`__________________
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`__________________
`IBG LLC, INTERACTIVE BROKERS LLC, TRADESTATION GROUP, INC.,
`TRADESTATION SECURITIES, INC., TRADESTATION TECHNOLOGIES,
`INC., and IBFX, INC.,
`
`Petitioner
`v.
`
` TRADING TECHNOLOGIES INTERNATIONAL, INC.
`
`Patent Owner
`_________________
`CBM2015-00161 (U.S. Patent 6,766,304 B2)1
`CBM2015-00181 (U.S. Patent No. 7,676,411 B2)
`CBM2015-00182 (U.S. Patent No. 6,772,132 B1)
`_________________
`
`DECLARATION OF MICHAEL BURNS
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`1 Case CBM2016-00035 has been joined with this proceeding.
`
`
`
`
`
`
`Page 1 of 17
`
`TRADING TECH EXHIBIT 2170
`TRADESTATION ET AL. v. TRADING TECH
`CBM2016-00051
`
`
`
`
`
`
`
`
`
`
`
`Table of Contents
`
`INTRODUCTION AND BACKGROUND ................................................ 1
`
`BACKGROUND IN THE TRADING INDUSTRY .................................. 2
`
`
`I.
`
`II.
`
`III. HARRIS BRUMFIELD & TRADING TECHNOLOGIES ...................... 4
`
`IV. MD TRADER – INITIAL SALES ............................................................. 8
`
`V. MD TRADER AND COMPETITION ...................................................... 13
`
`VI. CONCLUDING STATEMENTS .............................................................. 15
`
`
`
`Page 2 of 17
`
`
`
`
`
`I, Michael Burns, declare as follows:
`
`I.
`INTRODUCTION AND BACKGROUND
`
`1. My name is Michael Burns. I am over 18 years of age and I have
`
`personal knowledge of the facts stated in this declaration and could competently
`
`testify to them if asked to do so.
`
`2.
`
`I am currently self-employed as the founder and owner of Burns
`
`Consulting Services LLC. At Burns Consulting, I provide consulting services and
`
`training relating to trading, associated technologies for electronic trading, including
`
`GUI tools, and the sales of such technologies in the trading industry.
`
`II. BACKGROUND IN THE TRADING INDUSTRY
`
`3.
`
`I obtained as associates degree at Wright Junior College in 1986.
`
`Following my completion of the program at Wright, my first job in the financial
`
`industry was at Griffin Trading, initially as a runner and later as a phone clerk.
`
`Runner and phone clerk were typical administrative support functions for trading at
`
`the exchanges in the open outcry trading industry. These are often the introductory
`
`roles for those interested in trading, and that was the case with me.
`
`4.
`
` After that, beginning around 1987, I was a broker assistant for about
`
`three years for various brokers, while also going to night school at DePaul
`
`University. At DePaul, I was pursuing a degree in business. As a broker assistant,
`
`I was learning trading strategies while assisting a broker (for example, managing
`
`
`
`1
`
`
`
`Page 3 of 17
`
`
`
`
`
`orders, keeping track of positions, and documenting trades), who was trading in the
`
`open outcry trading pits at the Chicago Board of Trade. Around that time, I read
`
`many books and attended seminars to learn more about trading. Just having the
`
`traders around, listening to what they were talking about and hearing what they
`
`were interested in, was a highly educational experience.
`
`5.
`
`After that, I was a broker for about a year and a half, and at times I
`
`also traded on my own account, using my own money. All of this trading activity,
`
`whether as broker or my own account, took place in the open outcry trading pits at
`
`the Chicago Board of Trade (“CBOT”).
`
`6.
`
`Eventually, I stopped brokerage and only traded for myself in the
`
`open outcry pits in Chicago. I traded on my own account from 1992 until 1999.
`
`The strategy I used, called spreading, was to analyze the prices of two products and
`
`look for opportunities to buy or sell if one was too low or too high.
`
`7.
`
`During this period of time that I was trading on my own account, in
`
`addition to trading in the open outcry pits, I eventually also became interested in
`
`and started using various electronic systems for trading as they became available.
