Minton v. National Ass'n of Securities Dealers
| Decision Date | 01 February 2002 |
| Docket Number | No. CIV.A. 9:00-CV-19.,CIV.A. 9:00-CV-19. |
| Citation | 226 F.Supp.2d 845 |
| Parties | Vernon F. MINTON, Plaintiff, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., and The NASDAQ Stock Market, Inc., Defendants. |
| Court | U.S. District Court — Eastern District of Texas |
George Michael Jamail, Reaud Law Firm, Beaumont, TX, James Eric Wren, Williams, Pattillo, Squires & Wren, Waco, TX, William C. Slusser, Slusser & Frost, Charles Keith Kebodeaux, Beaumont, TX, Jerry W. Gunn, Houston, TX, for Plaintiff.
Gregory Christopher Mathis, Michael Rocco Cannatti, Randall Louis Sarosdy, Akin, Gump, Strauss, Hauer & Feld, Gray Cary, Austin, TX, George E. Chandler, Chandler Law Offices, Lufkin, TX, for Defendants.
In this patent infringement action,1 plaintiff Vernon F. Minton ("Minton") alleges that The National Association of Securities Dealers, Inc. ("NASD") and The NASDAQ Stock Market ("NASDAQ") ("Defendants") infringe Minton's United States Patent No. 6,014,643 ('643 patent) entitled "INTERACTIVE SECURITIES TRADING SYSTEM." Currently before the court is Defendants' motion for summary judgment [Dkt. # 59] of invalidity under the on-sale bar provision of Title 35 U.S.C. § 102(b) and Minton's cross-motion for partial summary judgment [Dkt. # 63] of non-invalidity under the on-sale bar provision. Additionally, the court ordered the parties to provide further briefing and relevant evidentiary submissions regarding the four factual obviousness inquiries enunciated in Graham v. John Deere Co.2 relevant to a § 102(b)/103 bar determination.3 Because Minton offered to commercially lease a network and software program to a brokerage firm to practice his patented invention more than one year before he filed his application for the patent, the court grants the motion for summary judgment of invalidity of the patent under the § 102(b) on-sale bar. Furthermore, because Minton's invention is rendered obvious by the addition of the leased network and software program to the prior art, the court enters summary judgment of invalidity of the patent under the § 102(b)/103 bar.
Relevant portions of the Background section of Minton's patent are quoted here at length because they familiarize the reader with the relevant technology and describe the problem that Minton's invention aims to solve.
For hundreds of years, institutions have existed which allow people to buy and sell securities (e.g., stocks, futures, options, commodities, etc.) from one another. Today, examples of these institutions are: The New York Stock Exchange (N.Y.SE), The National Association of Security Dealers Automated Quotation (NASDAQ) System, and The American Stock Exchange (AMEX). These modern security exchanges facilitate the exchange of several hundred million shares of stock every business day.
While a significant portion of this trading is initiated by individuals, either directly or indirectly, these individuals cannot trade securities directly on the above mentioned exchanges. If a user wishes to buy or sell stock or other securities, they must go through a brokerage firm or a stock broker. These brokers are the ones who actually execute a customer's order to buy or sell a security.
There are two primary ways brokers generate income from executing customer orders. First, brokers often charge a commission for executing a customer's order. Depending on the broker, this commission may vary with the number of shares traded. For example, a broker may charge a base rate of $50.00 to execute a trade, plus an-additional 5 cents per share for every share traded. There is nothing secretive about the commission a broker charges, and customers are familiar with the commissions charged by their brokers.
A second way brokers derive income from customers is by taking advantage of the difference between the selling (ask) price and the buying (bid) price of a security. Unlike most consumer items, securities are often listed at two prices: a first price if one is buying the security, and a second price if one is selling the security. The selling price is known as the ask price and the buying price is known as the bid price. For example, if a user asks Broker A for the price of a share of stock from ABC Company, the broker may tell the customer that a share of ABC stock can be bought for $ 50.50, and a share of ABC stock may be sold for $50.10. The bid and ask price are not numbers set by a single entity or government agency, rather, these numbers are generated by a broker and constantly fluctuate as the price of a security moves up or down. The difference between the bid price and the ask price is known as the spread.
