`
`__________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`__________________
`
`IBG LLC, INTERACTIVE BROKERS LLC,
`TRADESTATION GROUP, INC., and
`TRADESTATION SECURITIES, INC.,
`
`Petitioners
`
`v.
`
`TRADING TECHNOLOGIES INTERNATIONAL, INC.
`
`Patent Owner
`_________________
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`_________________
`
`DECLARATION OF CHRISTOPHER H. THOMAS
`
`
`
`
`
`Page 1 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`TABLE OF CONTENTS
`
`INTRODUCTION ........................................................................................... 1
`I.
`QUALIFICATIONS & BACKGROUND ...................................................... 2
`II.
`INFORMATION CONSIDERED ................................................................... 8
`III.
`IV. PERSON OF ORDINARY SKILL IN THE ART .......................................... 9
`V.
`BACKGROUND OF THE INDUSTRY ....................................................... 12
`VI. CONVENTIONAL GRAPHICAL USER INTERFACE
`TOOLS (“GUI TOOLS”) .............................................................................. 25
`VII. ADVANTAGES OF THE INVENTION ...................................................... 33
`VIII. CLAIM CONSTRUCTION…. ..................................................................... 43
`IX. THE CLAIMED INVENTION IS TECHNICAL ......................................... 44
`X.
`
`CONCLUDING STATEMENTS……….. .................................................... 56
`
`i
`
`
`
`Page 2 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`INTRODUCTION
`
`I.
`I, Christopher H. Thomas, declare as follows:
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`1.
`
`I am over 18 years of age. I have personal knowledge of the facts
`
`stated in this declaration and could testify competently to them if asked to do so.
`
`2.
`
`I have been retained on behalf of Patent Owner Trading Technologies
`
`International, Inc. (“TT”) (“Patent Owner”) to provide expert opinions in
`
`connection with Case CBM2016-00087, regarding United States Patent No.
`
`7,412,416 (“the ’416 patent”). I am being compensated for my time spent on this
`
`matter, including independent study, document review, analysis, and writing. My
`
`opinions stated herein are based on review and analysis of the materials obtained in
`
`connection with my work in this matter, together with my education and
`
`experience. The opinions stated herein are my own. My compensation is not
`
`contingent upon my opinions stated herein or the outcome of this proceeding.
`
`3.
`
`I understand that a Petition was filed on June 3, 2016 seeking
`
`covered business method (“CBM”) review of claims 1 through 24 of the ’416
`
`patent, and the petition was subsequently assigned case no. CBM2016-00087. I
`
`understand that in the Petition, Petitioners alleged that the claims are
`
`unpatentable under 35 U.S.C. § 101 and also provided various grounds under 35
`
`U.S.C. § 103. I understand that the Petitioner did not allege any grounds of
`
`anticipation. The PTO instituted CBM review, by decision dated December 1,
`
`1
`
`Page 3 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`2016, for all claims of the ’416 patent under § 101 but rejected all asserted § 103
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`grounds. I also understand that the Petition alleged that certain claims were
`
`unpatentable under 35 U.S.C. § 112 and that the PTO instituted review on these
`
`grounds as well. However, as those issues are not relevant to my analysis, I will
`
`not address them further.
`
`4.
`
`I have been asked to address the unconventional nature of the claims
`
`of the ’416 Patent and in particular, I have been asked to address the advantages of
`
`the claimed invention over conventional prior art GUI’s that existed at the time of
`
`the invention.
`
`II. QUALIFICATIONS & BACKGROUND
`5. My curriculum vitae is provided as Exhibit 2201. Briefly, my
`
`expertise lies in the field of the engineering, design, and development and
`
`construction of graphical user interface (“GUI”) tools for electronic trading, such
`
`as those used in electronic trade execution systems and proprietary trading
`
`systems.
`
`6.
