‘768 and ‘374 patents now before us.”

The court reversed summary judgment as to those patents, leaving it to the district court to make the written description judgment in the first instance on remand.

The court had additional problems with the district court’s ruling because TT added a new patent number, the ‘055 patent, which “differs fundamentally from those at issue in eSpeed, and its unique written description was never considered in that case.” This patent redefined static so that eSpeed would have been infringing on the patent with this new definition. By adding this other patent, TT clouded the waters. The court not only reversed, but also granted summary judgment to TT on all these cases, even though the patents were changed during the litigation process.

TT simply overpowered the legal system. They used a trick: modifying their patents and reissuing them, then adding a new patent that used a new definition of the word static that would have made the original suit valid. This was allowed even though these changes were done while these cases were still pending. 

No appeal was made. Likely at issue was the defendants’ fear of a TT win in the U.S. Supreme Court, who had not yet limited the scope of software patents. Perhaps in today’s environment, the defendants might have pressed the issue. Instead, they decided to settle the case.

The original patent is not necessarily invalid. It is not covering the way the order book is displayed, but instead on the way that you can enter orders relative to a “static” price axis. That way, when you click on a price, you get the price you expected. Also, you are able to observe the flow of prices relative to that static price. There was nothing like it before it was introduced, and it was widely copied after the fact. (And it must not be obvious because many firms copied it incorrectly at first.)

However, the word “static” was not properly defined in the original patent. That is where there are issues with this case: The patent filer was allowed to retroactively make up new “rules” to win the case.

Page 3 of 5
About the Author

Murray A. Ruggiero Jr. is the author of "Cybernetic Trading Strategies" (Wiley). E-mail him at ruggieroassoc@aol.com.