DCT
1:18-cv-02997
High Frequency Trading Systems v. Headlands Tech Global Markets LLC
Key Events
Complaint
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: High Frequency Trading Systems LLC (Texas)
- Defendant: Headlands Tech Global Markets, LLC (Delaware)
- Plaintiff’s Counsel: Steven O. Ross, P.C.; DEVLIN LAW FIRM LLC
- Case Identification: High Frequency Trading Systems LLC v. Headlands Tech Global Markets, LLC, 1:18-cv-02997, N.D. Ill., 04/27/2018
- Venue Allegations: Venue is asserted based on Defendant having a regular and established place of business in the Northern District of Illinois and allegedly committing acts of infringement within the district.
- Core Dispute: Plaintiff alleges that Defendant’s proprietary electronic trading platform infringes a patent related to a method and system for re-brokering orders through a chain of intermediaries.
- Technical Context: The technology at issue addresses electronic trading systems for financial instruments, such as bonds, by creating a framework for orders to be proliferated through networks of broker-dealers to increase liquidity and the probability of finding a match.
- Key Procedural History: The asserted patent, U.S. Patent No. 7,231,363, was subject to an inter partes reexamination, which concluded with the issuance of a Reexamination Certificate on March 8, 2011. This proceeding confirmed the patentability of the claims, some in an amended form, over prior art considered by the U.S. Patent and Trademark Office, a fact that may be relevant to future validity or claim construction disputes.
Case Timeline
| Date | Event |
|---|---|
| 1999-12-29 | Earliest Priority Date for U.S. Patent No. 7,231,363 |
| 2007-06-12 | U.S. Patent No. 7,231,363 Issues |
| 2011-03-08 | Reexamination Certificate for U.S. Patent No. 7,231,363 Issues |
| 2018-04-27 | Complaint Filed |
II. Technology and Patent(s)-in-Suit Analysis
U.S. Patent No. 7,231,363 - "Method and System for Rebrokering Orders in a Trading System"
- Patent Identification: U.S. Patent No. 7,231,363, "Method and System for Rebrokering Orders in a Trading System," issued June 12, 2007. The patent was subsequently amended via a Reexamination Certificate issued March 8, 2011.
The Invention Explained
- Problem Addressed: The patent’s background section identifies inefficiencies in the market for fixed-income securities. It notes that some electronic systems eliminate intermediaries like broker-dealers, thereby losing their benefits, while other proprietary "dealer systems" limit investors' access to a closed group of dealers and fail to "automate interaction between broker-dealers" (’363 Patent, col. 2:5-20). Traditional trading is described as reliant on inefficient, sequential verbal communications (’363 Patent, col. 2:30-41).
- The Patented Solution: The invention proposes a computerized trading system that allows an initial order to be passed to an intermediary (a broker-dealer), who can then re-broker the order to other participants, potentially with modified terms like a price markup (’363 Patent, Abstract). This architecture is designed to "quickly proliferate" orders to a large number of parties, including through automated rules-based processing, thereby increasing the chances of a successful trade (’363 Patent, Abstract; col. 4:56-65). The system facilitates a "serial chain of transactions" to transfer ownership from the initial party to the final counterparty via one or more intermediaries (’363 Patent, col. 6:50-65).
- Technical Importance: The claimed system seeks to merge the efficiency and reach of electronic networks with the established roles and benefits of financial intermediaries, such as providing liquidity and market expertise (Compl. ¶13; ’363 Patent, col. 2:50-56).
Key Claims at a Glance
- The complaint asserts infringement of "one or more claims," with a specific focus on claim 1 (’363 Patent, Compl. ¶16, ¶21).
- Independent Claim 1, as amended by the Reexamination Certificate, requires:
- "receiving a first order from a first ordering party at a computerized system", where the order pertains to a financial instrument and permits a "serial chain of transactions" with each transaction involving a transfer of ownership between "principals";
- "receiving one or more intermediate orders" from intermediate parties, where at least one intermediate order is in response to the first order, and the "intermediate party" acquires ownership from the "first ordering party";
- "receiving a second order from a second ordering party" in response to an intermediate order, where the "second ordering party" acquires ownership from the "intermediate party";
- "identifying the serial chain of transactions" using the first, intermediate, and second orders; and
- "executing the at least one transaction within the serial chain of transactions", which comprises transfers of ownership between the parties in the chain.
- The complaint does not foreclose the possibility of asserting other claims.
III. The Accused Instrumentality
Product Identification
- The complaint identifies "Defendant's HGTM propriety platform and related platforms" as the "Accused Instrumentalities" (Compl. ¶21). No probative visual evidence provided in complaint.
Functionality and Market Context
- The complaint alleges the Accused Instrumentalities are a "computerized trading system platform" (Compl. ¶21). The core accused functionality is enabling "the execution of intermediate orders by broker-dealers and/or other intermediaries in response to an order by an investor" (Compl. ¶21). The complaint alleges these platforms are used by Defendant's partners, clients, and end users throughout the United States (Compl. ¶22). The complaint does not provide further technical detail regarding the specific operation of the accused platform.
