Sapphire Crossing LLC v. Xero Inc

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Sapphire Crossing LLC (Texas)
  • Defendant: Xero, Inc. (Delaware)
  • Plaintiff’s Counsel: Rabicoff Law LLC; Devlin Law Firm LLC
• Case Identification: 1:18-cv-02076, D. Del., 12/28/2018
• Venue Allegations: Venue is alleged to be proper in the District of Delaware because Defendant is incorporated in Delaware, resides in the district, and has allegedly committed acts of patent infringement within the district.
• Core Dispute: Plaintiff alleges that Defendant’s "Xero Expenses" mobile application infringes a patent related to an image transfer system that gains enhanced functionality when connected to a computer.
• Technical Context: The technology concerns systems where a scanning device, when connected to a computer, can leverage the computer's processing power and memory to offer advanced features not available in standalone operation.
• Key Procedural History: The complaint notes that the asserted patent, U.S. Patent No. 6,891,633, was the subject of a prior post-grant proceeding before the Patent Trial and Appeal Board (PTAB). In that proceeding, the PTAB denied institution of review for claims 19 and 20. The provided patent documentation includes an Inter Partes Review Certificate which indicates that claims 1-18 and 21-26 of the patent were cancelled, leaving claims 19 and 20 as the only surviving claims. The patent was originally assigned to Xerox Corporation and transferred through multiple entities before being acquired by the Plaintiff.

Case Timeline

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 6,891,633, "Image Transfer System" (Issued May 10, 2005)

The Invention Explained

• Problem Addressed: The patent describes a problem where standalone multi-function devices (e.g., copiers, scanners) are limited to a fixed set of features due to onboard memory and processing constraints, making advanced functions costly to implement (’633 Patent, col. 15:20-30). The invention seeks to provide a way to enrich a device's feature set without increasing its hardware cost.
• The Patented Solution: The patent proposes an "image transfer device" that, when disconnected from a computer, offers a basic menu of functions. When removably connected to a computer, the device can access the computer's superior processing and memory to offer a second, "enhanced" menu of features, such as document collation or adding watermarks (’633 Patent, Abstract; col. 1:21-30). This allows a less-expensive device to perform complex tasks by "borrowing" the capabilities of a tethered PC, with the process being largely transparent to the user operating the device itself (’633 Patent, col. 1:31-35).
• Technical Importance: This architecture allowed for the creation of lower-cost peripheral devices that could gain significant, software-driven functionality on-demand when connected to a more powerful host computer.

Key Claims at a Glance

• The complaint asserts independent claim 19 (’Compl. ¶12).
• The essential elements of independent claim 19 are:
  • providing an image transfer device having a scanner for reading an image on the first medium;
  • reading the image on the first medium with the scanner;
  • automatically uploading electronic data including at least a portion of an image transfer menu to be displayed by the image transfer device to the transfer device from a computer connected to the transfer device;
  • with a processor of the image transfer device, automatically merging the electronic data with the image read by the scanner; and
  • transferring the merged image by the transfer device to a second medium.
• The complaint notes that claims 19-20 are valid and enforceable, suggesting a potential future assertion of dependent claim 20 (Compl. ¶8).

III. The Accused Instrumentality

Product Identification

• The accused instrumentality is the "Xero Expenses" mobile application ("Expenses" app) (Compl. ¶14).

Functionality and Market Context

• The Expenses app is a tool for employees to manage work-related expenses (Compl. Fig. 2). It allows users to use their smartphone's camera to "capture receipts" and submit them for reimbursement (Compl. Fig. 2). The complaint alleges the app uses the phone's camera to scan an image (e.g., a receipt), allows the user to manage the expense data through its interface, and then transmits the resulting information to Xero's servers (Compl. ¶¶15-19). A screenshot from the complaint shows the app's App Store page, which includes user interface views for capturing a receipt and viewing lists of submitted expenses (Compl. p. 5, Fig. 1). Another visual from Xero's help documentation illustrates the in-app option to "Take photo" of a receipt (Compl. p. 7, Fig. 3).