`
`I have been actively trading on exchanges worldwide and managing
`
`portfolios of futures, commodities, stocks, and stock indexes since 1992. In 1996, I
`
`began developing trading decision and execution systems. At that time, my trading
`
`became completely reliant on the systems that I had developed. Ultimately, this led
`
`to my career in technology as a Chief Technology Officer (“CTO”) for several
`
`2
`
`Page 4 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`large trading companies and Managing Director of a large Canadian bank.
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`7.
`
`As CTO of Emerald Market Systems in 1997, I designed and
`
`developed an internet quote system that was used by the Chicago Mercantile
`
`Exchange to provide free quotes for certain new markets that the exchange was
`
`promoting over the internet. The system had two versions. The first version was a
`
`HTML based quote application that provided typical last price, best bid and ask
`
`price information. The second version was a JAVA based version of the HTML
`
`quote application. Both of these versions were used to facilitate trading in the open
`
`outcry trading pits. In 1998, I designed and developed for a Chicago-based Futures
`
`Commission Merchant, named LFG, the first web browser based trade order entry
`
`system for the U.S. commodity markets known as “FuturesOnline.” When
`
`FuturesOnline was first released to users, there were no electronic exchanges for
`
`futures that were available to regular users who were not members of an exchange
`
`in the United States. Because of this, FuturesOnline was initially connected to the
`
`TOPS system at the Chicago Mercantile Exchange. This allowed traders connected
`
`via the internet to send orders using FuturesOnline, which would be routed to the
`
`relevant trading pit at the exchange using the TOPS system. FuturesOnline also
`
`provided quotes to its traders and also allowed them to view their previous
`
`transactions, open orders, account balances, etc. Later, when GLOBEX became
`
`available to regular customers of FCMs, FuturesOnline was connected to
`
`3
`
`Page 5 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`GLOBEX as an electronic exchange destination. I was responsible for designing
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`and programming all of the graphical user interfaces (“GUIs”) and designing and
`
`implementing the database that FuturesOnline used for storing trades, orders,
`
`account balances, etc. There was another component to FuturesOnline which I
`
`developed and that was the broker version. This enabled brokers at LFG to see all
`
`of the account balances and open and closed orders for all of their clients, and it
`
`enabled the brokers to enter orders, modify existing orders, cancel orders or close
`
`out trades for any of their customer’s accounts. This was functionality that they
`
`had never had before and it greatly increased the productivity of the brokers and
`
`allowed them to have improved risk management over their customers’ trading
`
`activities. FuturesOnline was so successful that I created a white-labeled version
`
`that enabled other FCMs to use the FuturesOnline technology while it appeared to
`
`their customers that it was their own. FuturesOnline was white labeled to three
`
`FCMs, in addition to LFG’s use. In developing LFG’s FuturesOnline, I utilized
`
`Distributed Network Architecture (“DNA”) technology from Microsoft Corp.
`
`FuturesOnline was later featured on Microsoft’s website as a case study for its use
`
`of DNA technology. A copy of the case study is provided as Exhibit 2204. This
`
`technology was developed for electronic trading, not for mimicking or supporting
`
`open outcry trading. As will be discussed below, in the transition away from open
`
`outcry trading, some technology was developed to mimic open outcry trading,
`
`4
`
`Page 6 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`while other technology was developed to carry out electronic trading by sending
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`trade orders to an electronic exchange for automatic anonymous matching.
`
`FuturesOnline falls into the latter category.
`
`8.
`
`During the period from about 1992 to 2002, I was active in the trading
`
`community in a variety of roles relating to trading and/or technology for trading, as
`
`described in this declaration. By virtue of this experience, I witnessed, participated
`
`in, and am familiar with the industry’s transformation from open outcry trading
`
`pits, to early trading tools for after-hours trading (such as the Chicago Board of
`
`Trade’s Project A and the CME/Reuters GLOBEX system) and, eventually, to
`
`what we refer to today as electronic trading and its technology based trading tools.
`
`9.