IV. Analysis of Infringement Allegations
’363 Patent Infringement Allegations
| Claim Element (from Independent Claim 1, as Reexamined) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| receiving a first order from a first ordering party at a computerized system... | The accused platform allegedly receives an initial order from an investor for a financial instrument (Compl. ¶16, ¶21). | ¶16, ¶21 | col. 4:25-28 |
| receiving one or more intermediate orders...from at least one of a plurality of intermediate parties...the intermediate party placing the intermediate order acquiring ownership... | The platform allegedly enables broker-dealers to receive and "re-broker" orders to additional broker-dealers, who in turn receive the re-brokered order (Compl. ¶16). This process allegedly constitutes the creation of intermediate orders in a chain (Compl. ¶21). | ¶16, ¶21 | col. 4:28-34 |
| receiving a second order...from a second ordering party...the second ordering party placing the second order acquiring ownership... | The alleged method culminates in a transaction with a "final counterparty," which implies the receipt of a final matching or accepting order that completes the chain (Compl. ¶16). | ¶16 | col. 4:36-39 |
| identifying the serial chain of transactions using the first order, at least one received intermediate order, and the second order... | The complaint alleges that the patented method, purportedly practiced by Defendant, "involves identifying...a chain of transactions" (Compl. ¶16). | ¶16 | col. 6:1-3 |
| executing the at least one transaction within the serial chain of transactions... | The complaint alleges the platform "enables the execution of intermediate orders" and that the overall method involves "executing a chain of transactions to transfer ownership" (Compl. ¶16, ¶21). | ¶16, ¶21 | col. 4:43-47 |
- Identified Points of Contention:
- Technical Questions: The complaint's allegations are high-level and do not describe the specific technical operations of the accused platform. A central question will be what evidence demonstrates that the HTGM platform performs the specific steps of the reexamined claim. For instance, what evidence shows that the platform facilitates a "serial chain" where intermediaries formally "acquir[e] ownership" and act as "principals" in each transaction, as distinct from merely acting as agents or matching counterparties in a central hub?
- Scope Questions: The dispute may turn on whether the accused platform's architecture and transaction-flow logic fall within the scope of the claims. For example, does the platform's method of clearing and settling trades constitute the "identifying and executing a chain of transactions" as recited, or does it use a different model (e.g., a net settlement process, a centralized counterparty model) that does not map onto the claimed serial transfer of ownership?
V. Key Claim Terms for Construction
- The Term: "serial chain of transactions"
- Context and Importance: This term, appearing throughout reexamined claim 1, is foundational to the claimed invention. The infringement analysis will depend heavily on whether the flow of an order and its execution on the accused platform constitutes a "serial chain." This is particularly critical given the claim language added during reexamination, which specifies that each transaction in the chain involves a "transfer of ownership" between "principals" (Reexam. Cert., col. 1:30-34).
- Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification describes how orders can "quickly and exponentially proliferate," which may suggest that the "chain" is a flexible concept encompassing a wide network of potential transaction paths (’363 Patent, col. 4:61-64).
- Evidence for a Narrower Interpretation: The reexamined claim language itself requires that each intermediate party "acquir[es] ownership," implying a series of distinct title transfers, not just a routing of information. The specification provides a concrete example: "the system executes the orders between B and Y₁, between Y₁ and X, and between X and A," which could be argued to require a literal, step-by-step execution path (’363 Patent, col. 4:47-49).
VI. Other Allegations
- Indirect Infringement: The complaint alleges both induced and contributory infringement. Inducement is premised on Defendant providing "instruction materials, training, and services" to its partners and customers, allegedly with specific intent (Compl. ¶24, ¶25). Contributory infringement is alleged on the basis that the accused platform is a "material component" that is "especially made or adapted" for infringement and is not a "staple article of commerce suitable for substantial non-infringing use" (Compl. ¶26).
- Willful Infringement: Willfulness allegations appear to be based on post-suit knowledge. The complaint asserts that Defendant had notice of the ’363 patent and its alleged infringement "at least as early as the filing of this Complaint" (Compl. ¶23).
VII. Analyst’s Conclusion: Key Questions for the Case
A central evidentiary question will be one of operational correspondence: what proof will be offered to show that the accused HTGM platform performs the specific, multi-step process recited in the reexamined claims, particularly the requirement that intermediaries in the "serial chain of transactions" act as principals who formally acquire and transfer ownership at each stage?
The case will likely involve a core issue of claim scope: can the term "serial chain of transactions", as defined in the patent and narrowed during reexamination, be construed to read on the accused platform's method for routing and settling trades, or is there a fundamental mismatch between the claimed step-wise transfer of ownership and the actual operation of the accused system?