IV. Analysis of Infringement Allegations

'633 Patent Infringement Allegations

Identified Points of Contention

• Scope Questions: The patent specification repeatedly describes the "image transfer device" and "computer" as distinct physical hardware connected by a "cable" (’633 Patent, col. 3:15-18). The complaint alleges that a smartphone running an app is the "image transfer device" and remote, cloud-based servers constitute the "computer." This raises the question of whether the claimed "computer connected to the transfer device" can be interpreted to cover a distributed, client-server architecture communicating over the internet.
• Technical Questions: Claim 19(c) requires "uploading electronic data including at least a portion of an image transfer menu... from a computer." A central question is whether the accused app's menu is truly "uploaded" from Xero's servers upon connection, as the claim language suggests, or if the menu is a pre-installed component of the app that is merely populated with data from the servers. Further, claim 19(d) requires "merging the electronic data with the image." The patent provides examples of this, such as adding a visual watermark to the image (’633 Patent, col. 12:4-10). The court may need to determine if the app's function of associating expense metadata with an image file constitutes "merging" in the manner taught and claimed by the patent.

V. Key Claim Terms for Construction

• The Term: "computer connected to the transfer device"

  • Context and Importance: The definition of this term is critical to determining whether the accused client-server architecture falls within the patent's scope. The patent was filed in 1999, and its embodiments focus on a local PC physically cabled to a peripheral, which differs from the modern cloud-based system accused of infringement.
  • Intrinsic Evidence for Interpretation:
    • Evidence for a Broader Interpretation: The specification discloses communication over a "public switched telephone network (PSTN) or a local area network (LAN)" (’633 Patent, col. 4:51-54), which may support an argument that the "connection" is not limited to a direct physical cable.
    • Evidence for a Narrower Interpretation: The patent's figures and detailed description consistently depict a "computer 14" connected to a "device 12" via a "cable 36" (’633 Patent, Fig. 1; col. 3:15-18). The disclosed embodiments involving "Plug and Play" polling also imply a direct peripheral-to-computer relationship (’633 Patent, col. 12:21-26).

• The Term: "merging the electronic data with the image"

  • Context and Importance: The infringement analysis for claim 19(d) depends on whether the accused app's functionality meets this limitation. Practitioners may focus on this term because the complaint's description of the accused "merging" is ambiguous.
  • Intrinsic Evidence for Interpretation:
    • Evidence for a Broader Interpretation: The term "merging" is not explicitly defined, which could support a construction that covers any combination of the "electronic data" and the "image," such as embedding metadata within the image file.
    • Evidence for a Narrower Interpretation: The primary examples of "merging" in the specification involve visually altering the image by adding a "bitmap" representing a "fixed message, logos or watermarks" (’633 Patent, col. 11:43-46; Fig. 9, T4). This could support a narrower construction requiring the combination to produce a visually modified image.

VI. Other Allegations

• Indirect Infringement: The complaint alleges contributory infringement, stating that Xero provides the Expenses app with knowledge that it is "especially made and adapted for use" in an infringing manner and that it is not a "staple article or commodity of commerce that is suitable for substantial non-infringing uses" (Compl. ¶¶31-32). The basis for inducement appears to be Xero's alleged advertising, promotion, and instruction for customers to use the app.
• Willful Infringement: The willfulness claim is based on alleged post-suit knowledge, asserting that Xero has willfully infringed "since at least the date that this Complaint was filed" (Compl. ¶26).

VII. Analyst’s Conclusion: Key Questions for the Case

• A core issue will be one of definitional scope: can the patent’s architecture, which describes an "image transfer device" physically cabled to a local "computer," be construed to read on the accused system, where a smartphone app communicates with remote, cloud-based servers over the Internet?
• A key evidentiary question will be one of functional operation: does the accused app's process of associating expense data with a scanned receipt constitute "merging the electronic data with the image" as specifically taught by the patent, which describes the visual addition of a bitmap? Furthermore, what evidence shows that the app "uploads" a "menu" from a server, rather than using a pre-installed menu to display server-retrieved data?