`
`From late 1999 until 2002, I was the CTO for Stafford Trading, a
`
`proprietary trading company in Chicago, Illinois, USA, which was one of the
`
`largest market makers on the U.S. equity option exchanges. In this capacity, I
`
`managed a staff of roughly one hundred individuals and an annual technology
`
`budget in excess of fifteen million dollars. This staff included approximately 40
`
`software developers, 40 network and server engineers, and 20 support staff. During
`
`this time, I also designed a new desktop order entry system to replace a legacy
`
`system for the traders at Stafford Trading. This system was connected to electronic
`
`exchanges and ECNs for stocks and options on stocks, and was connected to the
`
`CME GLOBEX electronic exchange for futures. I designed the GUIs for that
`
`5
`
`Page 7 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`system, which included Level II type quotes (this is functionally equivalent to
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`Figure 2 in the TT patents). In April of 2000, while at Stafford Trading I became a
`
`founder and CTO of a technology company called Ragnarok Systems Inc., which
`
`was majority owned by the principals of Stafford Trading. Ragnarok Systems was
`
`a next generation online trading brokerage firm. Ragnarok Systems along with
`
`parts of Stafford Trading was acquired by Toronto Dominion Bank in March of
`
`2002. Ragnarok Systems was also featured on Microsoft’s website as an example
`
`of large commercial usage of Microsoft’s technologies in the Financial Services
`
`industry. At Toronto Dominion Bank (“the Bank”), a large Canadian bank, after
`
`the acquisition, I served until August 2003 as a Managing Director and CTO of the
`
`new entity at the Bank that was named TD Options, LLC. I subsequently returned
`
`to trading as a Managing Director at TD Options LLC and continued to further
`
`develop trading systems that I had begun using several years earlier. In 2006, I
`
`started my own trading group at TD Options LLC, while still serving as a
`
`Managing Director, and actively traded a long-short portfolio of U.S. Equities and
`
`U.S. equity index futures, using the trading strategies and software tools that I
`
`developed. This trading was electronic trading. When I refer to electronic trading, I
`
`am referring generally to a system in which traders send electronic orders to an
`
`electronic exchange, where the electronic exchange uses technology to implement
`
`an automatic matching engine (via hardware and software).
`
`6
`
`Page 8 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`I left TD Options LLC in October of 2008 and became a founder of a
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`10.
`
`proprietary trading firm in Chicago, named Pembroke Trading LLC, specializing
`
`in algorithmic trading of futures markets. In this capacity, I was responsible for
`
`designing and managing the development of the user interfaces and electronic
`
`trading platforms and infrastructure for testing and executing trading strategies in
`
`live markets.
`
`11.
`
`In May of 2011, I started my own proprietary trading firm,
`
`Maridunum Capital, L.L.C., which specializes in automated algorithmic trading of
`
`Futures Markets. In this capacity, I was responsible for designing all trading
`
`software and algorithms for the company. Additionally, I was responsible for
`
`programming portions of the software.
`
`12.
`
`In May of 2016, I became a founder of a software company named
`
`Primal Quant LLC, which will provide trading strategy design and testing tools to
`
`online traders without the need for the trader to have programming experience or
`
`knowledge. At Primal Quant I am responsible for all GUI and database designs, as
`
`well as managing a team of software engineers.
`
`13.
`
`I am not a professional expert witness. My profession is the
`
`development of technology for trading and trading. My experience as an expert is
`
`limited to the subject matter of the TT patents, and I was hired more than 10 years
`
`ago in that role because of my relevant experience in the trading industry,
`
`7
`
`Page 9 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`including open outcry, electronic trading, and the development of technology for
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`use in electronic trading. Prior to that, I had never testified as an expert witness in
`
`any matter. In sum, before getting involved as an expert, I had widespread
`
`exposure and personal knowledge as to the state of the art at the time of the
`
`invention, as well as before and after the time of the invention. Through my
`
`experience with the litigation, I was exposed to additional items of information.
