In Re: Chorna , 656 F. App'x 1016 ( 2016 )

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
IN RE: DOUGLAS T. CHORNA,
Appellant
______________________
2016-1324
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. 12/029,610.
______________________
Decided: August 10, 2016
______________________
DOUGLAS T. CHORNA, Delray Beach, FL, pro se.
THOMAS W. KRAUSE, Office of the Solicitor, United
States Patent and Trademark Office, Alexandria, VA, for
appellee Michelle K. Lee. Also represented by BRIAN
RACILLA, ROBERT J. MCMANUS.
______________________
Before PROST, Chief Judge, WALLACH and HUGHES, Circuit
Judges.
PER CURIAM.
Douglas T. Chorna filed U.S. Patent Application No.
12/029,610 (“the ’610 application”) in 2008, which is
entitled “System and Method for Implementing the Struc-
turing, Pricing, Quotation, and Trading of Hindsight
2 IN RE: CHORNA
Allocation Instruments.” In 2011, the patent examiner
rejected claims 1–25 of the ’610 application as indefinite
and obvious, as well as for claiming patent-ineligible
subject matter. See J.A. 164–72 (new Non-Final Office
Action after prosecution was reopened). Following Mr.
Chorna’s appeal, the United States Patent and Trade-
mark Office’s Patent Trial and Appeal Board (“the
PTAB”): 1) reversed the examiner’s indefiniteness and
obviousness rejections; and 2) affirmed the examiner’s
subject matter rejection under 35 U.S.C. § 101 (2006). 1
See Ex Parte Chorna, No. 2012-009801 (P.T.A.B. May 29,
2015) (J.A. 2–9).
Mr. Chorna appeals the PTAB’s affirmance of the
examiner’s § 101 rejection. We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(4)(A) (2012). For the reasons
below, we affirm.
DISCUSSION
I. Standard of Review
We review de novo the PTAB’s determination with re-
spect to patent eligibility under § 101. In re Ferguson,
558 F.3d 1359, 1363 (Fed. Cir. 2009); see In re Bilski, 545
F.3d 943, 951 (Fed. Cir. 2008) (en banc), aff’d sub nom.
Bilski v. Kappos, 561 U.S. 592 (2010).
II. The ’610 Application Is Patent-Ineligible Under 35
U.S.C. § 101
“Whoever invents or discovers any new and useful
process, machine, manufacture, or composition of matter,
or any new and useful improvement thereof, may obtain a
patent therefor, subject to the conditions and require-
1 In passing the Leahy-Smith America Invents Act,
Congress did not amend § 101. See generally Pub. L. No.
112-29, 125 Stat. 284 (2011).
IN RE: CHORNA 3
ments of” Title 35 of the United States Code. 35 U.S.C.
§ 101.
The Supreme Court has “long held that this provision
contains an important implicit exception[:] Laws of na-
ture, natural phenomena, and abstract ideas are not
patentable.” Ass’n for Molecular Pathology v. Myriad
Genetics, Inc., 133 S. Ct. 2107, 2116 (2013) (internal
quotation marks and citation omitted). “Phenomena of
nature, though just discovered, mental processes, and
abstract intellectual concepts are not patentable, as they
are the basic tools of scientific and technological work.”
Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132
S. Ct. 1289, 1293 (2012) (internal quotation marks and
citation omitted).
However, “an invention is not rendered ineligible for
patent simply because it involves an abstract concept.”
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347,
2354 (2014). In Alice, the Supreme Court reiterated
Mayo’s two-part test through which we assess patent
eligibility under § 101:
First, we determine whether the claims at issue
are directed to one of those patent-ineligible con-
cepts. . . . If so, we then ask, what else is there in
the claims before us? . . . To answer that ques-
tion, we consider the elements of each claim both
individually and as an ordered combination to de-
termine whether the additional elements trans-
form the nature of the claim into a patent-eligible
application. . . . We have described step two of
this analysis as a search for an inventive con-
cept—i.e., an element or combination of elements
that is sufficient to ensure that the patent in prac-
tice amounts to significantly more than a patent
upon the ineligible concept itself.
Id. at 2355 (internal quotation marks, brackets, citations,
and footnote omitted). We apply this two-part Mayo/Alice
4 IN RE: CHORNA
test to determine whether the ’610 application claims
patent-eligible subject matter.
