United States Court of Appeals for the Federal Circuit __________________________ CHICAGO BOARD OPTIONS EXCHANGE, INC., Plaintiff-Cross Appellant, v. INTERNATIONAL SECURITIES EXCHANGE, LLC, Defendant-Appellant. __________________________ 2011-1267, -1298 __________________________ Appeal from the United States District Court for the Northern District of Illinois in Consolidated Case Nos. 07-CV-0623 and 07-CV-4709, Judge Joan H. Lefkow. ___________________________ Decided: May 7, 2012 ___________________________ D AVID F RANCESCANI , Fish & Richardson P.C., of New York, New York, argued for plaintiff-cross appellant. With him on the brief were J ONATHAN A. M ARSHALL , M ICHAEL T. Z OPPO , B RIAN J. D OYLE and L INZY M CCARTNEY . P ARKER H. B AGLEY , Goodwin Procter, LLP, of New York, New York, argued for defendant-appellant. Of counsel on the brief were S TEVEN R. G USTAVSON , M ICHAEL S. D E V INCENZO , C ALVIN E. W INGFIELD , J R . and C HARLES W IZENFELD . Of counsel was B ENJAMIN A. K ELLER . * Honorable Jeremy Fogel, District Judge for the United States District Court for the Northern District of California, sitting by designation.
CHICAGO BOARD v. INTL SECURITIES 2 ________________________ Before R ADER , Chief Judge , W ALLACH , Circuit Judge , and F OGEL , District Judge .* W ALLACH , Circuit Judge . International Securities Exchange, LLC (“ISE”) ap- peals from a final judgment entered by the United States District Court for the Northern District of Illinois, holding that the trading system of Chicago Board Options Ex- change, Inc. (“CBOE”) does not infringe ISE’s United States Patent No. 6,618,707 (“the ’707 Patent”). CBOE cross-appeals the district court’s denial of its motions for leave to amend its Complaint. Because the district court erred in construing “system memory means,” “matching,” and “automated exchange,” and did not abuse its discre- tion in denying CBOE’s motions for leave to amend its Complaint, we AFFIRM-IN-PART, REVERSE-IN-PART, VACATE-IN-PART, and REMAND. B ACKGROUND The ’707 Patent, titled “Automated Exchange for Trading Derivative Securities,” discloses an invention that relates generally to markets for the exchange of securities. ’707 Patent, col.1 ll.13-14. In particular, the ’707 Patent is directed to an automated exchange for the trading of options contracts that allocates trades among market professionals and that assures liquidity. Id. col.1 ll.14-17. The Patent distinguishes an “automated” ex- change from the traditional, floor-based “open-outcry” system for trading options contracts. Id. col.1 ll.24-26. In an open-outcry system, trading takes place through oral communications between market professionals at a central location in open view of other market profession- als. Id. col.1 ll.27-29. For example, an order is typically
3 CHICAGO BOARD v. INTL SECURITIES relayed out to a trader standing in a “pit.” Id. col.1 ll.29- 30. The trader shouts out that he has received an order and waits until another trader or traders shouts back a two-sided market (the prices at which they are willing to buy and sell a particular option contract), then a trade results. Id. col.1 ll.30-34. The ’707 Patent builds on this traditional exchange system. Specifically, the Patent purports that “[i]t is an advantage of the invention to provide an automated system for matching previously entered orders and quota- tions with incoming orders and quotations on an exchange for securities, which will improve liquidity and assure the fair handling of orders.” Id. col.4 ll.55-59. Figure 2 of the ’707 Patent illustrates the exchange in detail:
CHICAGO BOARD v. INTL SECURITIES 4 The data interface 23 performs error checking, data compression, encryption, and mediates the exchange of data between the exchange and public customers, profes- sionals, and other entities. Id. col.8 ll.56-60; Fig. 2. Order and quotation information received via the interface 23 is sent to the order process 25. ’707 Patent, col.8 ll.64-66. The order process 25 first checks to see if the order or quotation is valid according to programmable parameters that reflect the particular trading rules of the entity administering the invention. Id. col.8 l.66-col.9 l.2. Order process 25 also checks, among other things, whether a fast market condition ( i.e. , high market volatility) exists, whether the order is a public customer or professional