`
`Coupled with my personal experience in the industry, I have therefore gained
`
`extensive knowledge of the art.
`
`III.
`
`INFORMATION CONSIDERED
`14.
`
`In forming my opinions, I have reviewed:
`
` United States Patent No. 7,412,416 (“the ’416 patent”);
`
` Petition for Covered Business Method Review in this proceeding
`
`(Paper 3);
`
` The Patent Trial and Appeal Board’s (“the Board’s”) decision
`
`instituting Covered Business Method Patent Review entered
`
`December 1, 2016 (“the Institution Decision”) (Paper 11);
`
` Declaration of Kendyl A. Román (Ex. 1012), his CV (Ex. 1013) and
`
`his List of Materials (Ex. 1014) submitted in CBM2016-00087; and
`
` Deposition Transcripts of Kendyl A. Román, dated May 3, 2016
`
`(Exhibit 2165) and May 5, 2016 (Exhibit 2166).
`
`8
`
`Page 10 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`I have personal experience with a wide variety of technologies for
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`15.
`
`electronic trading (as referenced above in background) and, over the course of my
`
`professional involvement in trading, have seen numerous GUI tools for electronic
`
`trading. Throughout my professional trading career, I have made an effort to stay
`
`current and, when possible, ahead of the curve, on technologies for trading,
`
`including investigating new technology offerings, attending trade shows, and
`
`receiving sales pitches from trading technology vendors, as well as developing
`
`technology myself. I also have colleagues in the industry, some of whom would be
`
`considered one of ordinary skill in the art, and some of whom I would consider to
`
`be of significantly higher levels of skill. Because of my roles in the industry, from
`
`a time significantly before the invention until well thereafter, I was working and
`
`speaking on a regular basis with these colleagues and the traders themselves about
`
`technology for trading in general, and GUI tools in particular, and their needs,
`
`desires, frustrations and challenges with the technology available at the time. These
`
`experiences further inform my opinions from the perspective of one of ordinary
`
`skill in the art.
`
`IV. PERSON OF ORDINARY SKILL IN THE ART
`16. The technology at issue in this proceeding is a graphical user interface
`
`(“GUI”) tool for trading. In general, the term GUI refers to a human-machine
`
`interface that allows users to interact with the machine by utilizing graphical
`
`9
`
`Page 11 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`elements, as opposed to, for example, text-based interfaces. Text-based interfaces
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`typically required the user to type commands on a keyboard. With a GUI tool, the
`
`user may interact with the graphical elements on a display, such as by using a
`
`keyboard, a mouse, a stylus, a finger, or other pointing device. GUI tools are
`
`constructed using a combination of software and hardware elements. In addition to
`
`desktop and laptop computers, GUI tools are used in a wide variety of handheld
`
`devices. GUIs are also sometimes referred to as MMIs (man-machine interfaces) or
`
`HCIs (human-computer interfaces). These GUIs are analogous to mechanical
`
`devices because, like mechanical devices, they are designed to permit a user to
`
`interact with a machine. For example, in older airplanes, the cockpit utilizes
`
`physical buttons, levers or switches to control the operation of the airplane. In
`
`modern day aircraft, the cockpit utilizes GUIs that enable the pilot to control the
`
`operation of the airplane. As another example, old calculators have push buttons
`
`that enable the user to enter values or operations, whereas today’s smartphones
`
`utilize, for example, a GUI that enables the user to enter the same values or
`
`operations.
`
`17. GUI tools like the invention of the ’416 patent are typically developed
`
`for and used by professionals, particularly at the time of the invention. Thus, in
`
`addition to providing desirable functionality, these GUI tools must be highly stable
`
`and reliable. In my experience, GUI tools for trading are extensively tested,
`
`10
`
`Page 12 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`including testing in all kinds of simulated market conditions, well in advance of
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`any use in a live market. As discussed below, GUI tools are mission critical for
`
`professional electronic traders. They are the primary tools of their trade, just like
`
`GUIs in a cockpit are the primary tools for pilots flying modern day aircraft.
