Ex parte Smith

Informative decision only: persuasive authority, not binding precedent. Applying the January 7, 2019 Memorandum (2019 Revised Patent Subject Matter Eligibility Guidance), when a claim recites a judicial exception (here, the fundamental economic practice of derivative trading) but also recites additional elements, such as a timer-based delay of automatic execution in a hybrid electronic and open-outcry trading system, that limit conventional practice and address a problem specific to that environment, the Board will find the exception integrated into a practical application and the claim not directed to it. Generic or high-level computer components alone do not integrate the exception, but the specific timing limitations did, so the § 101 rejection was reversed without reaching the inventive-concept step. No prior precedent directly addressed this issue; the decision is an early Board application of the 2019 Revised Guidance, which it describes as the framework governing its analysis alongside the two-step Alice test. For the examiner, a showing that claims recite a fundamental economic practice and run on generic-level computer components will not suffice, because the Board must separately ask whether other additional elements integrate the exception into a practical application. For the applicant, specific limitations that alter a conventional process (here a timer-controlled delay and allocation among participants) tied to a problem arising in a particular environment can carry the claim past the exception and avoid the step-two inventive-concept inquiry. The Board relied on Alice Corp. v. CLS Bank Int'l, 573 U.S. 208 (2014), and Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66 (2012), for the two-step test, and on DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), for the problem-specific analogy; one judge dissented, finding the timing features not technical. LEGAL TEST OR STANDARD: Under the Memorandum, the Board first looks to whether the claim recites (1) any judicial exceptions, including certain groupings of abstract ideas (i.e., mathematical concepts, certain methods of organizing human interactions such as a fundamental economic practice, or mental processes); and (2) additional elements that integrate the judicial exception into a practical application. Only if a claim recites a judicial exception and does not integrate it into a practical application does the Board look to whether the claim (3) adds a specific limitation beyond the judicial exception that is not well-understood, routine, conventional in the field, or (4) simply appends well-understood, routine, conventional activities specified at a high level of generality. TRIGGERING FACTS: Claim 1 recited a method of trading derivatives in a hybrid exchange system, including collecting orders, identifying a new in-crowd quote matching a public customer order, and reporting a market quote. The Board found these limitations recite the fundamental economic practice of derivative trading. The computer-related limitations (electronic trade engine, book database, and the like) were described at a high level without meaningful structural detail and did not integrate the exception. The claim also recited delaying automatic execution and starting a timer, receiving a second matching quote before the timer expired, and allocating the order between the two in-crowd participants with no execution until expiration. The Specification tied the resulting problem of inequitable access to information to hybrid platforms where trades occur both in the pits and electronically. KEY QUOTE: "Thus, the use of the claimed timing mechanisms and the associated temporary restraints on execution of trades provide a specific technological improvement over prior derivatives trading systems." (Appeal 2018-000064, p. 9) PRIOR PRECEDENT AFFECTED: No prior precedential or informative decision is directly affected. The Board applied the January 7, 2019 Memorandum and followed the Alice framework, and analogized to DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014). PRACTICE TIP: In an appeal brief against a § 101 rejection, concede nothing on the exception if it is weak, but identify specific claim limitations beyond generic computer components that alter a conventional process and address a problem arising in the particular technical environment, and cite the Specification's explanation of that problem and the improvement. Argue them under the practical-application step of the Memorandum, since success there ends the inquiry.