Lava Trading, Inc. v. Sonic Trading Management, LLC

United States Court of Appeals for the Federal Circuit
05-1177, -1192

LAVA TRADING, INC,

Plaintiff- Appellant,

v.

SONIC TRADING MANAGEMENT, LLC, JOSEPH CAMMARATA,
and LOUIS FENG LIU,

Defendants-Appellees,

and

ROYALBLUE GROUP PLC,
ROYALBLUE FINANCIAL CORPORATION
and ROYALBLUE FINANCIAL PLC,

Defendants-Appellees.

Albert L. Jacobs, Jr., Greenberg Traurig LLP, of New York, New York, argued for
plaintiff-appellant. With him on the brief were Daniel A. Ladow and Barry J. Schindler.

Robert R. Brunelli, Sheridan Ross P.C., of Denver, Colorado, argued for
defendants-appellees, Sonic Trading Management, LLC, et al. With him on the brief
was Scott R. Bialecki. Of counsel was Bill Vaslas, Vaslas Lepowsky Hauss & Danke
LLP, of Stanten Island, New York.

Claude M. Stern, Quinn Emanuel Urquhart Oliver & Hedges, LLP, of Redwood
Shores, California, argued for defendants-appellees, Royalblue Group PLC, et al. With
him on the brief was Michael B. Carlinsky and Edward J. DeFranco, of New York, New
York.

Appealed from: United States District Court for the Southern District of New York

Judge Thomas P. Griesa
 United States Court of Appeals for the Federal Circuit
05-1177,-1192

LAVA TRADING, INC,

Plaintiff-Appellant,

v.

SONIC TRADING MANAGEMENT, LLC, JOSEPH CAMMARATA,
and LOUIS FENG LIU,

Defendants-Appellees,

and

ROYALBLUE GROUP PLC,
ROYALBLUE FINANCIAL CORPORATION
And ROYALBLUE FINANCIAL PLC,

Defendants-Appellees.

___________________________

DECIDED: April 19, 2006
___________________________

Before MAYER, RADER, and LINN, Circuit Judges.

Opinion for the court filed by Circuit Judge RADER. Dissenting opinion filed by
Circuit Judge MAYER.

RADER, Circuit Judge.

This appeal stems from two stipulated judgments of non-infringement of

U.S. Patent No. 6,278,982 (the ’982 patent). Lava Trading, Inc. v. Sonic Trading

Mgmt., LLC, 03-CV-9382 (S.D.N.Y. Dec. 8, 2004) (Royalblue Stipulation); Lava

Trading, Inc. v. Sonic Trading Mgmt., LLC, 03-CV-0842 (S.D.N.Y. Dec. 8, 2004)

(Sonic Stipulation). Because flaws in the district court’s interpretation of claim 9
call the stipulated judgments into question, this court vacates and remands for

further proceedings.

I.

Lava Trading, Inc. (Lava) owns the ’982 patent, which claims software that

aggregates and integrates securities trading and order placement information

from various alternative trading systems. ’982 patent, col. 1, ll. 7-13. Lava sued

Sonic Trading Management LLC, Joseph Cammarata and Louis Feng Liu

(collectively Sonic) and Royalblue group plc, Royalblue financial corporation and

Royalblue financial plc (collectively Royalblue) in the United States District Court

for the Southern District of New York for infringement of the ’982 patent, among

other state law claims. The defendants denied infringement and counterclaimed

for a declaratory judgment that the ’982 patent is invalid, unenforceable, and not

infringed. Royalblue Stipulation, slip op. at 1; Sonic Stipulation, slip op. at 1.

On May 24-26, 2005, the district court held a Markman hearing and issued

a claim construction ruling from the bench. Thereafter, the parties stipulated to

final judgments of non-infringement. See Royalblue Stipulation; Sonic

Stipulation. Lava appeals the stipulated final judgment orders.

II.

