DCT
1:20-cv-07701
AML IP LLC v. Bakkt Clearing LLC
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: AML IP, LLC (Texas)
- Defendant: Bakkt Clearing, LLC, Bakkt Marketplace, LLC, Bakkt Trust Company LLC and Bakkt Holdings, LLC (Illinois)
- Plaintiff’s Counsel: Dinsmore & Shohl LLP
- Case Identification: 1:20-cv-07701, N.D. Ill., 12/15/2020
- Venue Allegations: Venue is asserted based on Defendants having a principal place of business in the Northern District of Illinois and allegedly committing acts of infringement in the district.
- Core Dispute: Plaintiff alleges that Defendant’s digital asset wallet and exchange platform infringes a patent directed to methods for conducting electronic commerce using vendor-issued electronic tokens.
- Technical Context: The technology concerns systems for online commerce that use a proprietary, stored-value token system to facilitate transactions, including micropayments, as an alternative to direct credit card payments for every purchase.
- Key Procedural History: The patent's front page indicates it is subject to a terminal disclaimer, which typically links its enforceable term to that of an earlier patent in its family, potentially shortening its expiration date. The complaint does not mention any other prior litigation or administrative proceedings involving the patent.
Case Timeline
| Date | Event |
|---|---|
| 2000-01-26 | Earliest Priority Date Claimed by ’189 Patent |
| 2008-02-05 | U.S. Patent No. 7,328,189 Issues |
| 2020-01-30 | Date of transaction shown in accused product screenshot |
| 2020-12-15 | Complaint Filed |
II. Technology and Patent(s)-in-Suit Analysis
- Patent Identification: U.S. Patent No. 7,328,189, Method and Apparatus for Conducting Electronic Commerce Transactions Using Electronic Tokens, issued February 5, 2008 (the "’189 Patent").
The Invention Explained
- Problem Addressed: The patent describes challenges in early electronic commerce, including the high overhead of credit card processing for low-cost "micropayments" and the security risks associated with frequently transmitting sensitive financial data over the internet (’189 Patent, col. 2:23-50). Existing electronic currency systems were noted to be complex, often requiring transactions to be handled by a third-party bank, which added overhead (’189 Patent, col. 2:51-col. 3:10).
- The Patented Solution: The invention proposes a system where a vendor directly issues and manages its own "electronic tokens." A user first establishes an account and purchases a balance of these tokens from a "first member vendor" (’189 Patent, col. 4:30-44). The user can then spend these tokens to purchase goods from that vendor or exchange them for tokens of a "second member vendor" to make purchases there, all within a coordinated "Mall Service Provider" (MSP) ecosystem that settles the inter-vendor transactions (’189 Patent, FIG. 15; col. 5:22-34). This method is designed to reduce transaction costs and minimize the exposure of users' primary financial information (’189 Patent, col. 4:26-34).
- Technical Importance: The described system provides a model for a self-contained digital transaction ecosystem, allowing for streamlined micropayments and creating a framework for interoperability between different online vendors using proprietary digital currencies (’189 Patent, col. 4:37-44).
Key Claims at a Glance
- The complaint asserts claims 1-13, with a preliminary infringement analysis focused on independent claim 1 (Compl. ¶12).
- Independent Claim 1 of the ’189 Patent recites these essential elements:
- Opening a user account with a first member vendor;
- Issuing electronic tokens of a first type to a user and adding them to the user account;
- Exchanging the first type of electronic tokens for a second type of electronic tokens issued by a second member vendor;
- Purchasing or renting products or services from the second member vendor using the second type of electronic tokens; and
- Transferring compensation from the first member vendor to the second member vendor.
- The complaint reserves the right to assert infringement of other claims, including dependent claims (Compl. ¶12).
III. The Accused Instrumentality
Product Identification
- The accused instrumentalities are Bakkt's "micropayment products and services," which include the Bakkt digital wallet application ("Bakkt App") and its associated platform (Compl. ¶12).
Functionality and Market Context
- The complaint alleges that the Bakkt platform allows users to create an account to aggregate, track, and spend various forms of "digital assets," including cryptocurrency, loyalty and rewards points, and in-game assets (Compl. PageID #4). The complaint includes a visual from the Bakkt App's "Activity" feed, which shows a user converting airline miles into U.S. dollars and purchasing Bitcoin, illustrating the platform's function as an aggregator and exchange for different asset types (Compl. PageID #6). The platform is marketed as a way to "convert all of your digital assets into cash" (Compl. PageID #4).
IV. Analysis of Infringement Allegations
Claim Chart Summary
- The complaint provides a preliminary, annotated claim chart alleging infringement of claim 1.