`
`18.
`
`In the course of my industry experience, I have hired people to do
`
`GUI tool development for electronic trading. Backgrounds included previous
`
`experience in software development, technical degrees in computer science,
`
`engineering or other science disciplines, or equivalent work experience, etc.
`
`19.
`
`In my opinion, one of ordinary skill in the art for purposes of this
`
`proceeding is a person having (1) a bachelor’s degree or equivalent experience and
`
`(2) two years of experience designing and/or programming graphical user
`
`interfaces, including experience designing and/or programming graphical user
`
`interfaces for electronic trading based on input from a person with knowledge of
`
`the needs of an electronic trader. I have a greater level of skill, but I can speak
`
`about what one of ordinary skill in the art would understand because of my
`
`background and experience.
`
`20.
`
`I have reviewed Mr. Román’s definition of one of ordinary skill
`
`(submitted with the Petition) and I disagree with it for at least the reason that it
`
`does not provide sufficient weight to the experience designing and/or programming
`
`GUIs for electronic trading based on input from a person with knowledge of the
`
`11
`
`Page 13 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`needs of an electronic trader. Mr. Román’s definition instead focuses primarily on
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`GUI experience, with no access to or knowledge of the needs of an electronic
`
`trader, which is plainly deficient. He suggests that merely direct or indirect
`
`experience with trading or related systems is adequate. This is incorrect because it
`
`ignores the needs of the trader for whom the GUI is designed. In addition, I
`
`disagree with his assertion that the person of ordinary skill would need a bachelor’s
`
`degree or higher in computer science or computer engineering. Based on my
`
`experience in the industry for over 20 years, I believe that this requirement is too
`
`restrictive, again skewing the view of the person of ordinary skill toward a
`
`generalized GUI designer and away from the recited field.
`
`21. My definition of the person of ordinary skill in the art is that of a
`
`baseline worker in this industry. Many individuals in the industry, as one would
`
`expect, have a significantly higher level of skill. My level of skill in the art is
`
`significantly higher than that of the person of ordinary skill, and my level of skill
`
`was attained through my numerous relevant work experiences, including trading
`
`experience, self–taught programming proficiencies, as well as experiences in
`
`designing, developing and implementing electronic trading systems.
`
`V. BACKGROUND OF THE INDUSTRY
`22. To understand the claimed invention and its unconventional nature, it
`
`is important to have an understanding of the nature of the industry in which it was
`
`12
`
`Page 14 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`developed and the mission critical nature of tools used for electronic trading. The
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`electronic trading industry is made up of various groups. These groups include the
`
`exchanges, Futures Commissions Merchants (“FCMs”) (the equivalent of equity
`
`brokers for futures), technology providers, such as Independent Software Vendors
`
`(“ISVs”) whose primary business is to provide GUI tools, trading firms, brokers
`
`and individual traders. All of the groups identified above provide complimentary
`
`services and work together to facilitate the execution of trades. TT is an example of
`
`an ISV. Examples of more well-diversified vendors include CQG and Bloomberg.
`
`Examples of an FCM include RCG and Goldman Sachs. Examples of an exchange
`
`include the CME, Eurex and the Tokyo Stock Exchange (“TSE”). A broker is
`
`generally speaking someone who, typically for a fee, executes buy and sell orders
`
`on behalf of another. An FCM is an entity that facilitates the buying and selling of
`
`futures contracts and typically holds monetary funds as margin for trading
`
`activities. An exchange is a marketplace in which things of value are traded, such
`
`as securities, options, futures etc.
