Fish & Richardson recently scored a victory in a patent infringement case in favor of the Chicago Board Options Exchange Incorporated (CBOE). The case was initiated by CBOE as a declaratory judgment brought against International Securities Exchange LLC (ISE) in the U.S. District Court for the Northern District of Illinois. The parties have had an ongoing patent battle in the Northern District dating back to at least 2006, when ISE sued CBOE alleging that CBOE infringed its patent on an automated exchange.
Those who watch the Federal Circuit may recall that the battle between these two parties reached the CAFC, which issued a decision in May 2012, which affirmed-in-part, reversed-in-part, vacated-in-part and remanded the case for further consideration. In a nutshell, the Federal Circuit determined that the district court erred in construing “system memory means,” “matching,” and “automated exchange,” and did not abuse its discretion in denying CBOE’s motions for leave to amend its Complaint.
So what is unique about this particular victory at the district court that caught my attention? The timing of the victory and circumstances surrounding the culmination of the case seemed peculiar to me. Moments before opening arguments were set to begin and after the jury had been selected ISE consented to entry of a judgment of non-infringement in favor of CBOE. ISE had been seeking over $400 million in actual damages and was requesting those damages be tripled. But why throw in the towel right before trial on a case that had already once gone up to the Federal Circuit?
Fish & Richardson attributes the victory, and particularly the timing of the victory, to a strategy that involved a series of pre-trial motions, including motions in limine to exclude certain evidence at trial. The combined effect of several pre-trial rulings in CBOE’s favor seemingly led ISE to conclude that it could not present a winning case to a jury.
Still, there had to be more to the story. With that belief I contacted Fish & Richardson and set up a conference call interview with the partners on the case, all of whom are out of Fish & Richardson’s New York office. My discussion with David Francescani, Jonathan Marshall, and Michael Zoppo took place on March 25, 2013, via recorded conference call. Fish & Richardson associates Brian Doyle, Leah Edelman, and Jeffrey Mok, all from the New York office, assisted on the CBOE trial team, but did not participate in my conference call interview of the litigation team.
Before jumping into our discussion, it is important to understand that on appeal to the Federal Circuit the Court determined that the district court properly ruled that in U.S. Patent No. 6,618,707, ISE had disavowed all floor-based exchange systems. Disavowal occurs when the specification of a patent makes clear that the invention does not include a particular feature. In this situation the feature “disavowed” is deemed to be outside the reach of the claims of the patent even if the language of the claims would literally cover the alleged infringing device that employs the disavowed feature.
More specifically to the case at hand, the ‘707 patent describes a system of trading options contracts in a floor-based environment as an “open-outcry” system because trading takes place through oral communications between market professionals at a central location in open view of other market professionals. The ’707 patent further characterizes the open-outcry system as “antiquated.” Thus, the Federal Circuit determined the ‘707 patent disavowed the traditional open-outcry or floor-based trading systems, which is what CBOE operates. Thus, while the Federal Circuit opinion did not resolve the matter and did send it back to the district court, the handwriting probably really should have been on the wall.
We pick up our discussion among the Fish & Richardson partners with Jonathan Marshall providing a chronology of events leading up ISE dropping its case on the eve of trial.
JONATHAN MARSHALL: The first day of trial was suppose to be the 11th of March, Monday the 11th of March we were suppose to pick a jury and start the trial. There were all these motions in limine that were still out there on Sunday night in the evening; literally in the evening we got some more decisions on the motions in limine along with the notice from the court saying that we were going to pick the jury on Monday, but the trail would not start until Thursday morning. In the interim we would be arguing more motions in limine. We did we pick the jury, we argued motions, we came back Wednesday and the court started deciding these motions. I guess it got to much.
Mike Zoppo then explained the substance of the motion in limine strategy vis-a-vis the Federal Circuit’s disavowal ruling.
MIKE ZOPPO: There were rulings before the in limine stage on this issue of disavowal however the ruling didn’t seem to sink in with ISE so we prepared number of motions in limine… [the first motion was] designed to prevent them from making arguments at trail inconsistent with holding from disavowal… [O]ur client operates something called a hyper exchange that integrates open outcry and electronic trading in one exchange and we thought to prevent to any argument that uh such an exchange can infringe because it would fall into the disavowal found by the Federal Circuit. And the second Motion of in limine was directed to the fact the ISE chose not to have its technical expert offer any opinion in his infringement report that addressed the issue of disavowal. We ended up winning both of those motions in limine, basically winning the first one precluded them from advancing in an infringement argument against our exchange the second prevented ISE infringement expert from being able to offer any opinions of infringement because of the failure to address to disavowal issue in his expert report. There were many other motions in limine that succeeded in eliminating in pre-suit damages, some secondary considerations of non-obviousness and other issues relating to how ISE sought to apply the claims to our accused exchange, but they where secondary in nature to the disavowal issue that was addressed in motions of limine one and two.
Fast forward several minutes and David Francescani, who addressed some of the procedural rulings from the district court that forced the team to get creative because the court was not willing to entertain further summary judgment motions.
DAVID FRANCESCANI: This was a little unusual to have done in a motion in limine, but the Judge had previously indicated she did not want to entertain any further summary of judgment motions. She did indicate that to the extent there were issues that could be disposed of that she thought that the best vehicle to do that would be motions in limine, so that’s how two of those claims were invalidated.
Still, it seemed odd to me that the case would be decided on motions in limine. I know it happens in litigation, and I have seen it happen before, but I’m not sure I have seen a patent case really turn on motions in limine quite the way that happened in this particular instance. Was this a situation where the patent owner was just handing on hoping for a miracle? On this point Francescani suggested that it seemed that ISE was giving one last effort to have the district court reconsider before throwing in the towel.
DAVID FRANCESCANI: ISE had sought to have to the rulings on motion in limine number one and two, in effect, reargued. They sought, in effect, reconsideration so it wasn’t really until the very end that the Judge finally said look, “I’m not going to change my mind on this,” and I think that was probably the straw that broke the camels back and that happened on the eve of trail literally the day before trial.
So goes the tail of a series of successful motions in limine, which resolved the case. But was this really a complete and total victory as advertised? I think so, but why don’t you be the judge. Here is what the Stipulation filed by both parties on March 22, 2013, stated:
IT IS THEREFORE STIPULATED THAT:
1. In view of the Court’s rulings, CBOE does not infringe claims 1–6, 9, 10, 35–36, 43, 45, and 56 of the ’707 Patent.
2. In view of the Court’s rulings, claims 2, 4, and 5 of the ’707 Patent are invalid as indefinite.
3. CBOE agrees to dismiss all of its remaining declaratory judgment claims of invalidity without prejudice, without waiving CBOE’s right to reassert those claims in this action if the Court of Appeals for the Federal Circuit remands the case to the District Court or refuses to hear the merits of the appeal.
4. The parties disagree as to whether any of the District Court’s rulings are appealable. CBOE reserves all rights to assert on appeal that none of such rulings are appealable.
5. There being no just cause for delay, the parties agree to the entry of final judgment in favor of CBOE and against ISE on ISE’s patent infringement claim and in favor of CBOE and against ISE on CBOE’s declaratory judgment claim as recited above, preserving ISE’s right to appeal from that judgment for the purpose of challenging any appealable rulings made by the District Court. The parties intend for this judgment to be immediately appealable.
6. The parties will each submit proposed final judgment orders to the Court in accordance with this Stipulation.
As of this writing both sides have reportedly submitted their proposed final judgment orders, I could find neither in PACER yet, and the district court has yet to issue the final order disposing of this matter.