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