At the onset, the procedural posture of this appeal presents problems. For

instance, this court notes that defendants’ counterclaims of invalidity and

unenforceability are still pending before the trial court. These pending

counterclaims put this court in the awkward position of reviewing a claim

construction that may implicate issues and claims beyond this court’s current

05-1177,-1192 2
reach. See Int’l Commc’n Materials, Inc. v. Ricoh Co., 108 F.3d 316, 318-19

(Fed. Cir. 1997) (commenting that, when substantial issues remain open on

appeal, this court should first “provide the district judge and parties the

opportunity to complete the picture.”).

In addition, this record on appeal does not supply any meaningful

comparison of the accused products to the asserted claims. Without knowledge

of the accused products, this court cannot assess the accuracy of the

infringement judgment under review and lacks a proper context for an accurate

claim construction. “While a trial court should certainly not prejudge the ultimate

infringement analysis by construing claims with an aim to include or exclude an

accused product or process, knowledge of that product or process provides

meaningful context for the first step of the infringement analysis, claim

construction.” Wilson Sporting Goods Co. v. Hillerich & Bradsby Co.,

2006 WL 722127, slip op. at 7 (Fed. Cir. 2006) (citing SRI Int’l v. Matsushita Elec.

Corp. of Am., 775 F.2d 1107, 1118 (Fed. Cir. 1985); Scripps Clinic & Research

Found. v. Genentech, Inc., 927 F.2d 1565, 1580 (Fed. Cir. 1991); Multiform

Dessicants, Inc. v. Medzan, Ltd., 133 F.3d 1473, 1476-78 (Fed. Cir. 1998); Pall

Corp. v. Hemasure Inc., 181 F.3d 1305, 1308 (Fed. Cir. 1999)). Without the vital

contextual knowledge of the accused products or processes, this appeal takes on

the attributes of something akin to an advisory opinion on the scope of the ’982

patent. The problems with such an appeal, even if within this court’s jurisdiction,

have been noted in many of the court’s prior cases. See, e.g., id. (citing Bayer

05-1177,-1192 3
AG. v. Biovail Corp., 279 F.3d 1340, 1349 (Fed. Cir. 2002); CVI/Beta Ventures

Inc. v. Tura LP, 112 F.3d 1146, 1160 n.7 (Fed. Cir. 1997)).

Nonetheless, the court notes that the district court issued a Rule 54(b)

certification in this case. See Fed. R. Civ. P. 54(b). Rule 54(b) allows a district

court to act as a “dispatcher” and “determine, in the first instance, the appropriate

time when each ‘final decision’ upon ‘one or more but less than all’ of the claims

in a multiple claims action is ready for appeal.” Pause Tech. LLC, v. Tivo Inc.,

401 F.3d 1290, 1294 n.2 (Fed. Cir. 2005). Thus, while troubled by the pending

counterclaims and the absence of a detailed infringement analysis, this court has

jurisdiction under 28 U.S.C. § 1295(a)(1) (2000).

III.

Turning to infringement, the ’982 patent claims software that aggregates

and integrates information from various systems for buying and selling securities

(e.g., stocks, bonds, commodities and derivatives). See ’982 patent, col. 1, ll. 7-

13. The ’982 patent specifically addresses a problem wherein a user with access

to only a subset of these systems confronts substantial fluctuations in prices

amongst these systems for a given security. Id. at col. 3, ll. 6-31. To illustrate, a

buyer may not know of lower prices available on another system and/or a seller

may not know of higher prices available on another system.

Embodiments of the ’982 patent solve this problem by aggregating and

integrating information from these various systems. One embodiment of the ’982

patent depicted in Figure 5, for example, aggregates and integrates pricing data

for a single security (e.g., DELL):

05-1177,-1192 4
Id. at col. 9, ll. 9-25. As shown above, the screen 280 “provides the customer

with the ability to take advantage of price variations in a rapidly changing

environment.” Id. at col. 9, ll. 23-25. Thus, the user is provided with

considerable pricing information for a given security and, armed with this

information, can make a transaction. The patent also discloses other

embodiments.