A broker can make money on the spread by connecting customers who want to sell a security at a relatively low price with other customers who wish to buy a security at relatively high price. Due to the advanced nature of today's communications systems, a broker is in constant contact with many other brokers and institutions which buy and sell securities. These other brokers and institutions are constantly communicating to a given broker various offers to buy and sell securities, at a range of prices.
As stated above, a broker can make money from executing a customer's order by connecting two customers who are willing to pay different amounts for the same security. For instance, Customer A goes to Broker B and informs Broker B that he wishes to buy one hundred shares of ABC stock for $50.00. Broker B can then log into his communications network to see what other brokers and institutions are charging for one hundred shares of ABC. Broker B may find another broker willing to sell one hundred shares of ABC for $49.50. In this instance, Broker B will, on behalf of Customer A, buy one hundred shares of ABC for the price of $49.50. However, Customer A will be charged $50.00 per share for the stock that Broker B bought for $49.50 per share. Thus, Broker B will be able to keep 50 cents per share, or $50.00 for the one hundred shares of ABC purchased. This type of profit making is allowed to happen, despite the many regulations that brokers operate under. This same situation repeats itself when a broker finds another user willing to pay a higher price than what a given seller is asking.
The above situation repeats itself many times a day, and creates substantial revenues for commodity and stock brokers. Further, a customer has no way to protect himself from this type of exploitation, since customers do not have access to the communications networks of the broker. Also, customers often do not realize a broker is making money from them in this fashion....
Therefore, what is needed is a data processing system and a network of data processing systems whereby individuals can buy and sell directly from each other, with only minimal involvement by a broker. In such a communications network an individual would be in a similar position to that of a broker, i.e., an individual would have access to many other individuals wishing to buy and sell securities. In such a network, an individual would be able to select among many competing offers to buy and sell, and thus would be able to get a better deal than if they were going though a broker.4
Minton asserts that NASDAQ's Workstation II software program, when used in conjunction with NASD's services, infringes the claims of his patent. The patent has four claims, each claim defining an invention that aims to solve the problem identified above. The parties have focused the bulk of their briefing on claim 1, to which the court will first address its analysis. Claim 1 of the patent reads as follows:
1. A method for trading securities between individuals, comprising:
(1) entering an offer of a first individual to trade a security on a first data processing system;
(2) transmitting the offer to additional data processing systems, including a second data processing system, over a public communication network;
(3) transmitting to the second data processing system additional offers to trade in the security formed by additional individuals;
(4) ranking the offer formed by the first individual and the additional offers formed by the additional individuals according first to a price value, then secondly, according to a quantity value;
(5) displaying the offer formed by the first individual and the additional offers by the additional individuals according to the ranking step on a graphical user interface on the second data processing system;
(6) entering a reply of a second individual on the second data processing system, wherein the reply is in response to the offer;
(7) executing a trade of the security based on information contained in the offer for consideration specified in the reply to the offer, whereby the security is traded efficiently between the first individual and the second individual.5
Minton filed his application for patent with the United States Patent and Trademark Office (PTO) on June 28, 1996.
In the early 90's, Mr. Minton created a company called the Texas International Stock Exchange (TISE) and devoted a substantial amount of time to developing a telecommunications network and software program called the Texas Computer Exchange Network ("TEXCEN"). The TEXCEN Software Assistance Guide describes TEXCEN and TISE as follows:
The Texas International Stock Exchange, Inc. (TISE) is an international telecommunications company that developed the Texas Computer Exchange Network (TEXCEN). TEXCEN will be leased to a member of the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation (SIPC).
TEXCEN is an interactive program available in the Windows environment for public viewing, monitoring, and downloading stock...
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