The opinion of the court was delivered by: Barzilay, Judge
Judge Judith M. Barzilay*fn1
C. Trading and Financial Markets
A. Level of Ordinary Skill in the Pertinent Art Resolved
B. Scope and Content of Prior Art
3. The CME and CBOE Systems
C. Differences Between the Claims and the Prior Art
i. The Transmitting Steps
i. Dependent Claims 2, 16, and 17
ii. All Other Dependent Claims
i. The Sequence Code Limitation
ii. The Volley Code Limitation
iii. The Many-to-one Relationship Limitation
iv. The Data Structure Limitation
c. Dependent Claims 2 and 9
d. Dependent Claims 3-5 and Claims 10-12
e. Dependent Claims 6 and 13
D. Secondary Considerations
Before the court are four motions -- one by Plaintiff Papyrus Technology Corp. ("Papyrus") and three by Defendant New York Stock Exchange, Inc. ("NYSE") -- concerning U.S. Patent No. 5,774,877 (issued June 30, 1998) ("the '877 Patent") and U.S. Patent No. 5,797,002 (issued Aug. 18, 1998) ("the '002 Patent"). Papyrus moves for summary judgment of infringement by NYSE of the '002 Patent. In turn, NYSE moves for summary judgment of non-infringement of the '877 and '002 Patents. Also before the court are NYSE's motions for summary judgment that all asserted claims of the '877 Patent and the '002 Patent are obvious and therefore invalid. To hold a patent claim invalid, the evidence must be clear and convincing. After analysis of the voluminous record in this case, the court believes that there is clear, convincing, and uncontroverted evidence that every claim in the patents at issue was either explicitly identified in the appropriate prior art or would have been obvious to a person of ordinary skill. The asserted claims are therefore invalid.*fn2 The court's reasoning follows.
Papyrus first filed suit against NYSE in January 2004, alleging infringement of four patents -- the '877 Patent, the '002 Patent, U.S. Patent No. 5,915,245 (issued June 22, 1999) ("the '245 Patent"), and U.S. Patent No. 6,539,362 B2 (issued Mar. 25, 2003) ("the '362 Patent"). In March 2004, NYSE denied Papyrus's allegations and counterclaimed for a judgment of invalidity, non-infringement, and unenforceability of the '877, '002, '245, and '362 Patents, as well as for a declaration that there had been no breach of contract. Papyrus filed a supplemental complaint in September 2004 alleging infringement of U.S. Patent No. 6,768,981 (issued July 27, 2004) ("the '981 Patent"). Following the conclusion of fact discovery in January 2005 and expert discovery in March 2005, the parties stipulated to the dismissal with prejudice of all claims relating to the '245 and '362 patents. See Stipulation and Order of Dismissal, Papyrus Tech. Corp. v. N.Y. Stock Exch. Inc., No. 04 CV 00625 (S.D.N.Y. May 11, 2005) (No. 68). In response to NYSE's January 2005 request for a Markman hearing, the court ordered the parties to brief the claim-construction issues, which they completed in May 2005.*fn3 Following the Markman hearing, the court issued a memorandum and order in September 2008, in which it construed fifteen disputed terms and phrases from the claims of the '877, '002, and '981 Patents. See Papyrus Tech. Corp. v. New York Stock Exch., Inc., 581 F. Supp. 2d 502 (S.D.N.Y 2008) ("Papyrus III").*fn4 Four months later, as a result of the claim-construction rulings, Papyrus stipulated to a judgment of non-infringement with regard to the '981 Patent. See Stipulation and Order, Papyrus Tech. Corp. v. N.Y. Stock Exch. Inc., No. 04 CV 00625 (S.D.N.Y. Dec. 3, 2008) (No. 127).
On January 15, 2009, Papyrus moved for summary judgment of infringement of the'002 Patent. NYSE concurrently moved for summary judgment, asserting that claims 1-11 and claims 14-19 of the '877 Patent are invalid. In addition to its other supporting documentation, Papyrus filed the Declaration of Lee A. Hollaar (the "Hollaar Declaration") as a supplemental report pursuant to Federal Rule of Civil Procedure 26(e). Although NYSE contested the admissibility of the report, the court ultimately admitted the Declaration into the record on March 17, 2009. See Papyrus Technology Corp. v. New York Stock Exchange, LLC,257 F.R.D. 39 (S.D.N.Y. 2009) ("Papyrus IV"). After resolving the admissibility issue, the court issued a revised scheduling order on April 6, 2009 for summary judgment briefing. The court now turns to the substantive issues in the parties' respective summary judgment motions.