`
`For example, the CBOT launched an electronic system for trading treasuries or
`
`Board of Trade products during “off hours” (typically, a period of time after the
`
`open outcry trading pits had closed for the day). The CBOT system that I used was
`
`called “Project A.” In addition, in 1999, I started using a trading tool from RTS,
`
`
`
`2
`
`
`
`Page 4 of 17
`
`
`
`
`
`an independent software vendor (“ISV”) that was a competitor of TT at the time, to
`
`trade on the Eurex exchange. I also used trading software provided by GL Trade
`
`and Eurex in that same time frame. In the industry, we generally called the
`
`software interfaces provided by the exchanges “green screens.” These exchange
`
`and ISV provided screens used a grid format for displaying prices and quantities,
`
`where the inside market never moved in the grid and the numbers (prices and
`
`quantities) changed in the various cells making up the grid, including the fixed
`
`inside market cells, as market updates were received. This type of screen was also
`
`sometimes called a market grid or a dynamic grid. Screens of this sort, where the
`
`inside market was displayed at a designated location, were the prevalent type of
`
`trading screens at the time along with basic order tickets.
`
`8.
`
`During the time that I was using electronic systems for trading, I was
`
`interested in the offerings from the growing number of vendors and the screens
`
`provided by the exchanges that could be used for electronic trading, and I tried to
`
`stay up to date on what was available. The interfaces that I used to input orders
`
`were to me the most important part of these electronic systems—my success or
`
`failure as a trader depended on the functionality offered by these interfaces. In
`
`addition to the interfaces offered by vendors and the exchanges, I knew some
`
`traders that were actually trying to develop their own trading GUI. I shared my
`
`thoughts with them on what was needed in the trading GUI, based on my
`
`
`
`3
`
`
`
`Page 5 of 17
`
`
`
`
`
`experiences with what was available in the market. Despite our collective
`
`knowledge about tools available in the industry and efforts to develop an improved
`
`trading tool, we did not come up with anything like the GUI that Harris Brumfield
`
`developed (discussed below). They eventually moved to Transmarket Group,
`
`which was an FCM and also had a proprietary trading group, to trade and develop
`
`their GUI. I eventually joined them at Transmarket. By this time (around 1999), I
`
`was trading primarily through electronic systems, rather than the open outcry
`
`trading pits. The trading screens that I was seeing at that time were attempting to
`
`build upon, add bells and whistles, to the conventional market grid in which the
`
`inside market was displayed at a fixed location on the screen.
`
`III. HARRIS BRUMFIELD & TRADING TECHNOLOGIES
`
`9.
`
`I knew Harris Brumfield (“Harris”) because I traded against him in
`
`the open outcry trading pits on the floor of the CBOT. He was a successful and
`
`legendary trader, who was well known in the pits for his practice of trading
`
`unusually large volumes. The banks would call down to their phone clerks on the
`
`floor of the exchange and ask if Harris was in, when they had big volume to trade.
`
`They wanted to make sure that he was there so they didn't have to execute in
`
`smaller quantities. With Harris, they knew they could execute full amounts and
`
`that Harris would basically take on the banks. Despite his incredible success in the
`
`open outcry trading pits, Harris quit trading in the pits and switched to trading
`
`
`
`4
`
`
`
`Page 6 of 17
`
`
`
`
`
`using electronic systems. Harris left the pits a couple of years before I did. This
`
`was a huge surprise to everyone, including me, due to his success and huge
`
`presence in the pits.
`
`10. When I started trading electronically full time, I would call Harris and
`
`try and glean insight from him on electronic trading. At one point, around the
`
`Spring of 2000, he called me and said he had developed his own trading GUI. He
`
`offered to show it to me, and I of course accepted the invitation.
`
`11. When I first saw the GUI that Harris had developed, I didn’t even
`
`recognize what I was seeing—it was nothing like anything that I had ever seen
`
`before. It was very different from the trading GUIs that I was used to seeing and I
`
`had to spend some time trying to figure it out, even with Harris there to explain it
`
`and show me how it worked. I recall that Harris had a huge monitor, which he
`
`used for trading, and his trading GUI took up a lot more space on that monitor than
`
`I was used to seeing. The GUI had a column of sequential prices and showed
`
`columns for the bid and ask quantities that corresponded to those prices. The
`
`numbers in the bid and ask columns were changing as market updates were
`
`displayed, but the numbers in the price column were not changing. As a result, I
`
`saw the market going up and down relative to the price column as the updates were
`
`displayed.
`
`12.