A. The ’610 Application
The ’610 application discloses “a hindsight allocation
instrument (‘HALO’)” that includes “a tracking set of
financial instruments with the price, final value, or final
valuation of the HALO being governed, set, or determined
by a subset or subgroup of that tracking set as determined
by . . . an allocation formula included in the HALO.” ’610
application p. 1 ¶ 7. “The HALO’s tracking set includes
any group of two or more underlying financial instru-
ment[s].” Id. p. 2 ¶ 9. “A financial instrument is any
instrument that has monetary value or records a mone-
tary transaction,” such as “a stock, bond, mortgage,
currency, . . . or any other asset, basket of assets, liability,
tradable item, or saleable item.” Id. p. 2 ¶ 10.
“At expiration, the final valuation of the HALO is de-
termined by the tracking set subgroup and / or the alloca-
tion formula. In one embodiment, the final valuation is
based on the price, yield, or total return of instruments in
the tracking set subgroup.” Id. p. 3 ¶ 14. “The allocating
formula is structured to select any subgroup from the
tracking set,” id. p. 3 ¶ 15, and “weighs the financial
instruments in the tracking set subgroup either different-
ly or the same in determining the final valuation,” id. p. 3
¶ 16. “The price data [a] HALO[] generate[s], by itself,
may be disseminated as, e.g., price quotations, via elec-
tronic, Internet, or computer networks, or other means.”
Id. p. 7 ¶ 26.
The ’610 application discloses that the HALO can be
structured to allow for trading “on an organized securities
exchange,” “on an organized commodities or futures
exchange,” or “in the ‘over the counter’ market.” Id. p. 3
¶ 13. This structuring allows for the HALO to be traded
“via electronic communications networks, . . . the Inter-
net, . . . e-mail, . . . phone, . . . or through any other viable
IN RE: CHORNA 5
communications device.” Id. p. 5 ¶ 23. “In certain embod-
iments, the HALO is cleared by an organization designat-
ed as a clearing entity by an agency of the United States
government or any other sovereign government or any
other clearing entity.” Id. p. 5 ¶ 24.
Mr. Chorna identifies independent claims 1 and 16 as
representative. Appellant’s Br 2. Independent claim 1
recites:
A hindsight financial instrument comprising a
tracking set of two or more financial instruments
that determines a final valuation from a tracking
set subgroup selected from the tracking set, the
tracking set subgroup comprising no more than
less of the financial instruments in the tracking
set.
’610 application p. 9 cl. 1. Independent claim 16 recites:
A hindsight financial instrument traded on at
least one of an organized securities exchange,
commodities exchange, exempt board of trade, al-
ternative trading system, voice brokerage system,
and “over the counter” system comprising a track-
ing set of two or more financial instruments that
determines a final valuation from a tracking set
subgroup selected from the tracking set, the track-
ing set subgroup comprising no more than less of
the financial instruments in the tracking set.
Id. p. 10 cl. 16.
B. The ’610 Application Is Directed to an Abstract Idea
“The Supreme Court has not established a definitive
rule to determine what constitutes an ‘abstract idea’
sufficient to satisfy the first step of the Mayo/Alice in-
quiry.” Enfish, LLC v. Microsoft Corp., 822 F.3d 1327,
1335 (Fed. Cir. 2016). Rather, it is “sufficient to compare
claims at issue to those claims already found to be di-
6 IN RE: CHORNA
rected to an abstract idea in previous cases.” Id. The
instant case involves contractual relations, thus “[t]he
relevant Supreme Court cases are those which find an
abstract idea in certain arrangements involving contrac-
tual relations, which are intangible entities.” buySAFE,
Inc. v. Google, Inc., 765 F.3d 1350, 1353 (Fed. Cir. 2014)
(citations omitted). In finding certain challenged claims
to be directed to patent-ineligible subject matter, the
Supreme Court in both Bilski and Alice “relied on the fact
that the contractual relations at issue constituted a
fundamental economic practice long prevalent in our
system of commerce.” Id. at 1354 (internal quotation
marks and citations omitted).
Mr. Chorna asserts the PTAB erred in finding that
the ’610 application claims “are directed to a patent-
ineligible concept.” Appellant’s Br. 5. Mr. Chorna’s
arguments are directed to the second step of the patent
eligibility test articulated in Mayo/Alice. See id. at 5
(asserting the ’610 application recites additional process
steps that are meaningful limitations that “add ‘signifi-
cantly more’ to the abstract portion of the claimed inven-
tion”), 6 (asserting the “process limitations for defining a
tracking set and determining the value of the [HALO]
based on a criteria of a subgroup within the tracking set
using a specifically designed allocation formula are ‘in-
ventive concepts,’ . . . and provide the ‘significantly more’
required by legal precedent to ‘transform the nature of the
claim’ into a patent eligible application.”). Because we
conduct our review de novo, despite Mr. Chorna’s focus on
step two, we begin with step one of the test.
