DCT
3:24-cv-01746
LooseLeaf Intl LLC v. Cannverify LLC
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: LooseLeaf International LLC (Florida)
- Defendant: CannVerify LLC (Delaware)
- Plaintiff’s Counsel: Snell & Wilmer L.L.P.
- Case Identification: 3:24-cv-01746, S.D. Cal., 09/30/2024
- Venue Allegations: Venue is alleged to be proper in the Southern District of California because Defendant is headquartered in the district, has a regular and established place of business there, and the events giving rise to the claim, including threats of litigation, occurred there.
- Core Dispute: Plaintiff LooseLeaf seeks a declaratory judgment that its product verification system does not infringe three of Defendant CannVerify's patents related to anti-counterfeiting systems using unique serial numbers and verification codes.
- Technical Context: The technology at issue involves systems and methods for generating unique, difficult-to-predict codes affixed to products on tamper-proof seals, which consumers can then verify against a computerized database to confirm authenticity.
- Key Procedural History: The action follows pre-suit correspondence in which CannVerify accused LooseLeaf of infringement, citing specific claims of the '287 and '842 patents, and threatened litigation. LooseLeaf's complaint raises the defense of patent exhaustion, arguing that its purchase of verification seals and codes from CannVerify exhausted the patentee's rights.
Case Timeline
| Date | Event |
|---|---|
| 2019-09-24 | Earliest Priority Date ('194, '287, '842 Patents) |
| 2022-08-02 | U.S. Patent No. 11,405,194 Issues |
| 2023-08-22 | U.S. Patent No. 11,736,287 Issues |
| 2024-07-09 | U.S. Patent No. 12,034,842 Issues |
| 2024-08-15 | CannVerify sends first infringement notice letter to LooseLeaf |
| 2024-08-23 | LooseLeaf responds to CannVerify, asserting patent exhaustion |
| 2024-09-24 | CannVerify sends second letter demanding a license |
| 2024-09-30 | Complaint for Declaratory Judgment Filed |
II. Technology and Patent(s)-in-Suit Analysis
U.S. Patent No. 11,405,194 - "Anti-counterfeiting system and method of use," issued August 2, 2022
The Invention Explained
- Problem Addressed: The patent describes the problem of counterfeit goods and the vulnerability of simple authentication systems where serial numbers can be easily duplicated or predicted by counterfeiters ('194 Patent, col. 2:1-6). It also notes that existing secure technologies like RFID can be expensive and complex to implement ('194 Patent, col. 2:16-20).
- The Patented Solution: The invention proposes a system that programmatically generates a "complete serial number" by combining a numeric sequence with random letters. This serial number is then hashed (e.g., using SHA256), and a portion of the resulting hash ("hex value") is used to create a separate "verification code." ('194 Patent, col. 5:1-28). These two codes are then affixed to a tamper-proof seal on a product, allowing a consumer to verify its authenticity by checking the codes against a computerized database ('194 Patent, Abstract).
- Technical Importance: This two-factor approach (a public serial number and an obscured verification code derived from its hash) sought to increase security by making it computationally difficult for counterfeiters to guess or reverse-engineer valid codes ('194 Patent, col. 5:29-34).
Key Claims at a Glance
- The complaint seeks a declaration of non-infringement of the entire patent, and Defendant's pre-suit letter indicated an intent to prepare charts for all independent claims (Compl. ¶21). The independent claims are 1 (method), 6 (method), and 12 (system).
- Independent Claim 12 (System) requires:
- A plurality of "complete serial numbers" comprising a numeric value and a random letter.
- A plurality of "hex values" corresponding to the serial numbers, each comprising a hash.
- A plurality of "verification codes," where each code is "equivalent to a portion of said hex value."
- A plurality of tamper-proof seals.
- A computerized database containing the codes.
- An "internet-based verification system" for an end user.
U.S. Patent No. 11,736,287 - "Anti-counterfeiting system and method of use," issued August 22, 2023
The Invention Explained
- Problem Addressed: The patent addresses the same problem of product counterfeiting and the need for a secure, reliable, and unpredictable authentication system ('287 Patent, col. 2:4-17).
- The Patented Solution: The invention is similar to the '194 patent but introduces a key distinction in the creation of the verification code. While a serial number is still generated and hashed, the corresponding "verification code" is not derived from that hash. Instead, it is generated independently as a "random sequence." ('287 Patent, col. 3:20-25). This decouples the verification code from the serial number, in contrast to the '194 patent's approach.