`
`I soon realized that there were additional benefits beyond the
`
`
`
`5
`
`
`
`Page 7 of 17
`
`
`
`
`
`knowledge provided by seeing this market movement. Harris invited me to sit
`
`down at his trading setup – it included a big chair placed in front of the huge
`
`monitor. I was looking at Harris’ trading GUI and I picked up Harris’ mouse and
`
`started clicking next to prices, trying to enter orders. Harris explained how to enter
`
`orders, telling me to just click on the blue (bid column) to buy. When I clicked,
`
`the trading GUI displayed my pending order to buy right there in the same
`
`interface, aligning it in a different column with the price associated with the cell
`
`that I had clicked on. Harris showed me how to cancel that pending order by
`
`clicking on it. It was amazing. I realized that I could enter and cancel orders with
`
`a single click, and I never missed my price, or my cancel, because the prices in the
`
`price column did not change. I believed that this was going to be a game changing
`
`benefit for traders. I could quickly move back and forth, among bid, asks, and my
`
`pending orders, which was another significant improvement upon the other trading
`
`applications I was using.
`
`13. As I became more familiar with Harris’ trading GUI, I came to realize
`
`that it was truly phenomenal. The differences between Harris’ trading GUI and the
`
`others that I had seen were drastic and surprisingly resulted in a much better tool. I
`
`was excited to have had the opportunity to see Harris’ trading GUI.
`
`14. Harris explained to me that Trading Technologies was going to turn
`
`his trading GUI into a commercial product. After Harris showed me his trading
`
`
`
`6
`
`
`
`Page 8 of 17
`
`
`
`
`
`GUI, Harris asked me to meet with Gary Kemp (“Gary”), who was the CEO of
`
`Trading Technologies (“TT”) at the time. Harris wanted me to help with sales at
`
`TT because he saw that, unlike others, I understood the benefits of the invention.
`
`Many others at the time were resistant to the invention because it was so different
`
`than the conventional screens being used, it required more screen real estate and it
`
`did not focus on and lock the inside market in a fixed location. While this third
`
`point turned out to be a huge benefit of the invention, initially it appeared to many
`
`to create a problem called “chasing the market” in which if a trader wanted to buy
`
`or sell right away, he could end up missing that because the market moves up or
`
`down and an order gets sent away from the market. In this sense, the invention is
`
`slower and less accurate than the conventional screens and at the time many
`
`focused on this problem and were turned off by the invention. After meeting with
`
`Harris and seeing his trading GUI, I had no hesitation about joining the team.
`
`15.
`
`I started working at TT in July of 2000. I left TT in July of 2015.
`
`16. My positions at TT included Chicago Salesman, Emissary to the CEO,
`
`and Vice President of Research and Development.
`
`17. TT’s commercial version of Harris’ trading GUI is called MD Trader.
`
`As a salesman for TT, I motivated and educated TT’s sales personnel about the
`
`benefits and advantages of MD Trader. I also helped to sell MD Trader (part of
`
`X_Trader) to Chicago traders. Part of this involved being able to explain the
`
`
`
`7
`
`
`
`Page 9 of 17
`
`
`
`
`
`benefits of MD Trader and to answer the expected skepticism about what many
`
`perceived as the downsides of the invention that I discussed above. I would try to
`
`convince TT’s own employees and potential customers that the overall
`
`combination of benefits outweighed these downsides and that in reality MD Trader
`
`was a game changer that they should try.
`
`18. As emissary of the CEO, I visited various TT sales offices around the
`
`world and helped the sales people understand the value of MD Trader. I also
`
`visited customers with the sales people.
`
`19. As Vice President of Research and Development my job was to
`
`ensure that TT stayed on the cutting edge of technology, especially as it related to
`
`trading and traders and how to help traders make money.
`
`20.
`
`In addition to the above positions I have also held the following
`
`positions at TT: Interim Global Head of Sales; Member on TT's Board of
`
`Directors; and Vice President of Exchange Connectivity.
`
`
`
`IV. MD TRADER – INITIAL SALES
`
`21. When I first joined TT, we were gearing up for the launch of MD
`
`Trader, which occurred in late summer or early fall of 2000. My first priority was
`
`to get the TT sales people educated and excited about the tremendous value of MD
`
`Trader. The sales people were reluctant to get behind the product. I learned that
`
`this was because it was so different from the products that the customers were
`
`
`
`8
`
`
`
`Page 10 of 17
`
`
`
`
`
`currently using and familiar with. We all suspected that the customers would not
`
`willingly jump to something so different from what they were currently using as
`
`the primary tool for their livelihood, particularly when the first thing that users
`
`noticed was the large amount of screen space that MD Trader occupied.