The '877 Patent was filed on September 20, 1994, and issued on June 23, 1998. Generally, the '877 Patent teaches "[a] method of managing the activities of one or more floor brokers situated on the floor of an exchange" which uses "a programmed computer to compare a relative number of instructions having a pending status that have been delegated to the floor brokers and find the floor broker having comparatively few pending instructions." '877 Patent, Abstract. More specifically, Claim 1 recites that the patent is:
1. A method for managing one or more floor brokers situated on the floor of an exchange, comprising the steps of: providing each floor broker with a two-way communications device; transmitting an instruction from a programmed computer operated by an operator to the two-way communications device provided to a floor broker, the instruction being selected from the group consisting of quotations requests, quotations, orders, partial executions, and executions; transmitting from each two-way communication device to the programmed computer current-status information concerning any transmitting instructions; calculating at the programmed computer a remaining quantity of unfilled orders to fill using current-status information transmitted to the programmed computer; automatically and simultaneously displaying at the programmed computer in real time the current status information of at least a portion of the delegated instructions received from each two-way communication device; and selecting a floor broker to whom a further instruction is to be transmitted. '877 Patent col.32 ll.25-47.
The '002 Patent, which was filed on June 7, 1995 and issued on August 18, 1998, enables an operator to delegate instructions to floor brokers based on current-status information automatically displayed at the operator's computer, and discloses a data structure for use in a two-way wireless system for processing trades. See '877 Patent, Abstract; '002 Patent, Abstract. Independent Claim 1 of the '002 Patent recites:
1. In a system for processing one or more executions against an order, a local computer-readable memory for storing data for access by an application program being executed on a two-way wireless system, comprising: a data structure stored in said local computer-readable memory, said data structure including information used by said application program and including: a plurality of data packets stored in said local computer-readable memory, each of said data packets containing said information and further containing a sequence code and a volley code, said sequence code associating a subset of said plurality of data packets together and said volley code defining a hierarchical relationship among said subset of data packets; an order data packet being one of said subset of data packets and having one hierarchical level; at least one execution data packet being another of said subset of data packets and having another hierarchical level, said at least one execution data packet having a many-to-one relationship with said order data packet, each of said at least one execution data packet being defined by a uniquely assigned execution sequence number, said execution sequence number being assigned by said application program. '002 Patent col.33 ll.26-48. Furthermore, Claim 8 of the '002 Patent explains that the invention is:
8. A two-way wireless system for processing one or more executions against an order, comprising: a first computer running a first application program that generates sequence codes and volley codes, said volley codes being related to the stage of processing of the order, said first computer having a computer-readable memory for storing data; a second computer running a second application program that generates volley codes, said second computer having a computer-readable memory for storing data; a data structure stored in each of said computer-readable memories, said data structure including information which is accessible by each of said first and second application programs and including: a plurality of data packets stored in said computer-readable memories, each of said data packets containing information and further containing a sequence code and a volley code, said sequence code associating a subset of said plurality of data packets together and said volley code defining a hierarchical relationship among said subset of data packets; an order data packet being one of said subset of data packets and having one hierarchical level; at least one execution data packet being another of said subset of data packets and having another hierarchical level, said at least one execution data packet having a many-to-one relationship with said order data packet; and a wireless communications link between said first and second computers which is selectively established to enable transmission of said data packets therebetween. '002 Patent col.34 ll.9-39.
C. Trading and Financial Markets
Among the various types of financial markets in existence is the auction market, which is the focus of the '877 and '002 Patents.*fn5 In a typical transaction, an investor places an order or quote request -- an inquiry regarding the price and trading volume information for a particular instrument -- with an off-the-floor trading desk. '877 Patentcol.1 l.66 to col.2 l.4; col.2 ll.17-19, 26-45. In turn, the trading desk conveys the order, either electronically or by telephone, to a booth clerk.*fn6 Id. col.2 ll.1-2. Having noted the parameters of the order, the booth clerk decides whether to delegate the order to a floor broker*fn7 or whether to send it electronically to a specialist*fn8 at a trading post. Id. col.1 l.30 to col.2 l.16. Once the floor broker or specialist has handled the delegated instruction, the booth clerk reports the execution or quote to the investor. Id. col.1 ll.58-59.
Traditionally, when a booth clerk decided to use a floor broker, the booth clerk transcribed instructions onto an order slip or quote request form and used a page or runner to carry instructions from the perimeter of the trading floor to the floor broker. Id. col.2 ll.61-67. After a floor broker executed an order or quote request, the broker would note the information onto paper slips and give them to the page for conveyance to the booth clerk. Id. col.2 l.66 to col.3 l.5. Use of paper records for orders and executions could be problematic, however, as the paper slips could be misplaced, or dropped and lost among the discarded slips on the trading floor. Id. col.3 ll.20-27.
