DCT

2:18-cv-02495

DTN LLC v. Farms Technology LLC

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Key Events
Complaint

I. Executive Summary and Procedural Information

  • Parties & Counsel:
  • Case Identification: 2:18-cv-02495, D. Kan., 09/14/2018
  • Venue Allegations: Venue is alleged to be proper in the District of Kansas because Defendants are subject to personal jurisdiction in the district, have directed business and licensing activities there, and a substantial part of the events giving rise to the claims occurred in the district.
  • Core Dispute: Plaintiff, a licensee, seeks a declaratory judgment that Defendant’s patents are invalid and unenforceable, and alleges it was fraudulently induced to pay $7 million for a license to this patent portfolio.
  • Technical Context: The technology relates to electronic platforms for automating agricultural commodities trading, including functions for automatically executing hedge transactions on a commodities exchange.
  • Key Procedural History: The dispute arises from a January 2014 exclusive license agreement. Plaintiff alleges that the Supreme Court’s June 2014 decision in Alice Corp. v. CLS Bank rendered the licensed patents invalid under 35 U.S.C. §101. The complaint also alleges Defendant committed inequitable conduct by withholding material prior art (the "USAfutures.com" prior art) during prosecution of two patents. Plaintiff notes it has filed Inter Partes Review petitions challenging U.S. Patent Nos. 7,991,685 and 7,742,979.

Case Timeline

Date Event
2000-10-18 Earliest Priority Date for ’423 and ’979 Patents
2002-08-01 Earliest Priority Date for ’475 and ’685 Patents
2008-08-26 U.S. Patent No. 7,418,423 Issues
2010-06-22 U.S. Patent No. 7,742,979 Issues
2010-11-23 U.S. Patent No. 7,840,475 Issues
2011-02-23 Earliest Priority Date for ’858 Patent
2011-08-02 U.S. Patent No. 7,991,685 Issues
2013-09-17 U.S. Patent No. 8,538,858 Issues
2014-01-XX DTN and Farms Tech enter exclusive license agreement
2014-06-19 U.S. Supreme Court issues Alice Corp. decision
2014-XX-XX License payments from DTN to Farms Tech begin
2015-04-01 Farms Tech expressly abandons U.S. Patent App. No. 14/011,229
2017-XX-XX License payments from DTN to Farms Tech conclude
2018-09-14 Complaint filed

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

U.S. Patent No. 7,742,979 - “System and Method for Automated Commodities Transactions Including an Automatic Hedging Function”

The Invention Explained

  • Problem Addressed: The patent describes the process of trading agricultural commodities between producers (e.g., farmers) and intermediaries (e.g., elevator operators) as complex, slow, and tedious when performed manually. This process requires multiple phone calls to determine prices, secure futures contracts to minimize risk, and ratify agreements, and is limited by the business hours of the commodities exchanges (U.S. Patent No. 7,418,423 B2, col. 3:1-41; this patent is a parent to the ’979 patent and shares its specification).
  • The Patented Solution: The invention provides an electronic marketplace that connects producers, elevator operators, and commodities exchanges. The system allows an elevator operator to post predefined bids based on a "basis price." The system then obtains real-time prices from the commodity exchange, calculates a unique "flat price" for the producer, and displays it. When a producer accepts a bid, the system automatically attempts to secure a corresponding futures contract on the exchange to hedge the transaction for the elevator operator, automating what was previously a manual, multi-step negotiation (U.S. Patent No. 7,418,423 B2, col. 4:5-50).
  • Technical Importance: The invention aimed to increase the efficiency and accessibility of local agricultural commodity trading by automating the price calculation and risk-hedging components, allowing for transactions to occur without direct human intervention from the buyer (elevator operator) at the moment of the trade (U.S. Patent No. 7,418,423 B2, col. 4:46-54).

Key Claims at a Glance

  • The complaint seeks a declaratory judgment of invalidity against the patent generally; Claim 1 is the first independent claim.
  • Claim 1 of U.S. Patent 7,418,423 (parent to '979 patent) includes these essential elements:
    • Receiving bid information for a commodity from a plurality of buyers, including a buyer-specific basis.
    • Storing the bid information.
    • Repetitively receiving an updated commodity exchange price.
    • Calculating a buyer-specific flat price for each buyer based on their basis and the updated exchange price.
    • Receiving an offer from a seller to sell a quantity of the commodity to a buyer at that buyer's specific flat price.
    • In response, attempting to secure a futures contract on behalf of the buyer.
    • If successful, generating a contract between the buyer and seller.
    • Performing these steps automatically without intervention from the buyer.