With this backdrop, an infringement analysis is a two-step process: “First,

the court determines the scope and meaning of the patent claims asserted . . .

[and second,] the properly construed claims are compared to the allegedly

infringing device.” Cybor Corp., 138 F.3d at 1454 (citations omitted). “Step one,

claim construction, is a question of law, that we review de novo. Step two,

05-1177,-1192 5
comparison of the claims to the accused device, is a question of fact, and

requires a determination that every claim limitation or its equivalent be found in

the accused device.” N. Am. Container, Inc. v. Plastipak Packaging, Inc.,

415 F.3d 1335, 1344 (Fed. Cir. 2005) (citations omitted).

A. Waiver/Estoppel

Before this court can construe the claims, however, it must first address a

potential waiver/estoppel issue surrounding Lava’s current claim construction

theory. The waiver/estoppel issue relates to a change in Lava’s counsel during

proceedings before the district court. Before and during the district court’s

Markman hearing(s), Lava’s initial counsel argued the term “distributing” should

be construed as “providing the consolidated or composite single list of open

orders for a given security . . . to the users of the present invention” - i.e., for only

one security. Pl. Lava Trading Inc.’s Opening Claim Constr. Br. at 53,

Lava Trading Inc. v. Sonic Mgmt., LLC, 03-CV-842 & 03-CV-9382 (S.D.N.Y.

2003) (emphasis in original altered). The district court, however, rejected Lava’s

proposed definition and adopted a construction requiring the distribution of data

for all securities in the combined order book. Lava Trading, Inc. v. Sonic Trading

Mgmt., LLC, 03-CV-9382 & 03-CV-0842, slip op. at 442-43 (S.D.N.Y. Dec. 8,

2004) (Claim Construction Order). Lava then obtained new counsel who

advanced Lava’s current claim construction theory in a motion for

reconsideration. Lava now interprets “distributing” as “providing to traders

combined order book information . . . for one security or more than one security,

as desired by the traders” - i.e., a subset of the combined order book.

05-1177,-1192 6
Memorandum In Support Of Lava’s Motion For Reconsideration Of A Portion Of

The Court’s Decision On Claim Constr. at 2, Lava Trading, Inc. v. Sonic Trading

Mgmt., LLC, 03-CV-842 & 03-CV-9382 (S.D.N.Y. July 29, 2004) (emphasis

added). The district court rejected Lava’s motion for reconsideration without

comment. Lava Trading, Inc. v. Sonic Trading Mgmt., LLC, 03-CV-842 & 03-CV-

9382 (S.D.N.Y. Aug. 10, 2004).

Seizing on this change in Lava’s claim construction theory, the defendants

argue that Lava has waived its current theory and should be estopped from

raising it on appeal. The defendants rely on cases in which a party presented an

argument on appeal that substantially changed the scope of a prior position

taken before a trial court. See, e.g., NTP, Inc. v. Research in Motion, Ltd., 418

F.3d 1282, 1296 (Fed. Cir. 2005) (waiver applied because RIM attempted to add

a pull technology limitation to the claim that it did not raise before the trial court);

SuperGuide Corp. v. DirecTV Enter., Inc., 358 F.3d 870, 889 (Fed. Cir. 2004)

(waiver applied because SuperGuide stipulated to construction of the term “meet”

at the trial court); Finnigan Corp. v. Int’l Trade Comm’n, 180 F.3d 1354, 1363

(Fed. Cir. 1999) (waiver applied because Finnigan’s petition to the Commission

did not point out the relevance of the lack of the term “unstable” in claim 17);

Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d 1420, 1426 (Fed. Cir. 1997)

(waiver applied because Sage did not present its construction of “elongated slot”

to the trial court). Upon review, the court concludes these cases do not govern

the facts of this case.

05-1177,-1192 7
 At the outset, judicial estoppel does not normally apply on appeal to

prevent a party from altering an unsuccessful position before the trial court.

See RF Del., Inc. v. Pacific Keystone Tech., Inc., 326 F.3d 1255, 1262 (Fed. Cir.

