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LAVA TRADING, INC. v. SONIC TRADING MANAGEMENT

May 26, 2004.

LAVA TRADING, INC., Plaintiff, -against- SONIC TRADING MANAGEMENT, LLC, JOE CAMMARATA, AND LOUIS LIU, Defendants; LAVA TRADING, INC., Plaintiff, -against- ROYALBLUE GROUP PLC, ROYALBLUE FINANCIAL CORP. and ROYALBLUE FINANCIAL PLC, Defendants; LAVA TRADING, INC., Plaintiff, V. SONIC TRADING MANAGEMENT, LLC Defendant; LAVA TRADING, INC., Plaintiff, V. ROYALBLUE GROUP, PLC, Defendant


The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge

OPINION

THE COURT: In the recess I went over the specifications and the figures, and that seems to me quite important. Now, I just want to summarize this, because I do think it's quite important.

  The abstract says that the combined information is displayed to a customer by security. I'm not reading whole sentences, and I may be paraphrasing, so these are not intended to be exact or complete quotes, but the substance is what I believe I'm indicating.

  Now, figure 2 is discussed in column 7. And column 7 at line 6, starting at line 6, says: The customized order book is displayed on the customer's terminal, normally organized by security and price.

  Now, I want to jump to figure 5, And figure 5 is described in column 9. Now, the discussion of figure 5 starts at line 9 of column 9, and it says: Figure 5 shows pricing data that would be available to a customer of the present invention.

  And going on, it says that the screen shows something about NASDAQ. And then it goes on to say the screen also shows the full order book for the following three ECNs: Instinet, Island and Strike. And then it describes the fact that for these ECNs there is the information about multiple bids and offers on the particular stock about which this screen is created, and it talks about the fact that for the particular stock, Dell, there is a certain amount of information. And it describes that.

  Then it says at line 21: Thus, the entire order books of all ECN members and the market makers, bids and offers, are consolidated into a single informative screen for any particular security. And of course figure 5 shows a screen for the security Dell or the company Dell, and it shows what we have looked at many times.

  Now, let's go to the discussion of figure 3. Figure 3 is described in column 7. The discussion of figure 3 is quite lengthy, going from column 7, line 14, all the way over to column 8, line 46. It's all of interest, but the high points are, I believe, what I'm pointing out now.

  Starting at line 35 of column 7 it says: The data from the first ECN, after conversion by the protocol converter, is combined with the converted data from the second ECN in a data distribution server — which is item 203 of figure 3.

  Then it goes on. Column 7 goes on to say: This information is organized by the distribution server — that is, item 203 in figure 3 — first by security, then by price and then by information such as volume, time or other parameters as desired.

  Oh, let me start again and backtrack a little bit.

  The data from the first ECN, after conversion by the protocol converter, is combined with the converted data from the second ECN in a data distribution server. The data distribution server generates a consolidated order book containing all orders from all ECN members connected to the CCS. And then it goes on to speak about how the information is organized by security, etc.

  But the consolidated order book which is generated contains all orders from all ECN members connected to the CCS.

  Now, the rest of column 7 deals with certain things that I think are not germane to our problem. It talks about market metrics perhaps being displayed, that is, historical liquidity and price volatility. It talks about a certain customer may not be entitled to get information from a particular ECN so there has to be ECN filtering.

  And then at line 57 it talks about the subscriber server, item 205 of figure 3, supplying the resulting consolidated order book to an analytical engine, which is item 206 of figure 3. And the analytical engine performs certain functions that are not relevant here, as far as I can see it.

  Now, going to column 8, line 6, it says that the subscriber server, item 205 of figure 3, forwards the customized consolidated ECN order book and customer analytics to trader terminal 101 — that's simply the desktop computer of the trader — if the customer is not a NASDAQ market maker or user. If, however, the customer is a NASDAQ market maker or user, the customer's NASDAQ information feed may also be operatively connected to the desktop computer through a NASDAQ protocol converter and integrator, which is item 207 of figure 3. The converter integrator converts NASDAQ information protocol to systems protocol and integrates the data into the ECN order book information and supplies it to terminal 101.

  Now, there is some crucial language: Supplies it to terminal 101. That's the desktop computer of the trader. And then there is this language which I quote exactly, "resulting in a consolidated display as seen in figure 5 on trading terminal 101.'I

  Now, what you have in this description of figure 3, you have what is clearly the integrating step resulting in what is spoken of as a consolidated order book containing all orders from all ECN members. Then you have a way to work in NASDAQ information. And I think it's quite clearly implied that it's all NASDAQ information.

  And then, with no explanation at all of how it's done, you suddenly go from this consolidated order book to the display in figure 5 of a single security, but there is no description whatever of the steps or process by which that is done. It simply says all this consolidation is carried out, and finally you've got everything cranked in from NASDAQ, all on a consolidated basis, ...


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