U.S. Patent No. 7,840,475 - “Methods and Systems for Purchase of Commodities”

The Invention Explained

  • Problem Addressed: The patent addresses the difficulty and inefficiency commodity buyers (e.g., grain elevators) face in procuring grain. The process involves numerous phone calls to producers to find sellers and negotiate prices, which is complicated by constantly fluctuating futures prices and local basis levels, making it hard to execute transactions in an orderly fashion (’475 Patent, col. 1:67-2:12).
  • The Patented Solution: The invention provides a network platform where a buyer can post bid data, including a desired basis level. Sellers can view this bid data and submit their own sell data. The system monitors the bid and sell data to identify when a seller's price conforms to a buyer's basis bid. When a match occurs, the system automatically alerts both parties and can be programmed to automatically transmit an order to an introducing broker or futures clearing merchant to execute a hedge transaction for the buyer (’475 Patent, col. 1:35-49). Figure 1 of the patent illustrates this six-step workflow.
  • Technical Importance: This technology provided a centralized electronic platform to replace the inefficient, phone-based system of price discovery and transaction, and integrated the separate step of placing a hedge order into the automated workflow of the purchase itself (’475 Patent, col. 3:1-16).

Key Claims at a Glance

  • The complaint seeks a declaratory judgment of invalidity against the patent generally; Claim 1 is the first independent claim.
  • Claim 1 includes these essential elements:
    • A data storage device and a processor.
    • A plurality of buyer interfaces that receive hedge transaction data and bid data (including a basis) from buyers.
    • A network connection to a commodity exchange that receives real-time exchange rate quotes.
    • A bid generating program that periodically updates the bid price for each buyer by subtracting the buyer's basis from the real-time exchange rate.
    • A seller interface that displays bid data to a seller and receives sell data (including a net sell price and transaction costs).
    • An offer generating program that updates sell data to include specific offers for each buyer.
    • A conformance monitoring program that compares each buyer's bid data to each seller's specific offer and sends an alert if a match is detected.

U.S. Patent No. 7,991,685 - “Methods and Systems for Managing Commodity Transactions”

  • Technology Synopsis: This patent, a continuation of the application leading to the ’475 Patent, is also directed to a system for purchasing commodities with automated hedging. It describes a platform where buyers post bid data based on a basis, sellers submit sell data, and the system monitors for a match to automatically alert the parties and execute a hedge transaction (Compl. ¶ 27; ’685 Patent, Abstract).
  • Asserted Claims: The complaint seeks a declaratory judgment of invalidity against the patent generally; Claim 1 is the first independent claim.
  • Accused Features: The patent is part of the licensed "e-Pit Portfolio" technology that Plaintiff alleges is invalid (Compl. ¶¶ 27, 59).

U.S. Patent No. 8,538,858 - “Apparatus and Method for Commodity Trading with Automatic Odd Lot Hedging”

  • Technology Synopsis: This patent addresses the problem of "odd lot" offers—offers for quantities of a commodity that are smaller than the minimum size for a standard futures contract. The invention describes a system that automatically accepts and aggregates these odd lot offers until they reach a predetermined threshold, at which point the system automatically calculates and secures the optimum number of full lot futures contracts to hedge the aggregated offers (’858 Patent, Abstract).
  • Asserted Claims: The complaint seeks a declaratory judgment of invalidity against the patent generally; Claim 1 is the first independent claim.
  • Accused Features: The patent is part of the licensed "e-Pit Portfolio" technology that Plaintiff alleges is invalid (Compl. ¶¶ 27, 59).

III. The Accused Instrumentality

Product Identification

  • The "e-Pit hedging technology and platform," which is the subject of the license agreement between the parties (Compl. ¶ 26).

Functionality and Market Context

  • The complaint describes the licensed technology as a portfolio of patents covering an "automated, computerized means of processing commodities' orders" (Compl. ¶ 36). Its purpose was to replace a "labor-intensive process that had been complex, slow, and tedious for both the buyer and seller when performed manually" (Compl. ¶ 36). Plaintiff DTN sought a license to this technology in 2014 to "enhance and further automate" its own Grain Trading Portal by adding an "auto hedging" capability (Compl. ¶ 25).

No probative visual evidence provided in complaint.

IV. Analysis of Invalidity Allegations

The complaint does not allege infringement but instead seeks a declaratory judgment that the patents are invalid under 35 U.S.C. §101 in light of Alice Corp. The core theory is that the patents claim the abstract idea of hedging, a fundamental economic practice, implemented on a generic computer system (Compl. ¶¶ 37, 59).

