DCT

1:24-cv-00810

Modopayments LLC v. Volvo Financial Services LLC

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I. Executive Summary and Procedural Information

  • Parties & Counsel:
  • Case Identification: 1:24-cv-00810, D. Del., 08/22/2024
  • Venue Allegations: Venue is alleged to be proper in the District of Delaware because Defendant is a Delaware limited liability company and therefore resides in the district.
  • Core Dispute: Plaintiff alleges that Defendant’s continued use of Plaintiff's '/Checkout' payment orchestration platform, after the purported termination of a licensing agreement, infringes a patent related to managing and reconciling complex, multi-party digital payment transactions.
  • Technical Context: The lawsuit concerns payment orchestration platforms, a type of financial technology middleware designed to unify and manage communications between disparate payment systems, such as banks, payment processors, and merchants.
  • Key Procedural History: The complaint alleges the parties operated under a Master License and Services Agreement, which Defendant allegedly terminated. Plaintiff alleges it provided Defendant with notice of the patent-in-suit prior to the alleged infringement period. A related breach of contract action between the parties is pending in New York state court.

Case Timeline

Date Event
2016-09-08 '805 Patent Priority Date
2019-09-19 VFS and Modo enter into Master License and Services Agreement
c. 2021-12-01 VolvoPay platform goes into production using /Checkout
2022-01-04 U.S. Patent No. 11,216,805 issues
c. 2022-02-01 VFS allegedly put on notice of the '805 Patent
c. 2022-10-01 Alleged infringement begins after VFS terminates agreement
2023-04-21 Plaintiff files breach of contract action in New York state court
c. 2023-07-01 Plaintiff shuts down VFS's instance of /Checkout; alleged infringement ends
2024-08-22 Complaint Filing Date

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

U.S. Patent No. 11,216,805 - COIN OPERATED DIGITAL PAYMENTS HUB, issued January 4, 2022

The Invention Explained

  • Problem Addressed: The patent's background describes the increasing complexity of modern payment transactions, which can involve numerous entities (banks, retailers, payors), systems, and protocols in a single purchase. This fragmentation creates opportunities for data loss, fraud, security risks, and significant difficulties in tracking and reconciling payments (Compl. ¶34; ’805 Patent, col. 2:47-56).
  • The Patented Solution: The invention proposes a centralized "payment event data hub" that uses a unique identifier, termed a "COIN," to represent and manage an entire financial transaction from end to end. This COIN serves as a unified transaction ledger and translation hub, modeling the various real-world accounts and facilitating communication between different payment systems using their native protocols. The system tracks the lifecycle of the transaction through a series of defined states (e.g., "pressed," "stamped," "circulated"), ensuring that all financial movements can be reconciled ('805 Patent, Abstract; col. 6:5-27).
  • Technical Importance: This technology offers a solution to the operational friction in the digital payments industry by creating a "meta" layer that can orchestrate value movement between otherwise incompatible systems without requiring those underlying systems to change ('805 Patent, col. 6:35-44).

Key Claims at a Glance

  • The complaint asserts infringement of at least independent claim 1 (Compl. ¶61).
  • The essential elements of independent claim 1 include:
    • One or more servers for receiving payment event data.
    • A "vault" for storing the data in a database structured around a "COIN," which is an identifier associating a series of operations into a complete transaction.
    • A "COIN application programming interface (API)" to communicate with a payer and payee.
    • A "source connector" and a "destination connector" to communicate with source and destination payment systems.
    • A requirement that the servers are operable to perform a series of specific functions, including determining a fund flow path using a directed acyclic graph (DAG), using a "proof COIN" with rules for fund transfer, making ledger entries, and determining account balances using double entry accounting.
  • The complaint expressly reserves the right to assert additional claims (Compl. ¶63).

III. The Accused Instrumentality

Product Identification

  • Defendant's use of Plaintiff's '/Checkout' system between October 2022 and July 2023 (Compl. ¶53, 63). The complaint alleges this use was to support Defendant's own payment platform, "VolvoPay" (Compl. ¶38).

Functionality and Market Context

  • The complaint describes '/Checkout' as a cloud-based "payments orchestration platform" that connects a business's external payment services (e.g., processors, banks) with its internal systems (e.g., e-commerce platforms, ERP systems) (Compl. ¶12). The platform is alleged to use a "COIN®" to orchestrate the movement of data and funds between different sources and destinations (Compl. ¶14). The complaint includes a diagram illustrating the accused system's architecture, which includes components for an API, a Vault for secure data storage, and Connectors for communicating with external payment service providers (PSPs) (Compl. ¶26). The complaint also provides a screenshot from the '/Checkout' user-facing "Modal" application, which captures payment details from an end-user (Compl. ¶44).