- Technical Importance: By generating the verification code via a separate random process, the system may provide enhanced security; compromising the algorithm for generating serial numbers would not necessarily reveal the algorithm for generating verification codes, and vice versa ('287 Patent, col. 5:29-34).
Key Claims at a Glance
- Defendant's pre-suit letter specifically alleged that Plaintiff's system "reads directly on Claim 12" of this patent (Compl. ¶14). The independent claims are 1 (method), 6 (method), and 12 (system).
- Independent Claim 12 (System) requires:
- A plurality of "complete serial numbers" comprising a numeric value and a random letter.
- A plurality of "hex values" corresponding to the serial numbers, each comprising a hash.
- A plurality of "verification codes," where each code comprises a "random sequence."
- A plurality of tamper-proof seals.
- A computerized database.
- An "internet-based verification system."
U.S. Patent No. 12,034,842 - (Multi-Patent Capsule)
- Patent Identification: U.S. Patent No. 12,034,842, "Anti-counterfeiting system and method of use," issued July 9, 2024.
- Technology Synopsis: This patent, part of the same family, describes an anti-counterfeiting system using tamper-proof seals with unique serial numbers and randomly generated verification codes ('842 Patent, Abstract). The system allows end-users to check product provenance via an internet-connected computerized database, which can optionally incorporate blockchain technology for enhanced security ('842 Patent, col. 6:6-9).
- Asserted Claims: Defendant's pre-suit letter provided a "representative claim chart" for independent system Claim 7 (Compl. ¶20). The patent also includes independent method claims 1 and 4.
- Accused Features: The complaint alleges that LooseLeaf’s "product verification system" infringes the patent by using the serial numbers and codes previously purchased from CannVerify in a manner that allegedly constitutes the claimed system (Compl. ¶¶12, 19, 40).
III. The Accused Instrumentality
Product Identification
- The accused instrumentality is Plaintiff LooseLeaf's "product verification system" which is offered and accessible at the web address https://looseleaf.com/pages/verify (Compl. ¶¶11, 24).
Functionality and Market Context
- The complaint alleges that LooseLeaf's system uses the "exact serial numbers and verifications codes" that LooseLeaf had "previously purchased from CannVerify" (Compl. ¶12). Defendant's letters, as quoted in the complaint, characterize the accused system as a "computerized system which can interface with the serials and verification codes" to perform product authentication (Compl. ¶19). This suggests the accused instrumentality is a software-based platform comprising a database and a user-facing web portal for verification. The complaint does not provide details on the product's market position. No probative visual evidence provided in complaint.
IV. Analysis of Infringement Allegations
The complaint does not contain claim chart exhibits. The following tables summarize the infringement theory of Defendant CannVerify as described in the complaint's narrative and pre-suit correspondence.
'194 Patent Infringement Allegations
| Claim Element (from Independent Claim 12) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| a plurality of complete serial numbers... | The serial numbers LooseLeaf previously purchased from Defendant and uses in its verification system. | ¶12 | col. 12:47-50 |
| a plurality of hex values... comprising a hash... | The complaint does not provide sufficient detail for analysis of this element. | col. 12:51-54 | |
| a plurality of verification codes... equivalent to a portion of said hex value | The verification codes LooseLeaf purchased from Defendant. A factual dispute may arise as to whether these codes are technically derived from a hash as required by the claim. | ¶12 | col. 12:55-58 |
| a plurality of tamper-proof seals... | The "verification seals" LooseLeaf previously purchased from Defendant. | ¶10 | col. 12:59-60 |
| a computerized database... | The backend of the "product verification system" offered by LooseLeaf. | ¶11, ¶19 | col. 13:1-4 |
| an internet-based verification system... | The web portal at https://looseleaf.com/pages/verify. | ¶11, ¶19 | col. 13:5-9 |
'287 Patent Infringement Allegations
| Claim Element (from Independent Claim 12) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| a plurality of complete serial numbers... | The serial numbers LooseLeaf previously purchased from Defendant and uses in its verification system. | ¶12 | col. 12:48-51 |
| a plurality of hex values... comprising a hash... | The complaint does not provide sufficient detail for analysis of this element. | col. 12:52-55 | |
| a plurality of verification codes... comprising a random sequence | The verification codes LooseLeaf purchased from Defendant. A factual dispute may arise as to whether these codes are technically a "random sequence" as required by the claim. | ¶12 | col. 12:56-59 |
| a plurality of tamper-proof seals... | The "verification seals" LooseLeaf previously purchased from Defendant. | ¶10 | col. 12:60-61 |
| a computerized database... | The backend of the "product verification system" offered by LooseLeaf. | ¶11, ¶19 | col. 12:66-67 |
| an internet-based verification system... | The web portal at https://looseleaf.com/pages/verify. | ¶11, ¶19 | col. 13:1-5 |
Identified Points of Contention
- Patent Exhaustion: The central legal dispute articulated in the complaint is whether Defendant's sale of the "verification seals" and associated codes to Plaintiff exhausted its patent rights (Compl. ¶¶16, 29). Defendant's position is that the sale did not exhaust its rights because the "crux" of the invention is the computerized system that uses the codes, which was not part of the sale (Compl. ¶19). This raises the question of whether the sale of a component of a patented system grants the buyer an implied license to practice the entire system.