In the present case, Mr. Chorna seeks patent protec-
tion for prospective evaluation of the market (over some
specified period of time), and the invention’s goal is to
help investors automatically choose the best performing
index/financial instrument over that period. These are
the very same economic practices that were deemed to be
patent-ineligible subject matter in Bilski and Alice. See
IN RE: CHORNA 7
Bilski, 561 U.S. at 609–10; Alice, 134 S. Ct. at 2357. Mr.
Chorna’s claims are directed to financial instruments that
are designed to protect against the risk of investing in
financial instruments. See ’610 application p. 9 cl. 1
(describing maximizing financial return while minimizing
risk of financial loss), id. pp. 9–11 cls. 9, 16, 18, 25 (de-
scribing the various methods of calculating the risk via
mathematical formula), id. p. 10 cl. 17 (describing trans-
actions between market participants and the commodity
provider); see also Appellant’s Br. 1–2 (“This invention
relates to a financial instrument that allows investors to
initiate positions in various tracking sets of financial
instruments,” which effectively allows investors to max-
imize financial return while minimizing their risk of price
fluctuation.). These types of “commercial transactions
do[] not make the idea non-abstract for section 101 pur-
poses.” buySAFE, 765 F.3d at 1355. Indeed, in hedging
transactions, the Supreme Court has held that “[h]edging
is a fundamental economic practice long prevalent in our
system of commerce” and that “[t]he concept of hedging,
described in [the asserted claim] and reduced to a math-
ematical formula in [dependent claims], is an unpatenta-
ble abstract idea . . . .” Bilski, 561 U.S. at 611–12
(internal quotation marks and citation omitted).
The asserted claims also are directed to the abstract
idea of “intermediated settlement, i.e., the use of a third
party to mitigate settlement risk [also known as a clear-
ing house].” Alice, 134 S. Ct. at 2356; see ’610 application
p. 10 cl. 12 (“The hindsight financial instrument of claim
1 cleared by an organization designated as a clearing
entity by an agency of at least one of the United States
government, another sovereign government, and other
clearing entity.”). Essentially, claim 12 “involve[s] a
method of exchanging financial obligations between two
parties using a third-party intermediary to mitigate
settlement risk.” Alice, 134 S. Ct. at 2356. This transac-
8 IN RE: CHORNA
tion is “an abstract idea beyond the scope of § 101.” Id.
(internal quotation marks omitted).
This court’s case law therefore supports the PTAB’s
conclusion that, under the Mayo/Alice step one analysis,
claims 1–25 of the ’610 application “are drawn to the
abstract idea of a financial instrument, which, at its
source, is an agreement—a meeting of the minds, between
the parties each having an interest in monetary value
being traded, thus encompassing an abstract concept.”
J.A. 5. Thus, we find the PTAB did not err in its conclu-
sion that the claims of the ’610 application are drawn to
an abstract idea.
C. The ’610 Application Does Not Recite an Inventive
Concept
Because the claims of the ’610 application are directed
to an abstract idea, the second step of the Mayo/Alice
analysis requires us to consider whether these claims—
when viewed individually and as an ordered combina-
tion—contain “an inventive concept sufficient to trans-
form the claimed abstract idea into a patent-eligible
application.” Alice, 134 S. Ct. at 2357 (internal quotation
marks and citation omitted). A patent contains an in-
ventive concept if it “include[s] additional features” that
are “more than well-understood, routine, conventional
activities.” Id. at 2357–59 (internal quotation marks,
brackets, and citations omitted).
In its analysis under the second step of Mayo/Alice,
the PTAB found there was no inventive concept that
transformed the claimed invention into patent-eligible
subject matter. J.A. 5. The PTAB determined “‘the
relevant question is whether the claims here do more
than simply instruct the practitioner to implement the
abstract idea on a generic computer.’” J.A. 5–6 (brackets
omitted) (quoting Alice, 134 S. Ct. at 2359). In answering
this question, the PTAB reasoned “the method claims do
not, for example, purport to improve the functioning of
IN RE: CHORNA 9
any other technology or technical field. Instead, the
claims at issue amount to nothing significantly more than
the terms of a contract.” J.A. 6. Thus, the PTAB conclud-
ed that the ’610 application did not possess “enough to
transform an abstract idea into a patent-eligible inven-
tion.” J.A. 6 (citing Alice, 134 S. Ct. at 2360).