`
`Customers placed a lot of value on conserving space on their trading screens,
`
`primarily because there were many sources, such as news feeds, quote services,
`
`charts and analytics etc., competing for the available space. There were also
`
`concerns that the customers would not like MD Trader because the inside market
`
`was constantly moving up and down relative to the prices in the price column,
`
`unlike the existing tools that the customers were familiar with, where the inside
`
`market was always displayed in a fixed location – causing the “chasing the market”
`
`problem I discuss above. In addition, there was concern because the user could not
`
`just look at the same small area and know exactly what the inside market was.
`
`After a period of time that extended for a while after TT’s launch of MD Trader,
`
`the TT sales people came to understand the huge value of MD Trader.
`
`22. There were a number of factors contributing to the huge value of MD
`
`Trader as a tool for traders. As noted above, the ability of the user to see the
`
`market going up and down relative to the price column as the market updates were
`
`displayed proved to be one such factor. Traders gain a tremendous amount of
`
`information from watching the market in this manner, particularly in comparison to
`
`
`
`9
`
`
`
`Page 11 of 17
`
`
`
`
`
`the existing tools, where the prices in the fixed best bid and ask locations were
`
`constantly changing and need to be carefully monitored and differences calculated.
`
`A trader could also open a number of MD Trader GUIs and watch the relationships
`
`among the products being displayed in those GUIs as market updates caused the
`
`markets to move up and down in the various windows, allowing for an intuitive
`
`comparison of those markets. In MD Trader, the movement of the bids and asks in
`
`relation to the price levels allows the user to see the market movements, not only in
`
`terms of whether the market is moving up or down, but also how fast and for how
`
`long the market is moving in a particular direction. Another factor was that the
`
`trader who was interested in sending orders at a particular price would find MD
`
`Trader to be much more accurate that than the dynamic grids that were in use,
`
`because the prices in the dynamic grids were constantly changing as market
`
`updates were displayed. As noted above, this was a game changer. Over time, we
`
`also found out that MD Trader, because of this improved accuracy and information
`
`gained from market visualization, allowed traders to enter orders with more
`
`confidence, which resulted in traders trading more contracts than they typically
`
`would with the dynamic grid tools. Furthermore, the display of the user’s own
`
`pending orders in relation to the price column, and the ability to interact with those
`
`pending orders in the same window to cancel or modify those pending orders
`
`contributed to the value of MD Trader. The display of this additional information
`
`
`
`10
`
`
`
`Page 12 of 17
`
`
`
`
`
`in MD Trader also contributed to the traders increase in confidence, because the
`
`trader did not have to focus on different windows to see, change or cancel pending
`
`orders.
`
`23. MD Trader was not immediately successful when we started selling it
`
`in the market. As anticipated by the TT sales people, the customers were initially
`
`hesitant to change their primary tool for trading, particularly when MD Trader was
`
`so different from the market grids that the customers were familiar with and the
`
`issues of screen space and “chasing the market” that I discuss above. In addition,
`
`the traders were hesitant to use it because the user could not just look at the same
`
`small area and know exactly what the inside market was. Also, in comparison to
`
`the various types of market grids, MD Trader required the trader to move the
`
`mouse a much greater distance going from one product to another. In the market
`
`grid, which were often condensed to a single row, the trader would only need to
`
`move the mouse by one or a few cells to go to another product. The market grids
`
`also allowed for less eye movement for the same reason—multiple markets within
`
`only a few cells.
`
`24. Eventually, over time, we turned these customers into believers by
`
`physically walking them through the process. We showed them the capabilities of
`
`the product and explained that they would get the price they wanted. We explained
`
`how MD Trader allowed them to visualize the market. We demonstrated how the
`
`
`
`11
`
`
`
`Page 13 of 17
`
`
`
`
`
`user could enter an order by clicking at locations along the price column to set the
`
`price for an order and send it to an electronic exchange. We showed them how
`
`MD Trader displayed the user’s pending orders and allowed for easy cancellation
`
`or modification of those orders. However, that was not the end of our struggle to
`
`get customers to adopt MD Trader. I had to persist and explain it to them again
`
`and again. I made multiple visits and explained it again. I knew that once they were
`
`using it they would benefit significantly. Eventually, when we got one trader to try
`
`it, that helped the sales process because that customer would confirm all of the
`
`benefits I had been trying to explain. Eventually the customers saw these benefits
`
`and the product became successful. Even though the customers missed out on
`
`seeing the price condensed, their actions would be more accurate and over time
`
`they would gain confidence when using MD Trader. Sometimes, we were only
`
`able to get one or two users at a particular customer to try MD Trader. But once
`
`the others saw the success of the ones that were using MD Trader, the others often
`
`eventually followed.