`
`23. TradeStation Group, Inc. is the parent company of TradeStation
`
`Technologies, Inc., a trading technology company, and TradeStation Securities,
`
`Inc., an online securities and futures brokerage firm (broker and FCM). I may refer
`
`to these Petitioners collectively as “TradeStation.” TradeStation Technologies was
`
`founded under the name Omega Research in 1982, which initially focused on
`
`13
`
`Page 15 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`developing and marketing tools that would allow users without a technical or
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`computer programming background to program and test their own trading
`
`strategies. Since that time, TradeStation has been engaged in developing and
`
`marketing technology for traders, including, after the advent of electronic
`
`exchanges, technology for electronic trading. TradeStation’s technology has
`
`included, and today includes, GUI tools for electronic trading. Thus, TradeStation
`
`has been significantly involved in the technology side of the trading industry for
`
`over thirty years. TradeStation is a large company that invests millions of dollars
`
`annually on technology development. TradeStation’s revenue is derived from a
`
`combination of a monthly fee for access to their trading platform and/or a fee per
`
`trade. IBG LLC and Interactive Brokers LLC, (hereinafter collectively, “IB”) are
`
`likewise very large technology and trading companies. IB conducts an electronic
`
`brokerage business, providing its customers what it claims to be one of the most
`
`effective and efficient trading platforms in the industry. IB charges a fee for access
`
`to its data feed, as well as fees on a per share traded basis, and recently reported
`
`annual net revenue is in excess of one billion dollars.
`
`24. Prior to the advent of electronic trading, the trading of futures
`
`occurred in what is known as the open outcry system. Open outcry is the name of a
`
`system of financial trading, used for over one hundred years, in which traders shout
`
`their bids and offers aloud in an area of a trading floor referred to as a trading pit.
`
`14
`
`Page 16 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`In the trading pit, traders utilize shouting and hand signals to transfer information
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`about buy and sell orders to other traders. To avoid confusion, the inside market
`
`prices were the focus, and traders could only shout and signal regarding their
`
`interest at the best bid/offer or at a price that improves the best bid/offer. Orders
`
`(bids or offers) at prices away from the inside market were not allowed. Traders
`
`executed trades by agreeing with another trader in the pit on a price and quantity.
`
`As such, there was no transparency into what interest others might have at prices
`
`away from the best bid/offer. Indeed, traders in a trading pit frequently would try
`
`to hide their interest in order to obtain the best prices for their orders. In addition,
`
`in the trading pit personality and physical presence played a role—there was no
`
`anonymity. Traders often wore distinguishing clothing, such as colorful jackets or
`
`even platform shoes, to garner attention in the pits in an attempt to gain priority for
`
`order execution. For the same reasons, certain locations in the trading pit could be
`
`more desirable than others. Furthermore, each pit was limited to contracts for a
`
`particular product and thus, in the open outcry system, the trader could only trade
`
`the contracts that were available in the pit where he/she stood. Mobility between
`
`the pits was limited, by physical distance between the pits, timeliness of the
`
`opportunity, and other factors. In its early form, there was no technology in the
`
`open outcry trading pits. Nonetheless, open outcry pit trading was viewed as
`
`15
`
`Page 17 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`incredibly efficient and it was viewed favorably and supported by large numbers of
`
`industry groups.
`
`25. As technology developed, exchanges and trading entities utilized the
`
`technology within the open outcry trading paradigm. For example, technology was
`
`added by the exchanges to assist in the processing of orders executed in the open
`
`outcry pits, which is sometimes referred to as backend processing. Similarly,
`
`brokers began to utilize technology to route customer orders to the appropriate
`
`trader in the pit. An example of this type of technology is shown in the patent to
`
`Gutterman. See Ex. 1023. Even though it utilized technology to facilitate the
`
`functioning of the entities involved in the trading pit, the open outcry paradigm
`
`was essentially unchanged.