In an effort to make the auction market more efficient and effective, financial exchanges began automating various aspects of the marketplace. Id. col.3. ll.40-54. Exchanges also incorporated technological innovations, where appropriate. For example, booth clerks used beeper technology to alert the floor broker that an order had been received, whereupon the floor broker would leave the trading floor and use a "yellow phone" to contact the booth clerk and receive instructions. The floor broker would then transcribe the instructions relayed by the booth clerk and return to the trading floor. Id. col.4 ll.1-13. Later, cellular phone headsets were introduced to exchanges, allowing voice communications between the booth clerks and floor brokers. Id. col.4 ll.26-27. Member firms and exchanges also began using electronic systems which would allow for the electronic routing of orders to a trading post for matching and reporting. Id. col.1 ll.60-61.
In 1989, as the result of an investigation into illegal trading practices at the Chicago Board of Trade (the "CBOT") and at the Chicago Mercantile Exchange (the "CME"), the Federal Bureau of Investigation found instances of "dual trading and front-running whereby traders fill[ed] personal orders either simultaneously or ahead of their customers." Ellis Booker, Handheld Auditing Eludes Chicago Commodity Traders, COMPUTERWORLD, Sept. 12, 1994, at 1; Franks Decl. Ex. 153 at 1. As a result of the investigation, Congress passed the Futures Trading Practices Act of 1992 ("FTPA" or the "Act"), which mandated enhancements to audit trail systems, and required that exchanges "provide a complete record of each trade that can be used for monitoring trading activity and enforcing customer protection and market integrity requirements." Commodity Futures Trading Commission, Report to Congress on Futures Exchange, Nov. 1994, at 3 ("CFTC Report"); Yeh Decl. Ex. 85 at 2-3.*fn9 The FTPA also required that the exchanges make a good faith effort to satisfy the enhanced audit trail requirements by October 28, 1995. CFTC Report at 19, 23. Although the Act "[did] not specify electronic means as the required method of compliance with the standards of independence, unalterability and sequencing," financial exchanges began utilizing two approaches -- the "development of entirely new electronic audit trail systems, including handheld automated terminals and automated order routing systems," and the electronic and non-electronic improvement of existing audit trail systems. Id. at 23-24.
Even before the FTPA and the enhanced reporting requirements, financial exchanges engaged in the development of electronic, computer-based systems for use in trading. For example, the Chicago Board Options Exchange ("CBOE") began using a program called Order Routing System ("ORS") during the early 1980s. January Gaspar Decl. Ex. 18 ("Pfaffenbach Dep.") at 39-40.*fn10 ORS ran on the CBOE's mainframe computer, which consisted of a database that stored order and execution information. Def. '877 Statement of Material Facts ¶¶ 164-165 ("Def. '877 Facts").*fn11 By 1993, the CBOE's system included three components: Compass, a communications system going out to the member firms, ORS, in which firms could input orders electronically and route them to the exchange, and the Booth Entered Routing System ("BERS"), which consisted of a terminal attached to ORS that provided a template for transcribing orders coming in via phone. Pfaffenbach Dep. at 38-40; January Gaspar Decl. Ex. 21 at CB 1101-03. Once entered, ORS sent the order to a printer located on CBOE's trading floor, generating a "print ticket," which would be delivered to the floor broker. January Gaspar Decl. Ex. 21 at CB 1101; January Gaspar Decl. Ex. 19 at CB 0388; Franks Decl. Ex. 114 at 30. On May 25, 1994, CBOE's Public Automated Routing System ("PAR"), also known as the Universal Agency Workstation ("UAW"), debuted in live trading on the floor of the CBOE. Def. '877 Facts ¶¶ 175, 191. PAR allowed for the electronic delivery of order information to floor brokers in the pit and for the electronic delivery of fill information from the pit back to ORS and to the order originator. Def. '877 Facts ¶ 176.
In response to its 1988 objectives of (1) timely and accurate order flow and execution and (2) elimination of paper routing, the CME also developed its own electronic systems. Def. '877 Facts ¶¶ 154-156. As early as 1990, CME introduced its Trade Order Processing System ("TOPS") for order entry and reporting and used it in live trading on the exchange floor. January Gaspar Decl. Ex. 5 ("Linker Dep.") at 13; Franks Declaration Ex. 111 at CME 004039-40. In April 1992, the CME implemented the CME Universal Broker System ("CUBS"), which was a system for the electronic delivery of orders to a trader in the trading pit. CFTC Report at 48; Franks Decl. Ex. 111 at CME 004042. CUBS was comprised of three main elements, a CUBS booth station, a CUBS broker station, and a CME server. CFTC Report ...