Appeal No. 2006-2083
Reexamination Control No. 90/006,352
The invention
The invention is a system for conducting financial transactions by use of commodity-
based electronic coins. Electronic coins are created by a computer, which comprises electronic
data identifying a serial number and a specified amount of a corresponding valuable commodity
held in storage at a secure facility, and a digital signature for verifying that the electronic coins
are created by the computer. The coins are transmitted over a communication system to a user
who may use it to make payments. The computer receives the electronic coins back from a
payee over a communication system and confirms that the coins have not been previously spent.
The total amount of electronic coins created is less than or equal to the value of the inventory of
the commodity in storage. According to the patentee, the invention eliminates payment risks.
Relying on a declaration of co-inventor James J. Turk, the patentee in its appeal brief
describes several types of payment risks associated with conventional non-asset-based
instruments. First, there is payment risk caused by fractional banking, which happens when
banks keep on deposit only a fraction of the assets it is holding for the account of its depositors
and lend out or invest the remainder. If the banks make bad loans or suffer losses in their
investments, they may not have enough assets to cover payment checks drawn by its depositors.
Second, there is payment risk arising from the fluctuating value of national currencies relative to
each other. For instance, payment made in one currency may change in value before it has been
converted to a different currency for the payee. Third, there is a payment risk commonly known
as “settlement risk” or “Herstatt risk.” It occurs when one party pays out the currency it has sold
but does not immediately receive the currency it has bought. The risk lasts from the time a
unilateral rescission of the currency sold is not possible any more until the time the currency
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