Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-16-01324/USCOURTS-ca13-16-01324-0/pdf.json

Parties Involved:
Douglas T. Chorna
Appellant

Document Text:

NOTE: This disposition is nonprecedential.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 Structuring, Pricing, Quotation, and Trading of Hindsight 

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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 Trademark 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 respect 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).

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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 nature, 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 concepts. . . . If so, we then ask, what else is there in 

the claims before us? . . . To answer that question, we consider the elements of each claim both 

individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible 

application. . . . We have described step two of 

this analysis as a search for an inventive concept—i.e., an element or combination of elements 

that is sufficient to ensure that the patent in practice 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

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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 instrument[s].” Id. p. 2 ¶ 9. “A financial instrument is any 

instrument that has monetary value or records a monetary 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 determined by the tracking set subgroup and / or the allocation 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 differently 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 electronic, 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 Internet, . . . e-mail, . . . phone, . . . or through any other viable 

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communications device.” Id. p. 5 ¶ 23. “In certain embodiments, the HALO is cleared by an organization designated 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, alternative trading system, voice brokerage system, 

and “over the counter” system 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.

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 inquiry.” 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 diCase: 16-1324 Document: 26-2 Page: 5 Filed: 08/10/2016
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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 contractual 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 patentineligible 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 ‘significantly more’ to the abstract portion of the claimed invention”), 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 ‘inventive 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 protection 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 

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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 (describing the various methods of calculating the risk via 

mathematical formula), id. p. 10 cl. 17 (describing transactions 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 maximize financial return while minimizing their risk of price 

fluctuation.). These types of “commercial transactions 

do[] not make the idea non-abstract for section 101 purposes.” 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 mathematical formula in [dependent claims], is an unpatentable 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 clearing 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 transacCase: 16-1324 Document: 26-2 Page: 7 Filed: 08/10/2016
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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 conclusion 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 combination—contain “an inventive concept sufficient to transform 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 inventive 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 

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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 concluded that the ’610 application did not possess “enough to 

transform an abstract idea into a patent-eligible invention.” 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 application 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 exchange, commodities exchange, alternative trading system, 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 particular 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] previously known to the industry.” Alice, 134 S. Ct. at 2359 (internal quotation marks, brackets, and citations omitted). 

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“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. Viewing the claims as an ordered combination, the claimed 

financial securities, allocation formulas, trading networks, 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 computers 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 instrument . . . 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 previously 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 patenteligible 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 

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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 processes—does not recite patent-eligible subject matter. 

CONCLUSION 

We have considered Mr. Chorna’s remaining arguments 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. 

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