`
`25.
`
`In trading, confidence is critical. A lack of confidence and/or
`
`hesitation can arise from even the slightest question that you're going to click
`
`incorrectly and get the wrong price. A trader will naturally take precautions that
`
`will be figure into his execution. But the more confidence that a trader has, the
`
`faster he/she gets. And in electronic trading, where most matching exchanges
`
`
`
`12
`
`
`
`Page 14 of 17
`
`
`
`
`
`utilize a first-in-first-out matching algorithm, being faster is a significant benefit.
`
`26. As emissary to the CEO, I traveled to the different TT sales offices
`
`around the world and talked with the sales people about the value that MD Trader
`
`offers. Essentially I was selling MD Trader to the sales people, and even then
`
`there was internal resistance to the product. Eventually the sales staff caught on
`
`and starting selling MD Trader in a significant way.
`
`27. After the initial period of hesitation, skepticism and resistance,
`
`customers started widely adopting MD Trader. Traders began to demand the MD
`
`Trader functionality. Traders demanded the price column where the prices did not
`
`change, but the bids and asks moved relative to the price column. Traders also
`
`demanded the ability to quickly send orders to an electronic exchange with a single
`
`click in an area along the price column to set a price and send the order. And many
`
`traders also demanded the MD-Trader-style display of the user’s pending orders.
`
`TT’s sales grew at an unprecedented rate in the years following the launch of MD
`
`Trader. This sales growth was directly attributable to the widespread adoption of
`
`and demand for MD Trader.
`
`V. MD TRADER AND COMPETITION
`
`
`28. After Trading Technologies introduced the MD Trader, other
`
`companies introduced order entry systems with vertical price scales.
`
`29.
`
`Initially these competitors simply took the existing market grid and
`
`
`
`13
`
`
`
`Page 15 of 17
`
`
`
`
`
`rotated it over to form a vertical price column but without fixed prices. As with the
`
`prior market grids, the inside market was always in the middle, or centered, on the
`
`screen. But that solution did not solve the problems that the MD Trader solved.
`
`30.
`
`I know that competitors were told by customers that the competitors
`
`had to have an MD Trader-type solution. If they did not have this solution, it was a
`
`deal breaker for those customers. In other words, over time following the launch
`
`of MD Trader, the customers came to demand the same functionality from TT’s
`
`competitors. Traders demanded the price column where the prices did not change,
`
`but the bids and asks moved relative to the price column. Traders also demanded
`
`the ability to quickly send orders to an electronic exchange with a single click in an
`
`area along the price column to set a price and send the order. And many traders
`
`also demanded the MD-Trader-style display of the user’s pending orders. And one
`
`by one, our competitors released MD Trader knock-offs: order entry GUI’s with a
`
`price column where the prices did not change positions, but the bids and asks
`
`moved relative to the price column. The competitors also implemented the ability
`
`to send orders simply by clicking at a price levels along the price column. Many
`
`competitors also adopted MD Trader’s display of the user’s own orders at price
`
`levels along the price column. The competitors also adopted MD Trader’s use of a
`
`manual recentering command to cause the price column to be recentered. This
`
`action from so many of our competitors negatively impacted TT greatly. We lost
`
`
`
`14
`
`
`
`Page 16 of 17
`
`
`
`significant sales and opportunities to competitors who were marketing MD Trader
`
`knock-offs.
`
`VI. CONCLUDING STATEMENTS
`
`31.
`
`In signing this declaration, I understand that the declaration will be
`
`filed as evidence in a contested case before the Patent Trial and Appeal Board of
`
`the United States Patent and Trademark Office. I acknowledge that I may be
`
`subject to cross-examination in this case and that cross-examination will take place
`
`within the United States. If cross-examination is required of me, I will appear for
`
`cross-examination within the United States during the time allotted for cross-
`
`examination.
`
`32.
`
`I declare that all statements made herein of my knowledge are true,
`
`and that all statements made on information and belief are believed to be true, and
`
`that these statements were made with the knowledge that willful false statements
`
`and the like so made are punishable by fine or imprisonment, or both, under
`
`Section 1001 of Title 18 of the United States Code.
`
`Dated:
`
`June 22, 2016
`
`~
`By:~~~-r--;--~~~~
`Mi/ae1
`
`jl
`
`15
`
`
`
`Page 17 of 17