`
`26. Subsequently a different paradigm appeared, which very rapidly
`
`changed the way trading was done. Many in the industry, of course, resisted the
`
`new paradigm, especially in the United States. The new paradigm was electronic
`
`trading. As opposed to the use of computers to facilitate the open outcry system, I
`
`understand “electronic trading” to refer to technologies that allow a trader to send
`
`an order to an electronic exchange, where the exchange uses technology to
`
`implement a matching engine (hardware and software). The electronic exchanges
`
`typically publish rules advising users of the manner in which the exchange will
`
`prioritize and match orders. Technologies that assist in the functioning of an open
`
`16
`
`Page 18 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`outcry trading pit, such as order routing or order management technologies, are not
`
`electronic trading. Initially, electronic trading was used to extend trading hours,
`
`where the electronic markets could be utilized after the open outcry pits had
`
`closed. Later, electronic trading was used as a complete replacement for the open
`
`outcry trading pits. In the new paradigm, electronic trading involves providing
`
`traders with real time data feeds and mission critical GUIs for interacting with the
`
`electronic exchange. In this paradigm, traders no longer pick who they trade with.
`
`Instead, traders send orders at any desired price and quantity as electronic
`
`messages that get queued and matched by an electronic exchange (computer
`
`hardware and software), typically on a first-in-first-out basis. In this system, the
`
`traders are anonymous to each other. The electronic exchange publishes this mass
`
`amount of data to people all over the world, so the information is known and
`
`transparent in contrast to the situation in traditional open outcry trading pits.
`
`27.
`
`In the early period of applying technology to trading, there were
`
`different approaches and theories driving technology development. Some entities
`
`took the approach, which now seems silly in hindsight, of trying to continue the pit
`
`paradigm by taking advantage of technology to continue pit trading. The patent to
`
`Belden is an example of this approach that attempted to continue the pit paradigm
`
`by mimicking the trading pit. See Ex. 1024. Under the pit-mimicking approach, the
`
`GUI tools were constructed such that the trader could see an electronic
`
`17
`
`Page 19 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`representation of the pit and an electronic representation of other traders
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`participating within that pit. In the representation of the pit, the various
`
`representations of traders typically also displayed the trader’s offers and/or bids at
`
`the inside market prices. In order to execute a trade, the trader would click on an
`
`icon representing a trader in the pit. There was no matching engine (i.e., no
`
`electronic exchange) in these types of pit-mimicking systems. One train of thought
`
`in support of this approach was that traders who had previously traded in the
`
`trading pits would like it and adapt more readily because it would be more familiar
`
`to them, in the sense that, as in open outcry pit trading, the traders were able to
`
`select the other trader with whom they wanted to trade. Also, several United States
`
`exchanges and many of their members wanted to retain the open outcry pit trading
`
`model.
`
`28. The other approach looked to create a new and different electronic
`
`trading paradigm. Specifically, this approach was focused on the development of
`
`GUI tools for electronic trading and the development of electronic exchanges. The
`
`invention of the patent here falls into this second approach. The invention is not
`
`compatible with a pit mimicking approach. Likewise, a pit mimicking approach is
`
`not compatible with an electronic exchange. The pit mimicking approach is merely
`
`a continuation of the open outcry paradigm, with an incremental utilization of
`
`technology. By the time of the invention, those of ordinary skill in the art working
`
`18
`
`Page 20 of 59
`
`TRADING TECH EXHIBIT 2169
`IBG et al. v. TRADING TECH. - CBM2016-00087
`
`
`
`in the direction of the electronic trading approach had issues with the pit
`
`Case CBM2016-00087
`U.S. Patent 7,412,416
`
`
`mimicking approach. For example, the pit mimicking approach was really just a
`
`platform for users to execute trades with each other, continuing the open outcry
`
`paradigm, whereas the electronic trading paradigm allowed for anonymous and
`
`automatic electronic matching. Eventually, electronic trading ushered in the new
`
`paradigm, and the attempts to use GUIs to replicate the trading pit experience fell
`
`by the wayside as did open outcry trading itself. There was no place for use of
`
`these types of trading tools with the new electronic trading exchanges. Anonymity,
`
`electronic matching algorithms, spe