Mr. Chorna argues the PTAB erred in finding that the
’610 application lacks an inventive concept. Appellant’s
Br. 7. Mr. Chorna asserts that “the claims, when taken as
a whole, do not simply describe a mere agreement, but
instead combine the inventive concept of utilizing a subset
of a tracking set to generate a final valuation of a created
financial instrument that is cleared by a third party.” Id.
We find the claims fail to recite any elements that,
when viewed individually or as an ordered combination,
transform the abstract idea of a financial instrument to
reduce the risk of investing into a patent-eligible applica-
tion of that idea. The PTAB correctly determined that the
claims of the ’610 application do not contain a specific or
limiting recitation of improved computer technology. See
J.A. 5–6. Taking the claim elements separately, the
claims invoke the use of an “organized securities ex-
change, commodities exchange, alternative trading sys-
tem, and ‘over the counter’ system.” ’610 application p. 10
cl. 11; see also id. p. 5 ¶ 23 (The specification discusses the
use of “electronic communications networks, . . . the
Internet, . . . e-mail, instant messaging, phone, [etc.]” to
facilitate trading HALOs.). However, “[s]imply appending
conventional steps, specified at a high level of generality,”
and “attempting to limit the use of [the idea] to a particu-
lar technological environment” is insufficient to supply an
inventive concept. buySAFE, 765 F.3d at 1354 (internal
quotation marks and citations omitted). “[T]he use of a
computer to . . . issue automated instructions . . . [is a]
well-understood, routine, conventional activit[y] previous-
ly known to the industry.” Alice, 134 S. Ct. at 2359 (in-
ternal quotation marks, brackets, and citations omitted).
10 IN RE: CHORNA
“That a computer receives and sends the information over
a network—with no further specification—is not even
arguably inventive.” buySAFE, 765 F.3d at 1355. View-
ing the claims as an ordered combination, the claimed
financial securities, allocation formulas, trading net-
works, and clearing houses do not add anything to the
steps described above. See Alice, 134 S. Ct. at 2359–60.
Finally, Mr. Chorna relies on Diamond v. Diehr to
support his assertion that the ’610 application contains
claims that are not directed to “a formula in isolation, but
rather that the steps impose meaningful limits that apply
the formula to improve an existing technological process
[i.e., buying and selling financial instruments via comput-
ers and communication networks] . . . [by] selecting the
best performing financial instruments within a tracking
set of financial instruments.” Appellant’s Br. 7 (relying
on Diamond v. Diehr, 450 U.S. 175, 188 (1981)). Mr.
Chorna contends his allocation formula, when applied
using a computer provides “the HALO financial instru-
ment . . . the flexibility to be valued based on a value of
one or more financial instruments within the tracking set,
rather than on a single asset.” Id.
We do not agree with Mr. Chorna. We have previous-
ly stated that “we must read Diehr in light of Alice, which
emphasized that Diehr does not stand for the general
proposition that a claim implemented on a computer
elevates an otherwise ineligible claim into a patent-
eligible improvement.” OIP Techs., Inc. v. Amazon.com,
Inc., 788 F.3d 1359, 1364 (Fed. Cir. 2015) (citing Alice,
134 S. Ct. at 2358). This court noted that “Diehr involved
a well-known mathematical equation . . . used in a process
designed to solve a technological problem in conventional
industry practice.” Id. (internal quotation marks and
citations omitted). However, application of Diehr to the
claims in Alice, “which were directed to implementing the
abstract idea of intermediated settlement on a generic
computer,” did not make these claims patent-eligible
IN RE: CHORNA 11
subject matter. Id. (internal quotation marks, brackets,
and citation omitted). In this case, we find the ’610
application—the claims of which are directed at financial
instruments that are valued using an allocation formula
and are traded and cleared through conventional process-
es—does not recite patent-eligible subject matter.
CONCLUSION
We have considered Mr. Chorna’s remaining argu-
ments and find them unpersuasive. Accordingly, the
decision of the United States Patent and Trademark
Office’s Patent Trial and Appeal Board is
AFFIRMED
COSTS
Each party shall bear its own costs.