IV. Analysis of Infringement Allegations

'805 Patent Infringement Allegations

Claim Element (from Independent Claim 1) Alleged Infringing Functionality Complaint Citation Patent Citation
A system for converting data related to payment events..., the system comprising: one or more servers operable to receive data about a payment event including one or more of a participant identifying data, one or more financial account numbers, one or more monetary amounts, and a status of the payment... The '/Checkout' system is hosted on cloud servers (AWS) that receive data about payment events via API requests containing fields such as "payer," "payment instrument," and "order total." ¶24, ¶25 col. 29:2-10
a vault... operable to store said data within a database comprising a predetermined structure comprising a COIN, wherein the COIN serves as an identifier that associates a series of operations into a complete transaction; The '/Checkout' system includes a "Vault" that stores payment data in a database structured with a "COIN," which is alleged to be an identifier associating a series of operations to complete a transaction. This is illustrated in a diagram provided by the complaint. ¶26, ¶27, ¶28 col. 29:11-15
a COIN application programming interface operable to communicate with a payer and a payee related to a payment event; The '/Checkout' system includes a "COIN API" that allegedly communicates with a payer and payee related to a payment event. ¶29 col. 29:16-18
a source connector... and a destination connector... operable to communicate with a source payment system associated with the payer; and... a destination payment system associated with the payee; The '/Checkout' system includes "Connectors" that are one or more servers communicating with source and destination payment systems. ¶30 col. 29:19-24
wherein the one or more servers are operable to: determine a flow path of funds amongst the determined accounting ledgers... wherein the flow path comprises a directed acyclic graph (DAG)... use the proof COIN to create the COIN; make ledger entries... and determine whether the one or more COIN accounts in the COIN balance using double entry accounting; Servers in the '/Checkout' system are alleged to perform these functions, including determining a flow path of funds comprising a DAG, using a "proof COIN" to create the COIN, making ledger entries, and determining balances using double entry accounting. ¶31 col. 29:34-46

Identified Points of Contention

  • Legal Question (Nature of "Use"): The central issue appears to be legal rather than technical. The complaint alleges Defendant, a former licensee, directly infringed by "using" Plaintiff's '/Checkout' system, a Software-as-a-Service (SaaS) platform (Compl. ¶42, 62). A key question for the court will be whether making API requests to and receiving benefits from a third-party hosted platform constitutes "use" of the claimed "system" under 35 U.S.C. § 271(a), sufficient to establish direct infringement.
  • Factual Question (Control and Benefit): The infringement analysis may depend on what level of control Defendant exercised over the '/Checkout' system and what benefit it obtained. The complaint alleges VFS "controlled and benefited from each of the claimed elements" by making API requests (Compl. ¶62), which suggests the case may turn on evidence demonstrating how VFS's actions put the entire claimed system into service for its benefit.
  • Scope Question: A potential dispute may arise over whether Defendant's actions, as a user of a service, satisfy the limitations of a system claim, which requires all elements of the claimed system to be put into service.

V. Key Claim Terms for Construction

The Term: "system for converting data..." (preamble)

  • Context and Importance: This preamble term may be argued by the defense to be limiting. The definition of "system" is critical because Defendant was a user of a SaaS platform, not the owner or operator of the backend infrastructure. Practitioners may focus on this term to dispute whether Defendant "used" the entire claimed system as required for direct infringement.
  • Intrinsic Evidence for a Broader Interpretation: The claim body recites a collection of functionally distinct components (servers, vault, API, connectors) that could be argued to form a "system" regardless of their physical location or ownership, as long as they are collectively put into service (col. 29:5-24).
  • Intrinsic Evidence for a Narrower Interpretation: The patent repeatedly describes the invention as a "hub" or "platform" (e.g., col. 6:5-9), which could support an argument that the "system" is a unitary whole. The fact that Plaintiff provided '/Checkout' as a "dedicated instance... as a service" (Compl. ¶42) may be used to argue Defendant only used a service, not the underlying system itself.

The Term: "COIN"

  • Context and Importance: This term is central to the invention's novelty. Its construction will determine whether the "COIN®" feature of the accused '/Checkout' platform meets the claim limitation.
  • Intrinsic Evidence for a Broader Interpretation: Claim 1 provides an explicit definition: "an identifier that associates a series of operations into a complete transaction" (col. 29:13-15). Plaintiff may argue the term should not be limited beyond this express definition.
  • Intrinsic Evidence for a Narrower Interpretation: The specification describes the "COIN" with significant functional detail, including a lifecycle managed by a state machine with specific states like "pressed," "stamped," "circulated," and "certified" ('805 Patent, Fig. 3; col. 12:49-65). A defendant could argue these detailed descriptions inform and narrow the meaning of "COIN" to something more than a simple identifier.

VI. Other Allegations

  • Willful Infringement: The complaint alleges that Defendant's infringement was willful. This allegation is based on Plaintiff having provided Defendant with notice of the issued '805 Patent in February 2022, prior to the start of the alleged infringing activity in October 2022 (Compl. ¶35, ¶65).

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

  • A primary issue will be one of infringement by use: Does a customer's act of making API requests to a third-party SaaS platform constitute "using" the provider's patented "system" under 35 U.S.C. § 271(a)? The resolution will likely depend on factual evidence regarding the degree of control the defendant exercised and the benefit it received from the system as a whole.
  • The case also presents a core commercial dispute framed as patent infringement: The central conflict arises from a prior licensing relationship and its alleged termination. While the parallel state court action will address the contract, the patent case's viability hinges on the factual finding that Defendant's use was unlicensed.
  • A key claim construction question will be one of definitional scope: Will the term "system" be construed broadly enough to read on the actions of a SaaS customer, and will the term "COIN" be limited to its explicit definition in the claim or narrowed by the more detailed functional embodiments described in the specification?