TT strikes back in patent case

05 Oct 2007 email

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by Jim Kharouf

Trading Technologies (TT) struck back in the rebuttal phase of its patent case against E-Speed with expert testimony, which it said proved its patented MD Trader software is valid.

The trial, which stretched into its fourth week, was expected to conclude on 4 October with closing arguments and a possible verdict from the nine person jury the following day.

TT brought in several expert witnesses in the rebuttal phase, all of which testified that MD Trader patents could not be invalidated by the examples of prior art introduced by E-Speed. E-Speed introduced several pieces of prior art that allegedly preceded the critical 2 March, 1999 date when MD Trader was created including GL’s TradePad, Japanese ISV Midas Kapiti’s Market Trader and order entry software from Tokyo Stock Exchange (TSE) and Tokyo International Financial Futures Exchange (Tiffe).

TT’s attorneys attacked the credibility of GL TradePad evidence, allegedly created by the Paris-based ISV in late 1998 and included in its overall software package called GL Win 4.31. Those versions were presented to Chicago Mercantile Exchange (CME) in December 1998 and sold to Cargill Investor Services in February 1999, E-Speed said.

But David Klausner, a software forensic expert for TT, told the court that among the evidence produced by E-Speed there was “no version of TradePad prior to 2 March, 1999”.

Klausner said he analysed 11 CME hard drives and the 36 CDs that GL’s former trading application manager Jean-Cedric Jollant said he kept as back-up files on TradePad and a GL demonstration computer. Klausner said he found no evidence of TradePad in GL Win 4.31 or 4.50.

E-Speed attempted to deflect such a findings by pointing out practical evidence such as the January 1999 letter from CME which specifically criticized TradePad as “useless to our local traders” proved that TradePad existed prior to MD Trader.

E-Speed also presented several manuals from GL which showed that TradePad existed in version 4.31. However, those manuals did not illustrate all of the functionality of TradePad, a point which diminishes the value of such evidence.

TT further pressed its case by outlining just how exact TradePad and other prior art evidence must be to invalidate TT’s patents with its expert witness, Craig Pirrong, a professor with the University of Houston. In legal terminology, it is called “anticipation” or art that was there before an invention.

“Neither TradePad nor Midas Kapiti anticipate claims in the TT patent,” Pirrong said. “No single piece of prior art contains every element of the asserted claims. It has to be every element. Proving anticipation is like bowling, you have to roll a strike. You essentially have to prove that every element was there in the prior art. If you leave only one pin standing, there is no anticipation.”

Pirrong said MD Trader allows users to preset the quantity of contracts and then allows them to set a price and a buy or sell with one single click of the mouse, also known in this case as “single action”. MD Trader also provides users with market depth and a list of working orders all on one window. GL Win 4.3 included market depth, but in a separate window.

TradePad required users to use a right click to set trade parameters and then a left click of the mouse to send the order. In Pirrong’s view, that constituted two separate actions. In testimony and cross-examination that plunged the discussion into mind-numbing detail over the difference between one-click, two-click and right- and left-click order entry – Pirrong and another TT expert witness, Christopher Thomas, held firmly that the TradePad method was not a single action.
E-Speed’s technology expert Richard Ferraro testified in a deposition just weeks earlier that the right- and left-click methodology was two separate actions. But in court, he changed his opinion and said it was a single action.

Another key part of patent law and this case is “obviousness” which simply means that the elements in a patent are just that, obvious to anyone with expertise in that field. While much has been made in and outside of court about just how ubiquitous MD Trader’s static display of prices was before the invention, TT’s experts claimed that MD Trader was revolutionary because it combined a set of common characteristics in the industry and provided a simple way in which to view and trade.

Thomas said combining a static ladder, which is found in GL, Midas Kapiti and the Tokyo exchanges software, with “single action” order entry, MD Trader was “a revolution and pioneering invention”.

“If it was obvious, GL knew about static [price ladders] and single action order entry, they would have done it, but they didn’t.”

Thomas, an equity trader, said it was akin to the Post-it note invention. Everyone knew about paper and glue, but no one had put the two together before Post-it’s inventor did.

For its part, E-Speed held that TradePad’s left- and right-click methodology is no different than a single- or double click.
E-Speed also brought in its own expert to estimate the amount of infringement damages that are at issue here. Daniel Slottje, senior managing director at FTI Consulting, told the court that TT’s estimates of around $4.6m, revealed in the previous week’s hearing (see FO Wee 28/09/07) were way off because they take estimate trading volumes on incomplete data from users of eSpeed and Ecco software. He estimated the amount for both E-Speed and Ecco to be $455,831 to $595,079.

The case will be decided by a nine person jury, as one juror had to drop out. Whatever the outcome, it is expected that the losing party will appeal the case.

“At the highest level of economic motivation for their actions and most generous interpretation of them, they are trying to influence prices in a way that benefits mankind and they should be considered heroes for it.”

John Lothian on speculators in the commodity markets.