2003) (quoting Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1565 (Fed. Cir. 1996))

(“The doctrine of judicial estoppel is that where a party successfully urges a

particular position in a legal proceeding, it is estopped from taking a contrary

position in a subsequent proceeding where its interests have changed.”)

(emphasis in original). Thus, estoppel would not bar Lava from departing from a

claim construction theory unsuccessfully advocated before the trial court.

Moreover, on the limited record on appeal, this court cannot discern any

practical difference between Lava’s two theories. In response to both theories,

the defendants counter that the intrinsic record limits the claims to a system that

distributes and displays information for all securities. Thus, the slight change in

Lava’s theory has not resulted in any meaningful change in the defendants’

position or evidence relied upon by the defendants at the trial court or on appeal.

The absence of any practical differences in the case reinforces this court’s

determination that Lava has not waived its current theory. See Harris Corp. v.

Ericsson Inc., 417 F.3d 1241, 1252 (Fed. Cir. 2005) (waiver did not apply

because the technical distinction in Ericsson’s argument did not make any

practical difference in the case).

05-1177,-1192 8
 B. The Disputed Limitations

On the merits, the parties dispute the meaning of two related limitations in

the ’982 patent, “distributing” and “displaying” a combined order book to a trader.

Independent claim 9 recites both limitations:

9. A data processing method for providing trading information to
traders in a security or commodity from two or more alternative
trading systems, comprising the steps of:

receiving order book information from each participating alternative
trading system in order book information protocols native to the
particular alternative trading system;

converting the information to a common system order book
protocol;

integrating the order book information from each alternative trading
system into a single order book;

distributing the combined order book to the traders in the common
system order book protocol; and

displaying said combined order book to the traders.

’982 patent, col. 14, ll. 1-14 (emphasis added). The district court construed the

disputed limitations during a Markman hearing without issuing a formal claim

construction order. Instead, the district court stated its claim construction from

the bench at the close of the hearing. A district court retains discretion to rule in

this manner, but in this instance the trial court’s oral recitation provides a very

sparse explanation of the findings and reasoning supporting the claim

construction.

Regarding the distributing limitation, the district court concluded that it

“simply means distributing the combined order book -- that means in terms of the

specification the consolidated order book -- pertaining to all orders from all ECN

05-1177,-1192 9
members.” Claim Construction Order at 442-43. In other words, the distributing

limitation requires the distribution of the whole combined order book to the trader.

The district court similarly construed the displaying limitation, concluding the

system must display the whole combined order book for the trader. Upon review,

the district court’s interpretation of the “distributing” and “displaying” limitations

conflicts with the plain meaning of claim 9 and excludes embodiments disclosed

in the specification.

According to its preamble, claim 9 “provid[es] trading information to

traders in a security or commodity” rather than “all” securities or commodities.

’982 patent, col. 14, ll. 1-2 (emphasis added). By selecting the word “a” instead

of “all,” the Applicant set forth a method wherein the traders may request and

receive information for only a subset of the securities (i.e., one or more).

See KCJ Corp. v. Kinetics Concepts, Inc., 223 F.3d 1351, 1356 (Fed. Cir. 2000)

(the word “a” generally means “one or more” in open-ended claims). Thus, the

language of the claim itself does not require the system to distribute or display

the whole combined order book.

Furthermore, the specification discloses embodiments that distribute and

display information for only a subset of the combined order book. As an

example, the specification describes one embodiment in which

the CCS 100 collects orders from each ECN, (ECN150 and
ECN251) and electronic exchanges (NASDAQ 52), distributes a
composite order book to the customers according to each
customer’s memberships in the ECNs and rights to use an
electronic exchange. Thus customer 10 may only receive a subset
of the complete order book compiled by the CCS 100
corresponding to where the customer 10 is permissioned.

05-1177,-1192 10
’982 patent, col. 6, ll. 59-66 (emphasis added).1 According to this embodiment

the customer only receives a “subset” of the combined/complete order book from

the system. Thus, this embodiment must also make the system capable of

“distributing” less than the whole combined order book to the customer – i.e., a

subset of the combined order book.