’189 Patent Infringement Allegations
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| opening a user account with a first member vendor; | The Bakkt platform provides a sign-up page for users to create a new account. A screenshot of this user account creation interface is provided as evidence. | ¶13, PageID #5 | col. 6:9-11 |
| issuing electronic tokens of a first type to a user, and adding the electronic tokens to a user account maintained by the first member vendor: | A user's account in the Bakkt App can hold various digital assets, such as converted airline miles or rewards from a coffee company. The complaint presents these as different types of "electronic tokens." | ¶13, PageID #6 | col. 4:30-36 |
| exchanging the electronic tokens in the user account for electronic tokens of a second type, the electronic tokens of the second type being issued by a second member vendor; | The platform allows a user to convert one asset (e.g., airline miles, considered a "first type" of token) into another asset (e.g., cash or Bitcoin, considered a "second type"). The "Activity" feed shows "Converted 10,000 Airline Miles into USD." | ¶13, PageID #7 | col. 5:31-34 |
| purchasing or renting products or services through the second member vendor using the electronic tokens of the second type, wherein prices for the products or services are listed in units of electronic tokens of the second type; and | A user can purchase products, such as Bitcoin, through the platform using the converted assets. The complaint provides a screenshot showing a user who "Bought Bitcoin." | ¶13, PageID #8 | col. 21:56-col. 22:3 |
| transferring compensation from the first member vendor to the second member vendor in an amount equal to the value of the electronic tokens of the second type. | When a user buys an asset like Bitcoin, the Bakkt platform allegedly facilitates the transfer of payment from itself (as the "first member vendor") to the asset seller (as the "second member vendor"). A "Crypto Activity" screenshot shows bitcoin buy and sell transactions. | ¶13, PageID #9 | col. 22:5-9 |
Identified Points of Contention
- Scope Questions: The infringement theory rests on a broad interpretation of the claim terms. A central dispute may arise over whether the patent’s "first member vendor" and "second member vendor" structure can be mapped onto the entities within the Bakkt ecosystem (e.g., Bakkt, an airline, a cryptocurrency exchange). The complaint’s allegations raise the question of whether Bakkt acts as a "first member vendor" issuing tokens, or as an exchange/aggregator of pre-existing, third-party assets.
- Technical Questions: The complaint alleges that converting disparate assets like airline miles into USD or cryptocurrency constitutes an "exchange" for "electronic tokens of a second type" that are "issued by a second member vendor." A key technical question will be what evidence demonstrates that a cash balance (USD) or a decentralized asset (Bitcoin) is an "electronic token" "issued" by a "second member vendor" in the manner described by the patent, which appears to contemplate a more centralized issuance process.
V. Key Claim Terms for Construction
The Term: "electronic token"
Context and Importance: The definition of this term is fundamental to the dispute. The infringement case depends on whether the term can be construed to cover the varied third-party digital assets (e.g., cryptocurrency, loyalty points) aggregated by the Bakkt platform, rather than just proprietary units of value created by a vendor. Practitioners may focus on this term because its scope determines whether the accused system, which aggregates external assets, falls within a patent that describes a system of internally issued assets.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The patent specification uses the term in conjunction with "electronic currency" and does not explicitly limit the token's technical format, which may support an argument that any digital representation of value within the system qualifies (e.g., ’189 Patent, col. 4:1-3).
- Evidence for a Narrower Interpretation: The Abstract states that "electronic tokens are issued and maintained by a vendor," and the detailed description repeatedly frames the invention around a vendor selling its own tokens for later redemption (’189 Patent, Abstract; col. 4:30-44). This language may support a narrower construction limited to tokens created and controlled by the vendor, not third-party assets like Bitcoin.
The Term: "member vendor" (including "first member vendor" and "second member vendor")
Context and Importance: The infringement allegations require mapping the complex relationships in the Bakkt ecosystem to the patent's two-vendor structure. The viability of this mapping will depend on how broadly "member vendor" is defined.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification describes a "Mall Service Provider (MSP)" that authorizes a "plurality of vendors web sites," which could be argued to encompass any commercial entity participating in the platform's network (’189 Patent, col. 5:22-24).
- Evidence for a Narrower Interpretation: Embodiments consistently describe "vendors" as entities that both issue their own distinct type of electronic token and offer products for sale in exchange for those tokens (’189 Patent, FIG. 15; col. 21:56-col. 22:9). This may support a narrower definition that requires an entity to perform both functions to qualify as a "member vendor," raising questions about whether a party like a cryptocurrency exchange "issues" tokens in the claimed manner.
VI. Other Allegations
- Indirect Infringement: The complaint alleges both induced and contributory infringement, asserting that Bakkt encourages and instructs its customers on how to use its services in a manner that infringes the ’189 Patent (Compl. ¶¶14-15).
- Willful Infringement: Willfulness is alleged based on the claim that Bakkt has known of the ’189 Patent and the technology "from at least the date of issuance of the patent" (Compl. ¶¶14-15). Based on this allegation, the plaintiff seeks treble damages and attorneys' fees (Compl. ¶V.d-e).
VII. Analyst’s Conclusion: Key Questions for the Case
- A core issue will be one of definitional scope: can the term "electronic token", which the patent describes as being issued and controlled by a vendor, be construed to cover the diverse, third-party digital assets (e.g., cryptocurrency, airline miles) that the accused Bakkt platform aggregates and converts?
- A central question of structural mapping will be whether the multi-party Bakkt ecosystem—involving Bakkt as a platform, users, and various external asset issuers and merchants—can be functionally aligned with the "first member vendor" and "second member vendor" framework required by Claim 1.
- A key evidentiary question will be one of technical operation: does the conversion of one asset type to another in the Bakkt App (e.g., miles to dollars) represent the "exchange" of tokens and subsequent "issuance" by a new vendor as contemplated by the patent, or is it a functionally distinct currency exchange mechanism outside the scope of the claims?