- Technical Questions: A key factual question will be whether the verification codes purchased by Plaintiff meet the specific definitions in the asserted claims. For the '194 patent, evidence would be needed to show the codes are a "portion of [a] hex value," while for the '287 patent, evidence would be needed to show they are a "random sequence."
V. Key Claim Terms for Construction
The Term: "verification code"
Context and Importance: Practitioners may focus on this term because its definition varies critically between the '194 and '287 patents. The '194 patent requires the code to be derived from a hash, while the '287 patent requires it to be a "random sequence." The proper construction of this term, and the factual nature of the codes Plaintiff purchased, will be dispositive for infringement of one or both patents.
Intrinsic Evidence for Interpretation:
- Evidence for a Narrower Interpretation ('194 Patent): The specification explicitly states, "To generate a corresponding verification code, a portion of the generated hex value is used. Preferably, this is the first four digits of the hex value" ('194 Patent, col. 5:25-28). This provides strong evidence for a narrow construction limited to a value derived directly from the serial number's hash.
- Evidence for a Narrower Interpretation ('287 Patent): The specification states, "In alternate embodiments, the verification code is purely random, generated by a cryptographically secure random number generator" ('287 Patent, col. 5:29-32). This supports a construction that distinguishes the code from one derived from a hash.
The Term: "computerized database"
Context and Importance: Defendant's infringement theory, as described in the complaint, rests on the idea that Plaintiff's online verification platform is the claimed "computerized database" (Compl. ¶19). The scope of this term is therefore critical to determining whether Plaintiff's system meets this limitation of the asserted system claims.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification describes the database's function as storing records for serial numbers, product information, and transaction history, which could be read to cover any standard database configured for these purposes ('194 Patent, col. 5:35-47).
- Evidence for a Narrower Interpretation: The specification repeatedly highlights the use of "blockchain technology" as a preferred embodiment for the database, intended to provide enhanced security ('194 Patent, col. 3:5-8, col. 6:30-35). An accused infringer might argue that the term should be limited to a database incorporating such advanced security features discussed as advantages in the patent.
VI. Other Allegations
- Indirect Infringement: The complaint, a declaratory judgment action, focuses on Plaintiff's alleged direct infringement by operating its own verification system. The provided facts do not detail any allegations related to inducing or contributing to infringement by third parties.
- Willful Infringement: While there is no counterclaim for willfulness yet, the complaint establishes that Defendant sent explicit notice letters on August 15, 2024, and September 24, 2024 (Compl. ¶¶9, 17). These letters identified the patents and the accused product, which could form the basis for a claim of willful infringement based on Plaintiff's conduct after receiving notice.
VII. Analyst’s Conclusion: Key Questions for the Case
- A central legal issue will be one of patent exhaustion: Did Defendant’s sale of physical seals containing unique serial and verification codes to Plaintiff exhaust its right to enforce patents on a system that uses those codes, or does the right to control the use of the larger system survive the sale of the component?
- A key evidentiary question will be one of technical proof: Can Defendant demonstrate that Plaintiff's accused system meets every element of the asserted system claims? This may turn on forensic analysis of Plaintiff's system to determine if it uses "hex values" and if the "verification codes" meet the distinct technical requirements of the '194 patent ("portion of said hex value") versus the '287 patent ("random sequence").
- A core issue will be one of claim scope and implied license: Does the authorized sale of a non-patented article (the seal with codes), which has no substantial non-infringing use within the context of the patentee's business model, grant the purchaser an implied license to build and use the patented system in which that article is a key component?