The specification also discloses an embodiment in which bid and offer

prices for Dell, a single security, are displayed on a market data screen:

Fig. 4 depicts a typical market data screen 250 of the present
invention. Such screens can be customized as to data or order to
conform to the customer’s trading style. . . . The security under
review is Dell Computer Corp. It was elected by inserting its ticker
symbol DELL in space 252.

’982 patent, col. 8, ll. 47-54. This embodiment is further described in reference to

Figure 5:

FIG. 5 shows pricing data that would be available to a customer of
the present invention. Here, space 251 has been checked on
screen 280 and ECN information integrated into the display. Screen
280 shows not only NASDAQ Level II data but also the full order
book for the following three ECNs: Instinet, Island and Strike. For
these ECN’s, there are multiple bids and offers available for DELL,
as opposed to just the best bid and offer. . . . Screen 280, thus,
offers access to a greater amount of pricing information (thus
greater liquidity), consolidated in one display. 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. This additionally provides the customer with the ability to
take advantage of price variations in a rapidly changing
environment.

1
While NASDAQ information comes from a particular electronic
exchange rather than an alternative trading system, claim 9 is an open-ended
claim that encompasses more than simply information from alternative trading
systems. See U.S. Patent No. 6,278,982, col. 2, ll. 16-29, col. 14, l. 3.

05-1177,-1192 11
Id. at col. 9, ll. 9-25. Hence, the specification discloses embodiments that

distribute and display information for only a subset of the securities (e.g., one in

the embodiment of Figures 4 and 5) in the combined order book.

Reading the claim language and these embodiments in the specification,

one of ordinary skill in this art would not limit the distributing and displaying

limitations in the manner suggested by the district court. See Phillips v. AWH

Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc) (“Importantly, the person

of ordinary skill in the art is deemed to read the claim term not only in the context

of the particular claim in which the disputed term appears, but in the context of

the entire patent, including the specification.”). Rather, one of ordinary skill in the

art would construe the distributing and displaying limitations as covering an

embodiment that distributes and displays information for only a subset of the

combined order book.

For at least these reasons, this court sets aside the district court’s claim

construction. Because the final judgment orders are premised on the flawed

claim construction, they too must be set aside. The case is remanded to the

district court for further proceedings consistent with this opinion.

COSTS

Each party shall bear its own costs.

VACATED and REMANDED

05-1177,-1192 12
 United States Court of Appeals for the Federal Circuit

05-1177, -1192

LAVA TRADING, INC.,

Plaintiff-Appellant,

v.

SONIC TRADING MANAGEMENT, LLC, JOSEPH CAMMARATA,
and LOUIS FENG LIU,

Defendant-Appellees,

and

ROYALBLUE GROUP PLC,
ROYALBLUE FINANCIAL CORPORATION
and ROYALBLUE FINANCIAL PLC,

Defendants-Appellees.

MAYER, Circuit Judge, dissenting.

Because there was no final judgment from which to appeal in the district court

due to the interrelatedness of the infringement claim and the unresolved

unenforceability counterclaim, I would dismiss this case for lack of jurisdiction.

Therefore, I dissent.

The decision today is yet another example of the unfortunate consequences of

Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995) (en banc), Cybor

Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc), and Phillips v.
AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), which cemented this court’s

jurisprudence with respect to claim construction as being purely a matter of law subject

to de novo review. Because claim construction is treated as a matter of law chimerically

devoid of underlying factual determinations, there are no “facts” on the record to prevent

parties from presenting claim construction one way in the trial court and in an entirely

different way in this court. By not dismissing this case, we issue a decision based on an

undeveloped record. We set ourselves up to have to decide claim construction again

later, which could well differ from the ruling today. Furthermore, allowance of an appeal

of the trial court’s perfunctory, offhand ruling from the bench, for all intents and

purposes allows an interlocutory appeal of claim construction, which portends chaos in

process.

05-1177,-1192 2