’979 Patent Invalidity Allegations (based on parent ’423 Patent, Claim 1)

Claim Element (from Independent Claim 1) Alleged Basis for Invalidity (per Complaint's Theory) Complaint Citation Patent Citation
(a) receiving on the net market system bid information for a plurality of buyers...the bid information including for each buyer in the plurality of buyers a buyer-specific basis for the commodity; The complaint alleges this describes the fundamental economic practice of receiving and organizing commercial bids. ¶¶ 37, 59 col. 12:5-9
(c) repetitively receiving an updated commodity exchange price for the commodity and calculating for each buyer...a buyer-specific flat price based on the buyer-specific basis... This describes the longstanding business practice of calculating a local price by applying a basis (margin/cost) to a benchmark exchange price. ¶¶ 15, 36-37, 59 col. 12:12-18
(d) receiving an offer from a seller to sell an offered quantity of the commodity...at the buyer-specific flat price...; This describes the basic commercial act of a seller making an offer in response to a buyer's price. ¶¶ 36, 59 col. 12:19-23
(e) responsive to receiving the offer, attempting to secure a futures contract for the commodity on behalf of said at least one buyer based on the offer; This describes the abstract idea of hedging a commercial transaction, which the complaint alleges the Supreme Court in Alice identified as unpatentable. ¶¶ 37, 59 col. 12:24-27
(g) wherein steps (c) through (f) are carried out automatically by the net market system without intervention from said at least one buyer. The complaint alleges this is merely an instruction to implement the abstract idea of hedging on a generic computer, which does not supply an inventive concept. ¶¶ 37, 59 col. 12:31-34
  • Identified Points of Contention:
    • Scope Questions: A central question for the court will be whether the claims, as a whole, are directed to the abstract idea of intermediated settlement and hedging, as Plaintiff alleges (Compl. ¶ 37), or if they are directed to a specific improvement in computer functionality.
    • Technical Questions: The analysis will likely focus on whether the claimed "net market system" and its automatic functions constitute an "inventive concept." The question is whether the patent describes a specific technical solution that improves the functioning of the computer itself, or whether it merely uses a computer as a tool to perform a well-known business practice more efficiently.

V. Key Claim Terms for Construction

  • The Term: "net market system" (from claim 1 of the ’423 patent, parent to the ’979 patent).
  • Context and Importance: The definition of this term is critical for the §101 analysis. If construed broadly as any generic networked computer system, it may support the Plaintiff’s argument that the claims simply automate an abstract idea. If construed narrowly to require specific architectural or functional components that represent a technical improvement, it may support the patent's validity.
  • Intrinsic Evidence for Interpretation:
    • Evidence for a Broader Interpretation: The specification describes the system operating over the "Internet" using standard "client terminal[s]" and "server[s]" with "HTTP protocol," suggesting the use of conventional, general-purpose computer components (U.S. Patent No. 7,418,423 B2, col. 7:50-8:1).
    • Evidence for a Narrower Interpretation: The specification describes the "Net Market 45" as a "global electronic marketplace" providing each operator with their "own representative customized exchange display" and performing specific automated functions like real-time flat price calculation and automatic hedging (U.S. Patent No. 7,418,423 B2, col. 7:4-25). This could be argued to describe a specific, non-generic platform.

VI. Other Allegations

  • Fraud and Unjust Enrichment: The complaint alleges that Defendant Farms Tech knew its e-Pit Portfolio was invalid after the Alice decision but continued to represent the patents as valid to induce DTN to continue making license payments, ultimately totaling $7,000,000 (Compl. ¶¶ 40, 57, 100-101). Plaintiff alleges this constitutes fraud and unjust enrichment.
  • Inequitable Conduct: The complaint alleges that Defendants deliberately withheld material prior art, specifically the "USAfutures.com" prior art, from the USPTO during the prosecution of the ’475 and ’685 patents with an intent to deceive the agency (Compl. ¶¶ 2, 42, 132). The complaint notes that this same prior art was the basis for a rejection in a related application, showing Defendants were aware of its materiality (Compl. ¶ 133). This forms the basis for a request to declare the ’475 and ’685 patents unenforceable.

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

This case appears to center on two fundamental questions for the court:

  • A question of patent eligibility: Are the claims of the e-Pit Portfolio directed to the abstract idea of automating commodity hedging, a fundamental economic practice, or do they recite a specific, concrete technological improvement to computer functionality? The resolution will depend on whether the claimed elements, alone or in combination, provide an "inventive concept" sufficient to transform the abstract idea into a patent-eligible application under the framework of Alice.
  • A question of enforceability and fraud: What did the Defendant know about the validity of its patents and when? The court will need to determine whether the Defendant intentionally withheld material prior art from the USPTO, which could render the patents unenforceable, and whether it knowingly misrepresented the validity of the patents to the Plaintiff after the Alice decision, which could support the claims of fraud.