5 CHICAGO BOARD v. INTL SECURITIES order, and what prices are in the away markets. See generally id. col.9. Under certain conditions, upon deter- mining that a better price does not exist in an away market, order process 25 sends orders to the bid matching process 34 (offers to buy) and to the offer matching proc- ess 36 (offers to sell). Id. col.9 ll.58-64. Accordingly, representative claim 1 recites, in part: 1. An automated exchange for trading a financial instrument wherein the trade may be one of a purchase of a quantity of the instrument and a sale of a quantity of the instrument, the exchange comprising: an interface . . . book memory means . . . system memory means for storing allocat- ing parameters for allocating trades be- tween the incoming order or quotation and the previously received orders and quota- tions; and processor means . . . . Id. col.29 l.53-col.30 l.15. CBOE operates the Chicago Board Options Exchange using the Hybrid Trading System (the “Hybrid”), which allegedly infringes the ’707 Patent. The Hybrid inte- grates a version of CBOEdirect, a fully screen-based trading system, with open-outcry trading. CBOE has described the Hybrid as an integrated single market system that blends the elements of open-outcry and electronic execution. ISE instituted the underlying lawsuit against CBOE for patent infringement in the United States District Court for the Southern District of New York. Subse-
CHICAGO BOARD v. INTL SECURITIES 6 quently, CBOE sued ISE at the United States District Court for the Northern District of Illinois seeking, among other relief, a declaratory judgment that the ’707 Patent is invalid, is not infringed by CBOE, and is unenforceable against CBOE because of inequitable conduct by ISE before the United States Patent and Trademark Office. The New York action eventually was transferred to the Northern District of Illinois where the cases were consoli- dated. On January 25, 2010, the district court issued its final claim construction order. On April 15, 2010, CBOE moved for summary judgment of noninfringement based on the district court’s construction of the terms “system memory means,” “matching,” and “automated exchange.” On March 2, 2011, the district court denied CBOE’s motion to the extent that motion was based upon the “automated exchange” limitation, but granted the motion with respect to “system memory means” and “matching.” ISE appeals the district court’s claim construction of the three limita- tions and the resulting summary judgment decision. Prior to CBOE’s motion for summary judgment, the district court twice denied CBOE’s motion for leave to amend its Complaint, denials that CBOE now cross- appeals. We have jurisdiction over both appeals pursuant to 28 U.S.C. § 1295(a)(1). D ISCUSSION ISE raises three issues on appeal: (1) whether the dis- trict court erred in construing “system memory means” and further erred in granting summary judgment of noninfringement with respect to claims 1-6, 9-10, and 22- 33 of the ’707 Patent based on its construction of “system memory means”; (2) whether the district court erred in construing “matching” and further erred in granting summary judgment of noninfringement with respect to
7 CHICAGO BOARD v. INTL SECURITIES claims 35, 36, 43, 45, and 56-58 of the ’707 Patent based on its construction of “matching”; and (3) whether the district court erred in construing “automated exchange.” By its cross-appeal, CBOE raises the issue of whether the district court abused its discretion in denying CBOE leave to amend the inequitable conduct allegations in its Com- plaint. I. We review a district court’s claim construction de novo . Cybor Corp. v. FAS Techs., Inc. , 138 F.3d 1448, 1454-55 (Fed. Cir. 1998) (en banc). Likewise, “[a] district court’s identification of the function and corresponding structure of a means-plus-function limitation is . . . re- viewed de novo .” JVW Enters., Inc. v. Interact Accessories, Inc. , 424 F.3d 1324, 1329 (Fed. Cir. 2005) (citation omit- ted). To ascertain the scope and meaning of the asserted claims, we look to the words of the claims themselves, the specification, the prosecution history, and, if necessary, any relevant extrinsic evidence. Phillips v. AWH Corp. , 415 F.3d 1303, 1315-17 (Fed. Cir. 2005) (en banc). A. The district court erred in holding that the corre- sponding structure for “system memory means” included a system memory, a bid matching process, and an offer matching process. Claim 1, representative of the asserted apparatus claims, recites, in pertinent part: “An auto- mated exchange for trading a financial instrument . . . , the exchange comprising: . . . system memory means for storing allocating parameters for allocating trades be- tween the incoming order or quotation and the previously received orders and quotations . . . .” ’707 Patent, col.29 ll.53-56, col.30 ll.1-4 (emphasis added). The district court construed “system memory means” to be a means-plus- function limitation and construed its function to be “stor-
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