DCT
2:22-cv-00498
Veritaseum Capital LLC v. Circle Internet Financial Ltd
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: Veritaseum Capital, LLC (Wyoming)
- Defendant: Circle Internet Financial Limited (Ireland); Cybavo Inc. (Taiwan)
- Plaintiff’s Counsel: Brundidge & Stanger, P.C.
- Case Identification: 2:22-cv-00498, E.D. Tex., Filed 12/29/2022
- Venue Allegations: Venue is asserted under 28 U.S.C. § 1391(c)(3), which permits suing a defendant not resident in the United States in any judicial district.
- Core Dispute: Plaintiff alleges that Defendants’ cryptocurrency infrastructure and financial services, including the USDC stablecoin and validator node operations, infringe a patent related to methods for facilitating secure, low-trust value transfers on digital networks.
- Technical Context: The technology operates within the blockchain and decentralized finance (DeFi) domain, addressing the need for complex, conditional transactions between parties who may not trust each other.
- Key Procedural History: The complaint alleges Defendants had pre-suit knowledge of the patent based on a lawsuit Plaintiff filed against Circle's partner, Coinbase Global, Inc., on September 22, 2022, and an explicit notice letter sent to Defendants on October 19, 2022.
Case Timeline
| Date | Event |
|---|---|
| 2014-05-09 | '566 Patent Priority Date |
| 2021-12-07 | '566 Patent Issue Date |
| 2022-06-01 | Approx. date Circle acquired Cybavo |
| 2022-08-10 | Ethereum Goerli public testnet merge completed |
| 2022-09-15 | Approx. date Ethereum completed migration to Proof-of-Stake |
| 2022-09-22 | Plaintiff filed suit against Coinbase, allegedly putting Circle on notice |
| 2022-10-19 | Plaintiff sent explicit notice letter to Defendants |
| 2022-12-29 | Complaint Filing Date |
II. Technology and Patent(s)-in-Suit Analysis
- Patent Identification: U.S. Patent No. 11,196,566, “DEVICES, SYSTEMS, AND METHODS FOR FACILITATING LOW TRUST AND ZERO TRUST VALUE TRANSFERS,” Issued December 7, 2021.
The Invention Explained
- Problem Addressed: The patent addresses the costs and risks associated with transactions between remote parties who lack mutual trust. Traditional solutions like letters of credit rely on costly intermediaries, while early decentralized digital currency systems were often too complex for laypersons to use for anything other than simple payments. (’566 Patent, col. 1:41-2:42, 3:32-49).
- The Patented Solution: The invention describes a system architecture involving a "facilitator" computing device that coordinates a conditional value transfer between two "client" devices over a transfer mechanism, such as a blockchain. The facilitator receives terms for an agreement, helps construct the necessary transaction records using asymmetric cryptography, and publishes them, thereby enabling complex, automated agreements (e.g., swaps, digital letters of credit) without requiring the parties to have deep technical expertise or to fully trust a central intermediary. (’566 Patent, Abstract; col. 8:50-9:7).
- Technical Importance: The technology aims to provide a framework for abstracting the complexity of programmable ledgers, making sophisticated, multi-party financial instruments more accessible and secure in a decentralized environment. (’566 Patent, col. 6:46-54).
Key Claims at a Glance
- The complaint asserts independent claim 1 and dependent claims 2, 3, 4, and 6. (Compl. ¶53).
- The essential elements of independent claim 1, a device claim, include:
- A computing device for processing a transaction via a transfer mechanism comprising a decentralized digital currency.
- A memory for storing a first asymmetric key pair (comprising a first private key and a first public key).
- A network interface for receiving terms, including principal data, a reference to a data source, and an expiration timestamp.
- A computer processor coupled to the memory and network interface, configured to:
- read the first private key from the memory;
- compute a first cryptographic signature from the first private key;
- create an inchoate data record comprising a commit input, output data, and the signature; and
- publish the inchoate data record to a client device.
- The claim further specifies that the system uses a distributed ledger, the inchoate data record is used by a client to create a complete data record for broadcast, and a client device signs the inchoate record and verifies the final transaction by observing an external state. (’566 Patent, col. 37:20-38:49).
III. The Accused Instrumentality
Product Identification
The complaint accuses a suite of products and services offered by Circle and its subsidiary Cybavo. These include Circle's USDC stablecoin, the Circle Platform, Circle APIs, Circle Wallets, and Cybavo's services for Staking, Cold Storage, and operating Public Validator nodes on various blockchains. (Compl. ¶¶39, 54, 56).
Functionality and Market Context
The accused services are alleged to provide the infrastructure for participating in and conducting transactions on Proof-of-Stake (PoS) blockchains like Ethereum. This includes operating validator nodes, which process and validate transaction blocks, as well as minting, transferring, and swapping digital assets like USDC. (Compl. ¶¶39-41). The complaint alleges that these services, particularly those related to the USDC stablecoin and validator infrastructure, generate substantial revenue for the Defendants. (Compl. ¶44).
IV. Analysis of Infringement Allegations
The complaint repeatedly references a claim chart exhibit (Ex. 3) that was not included with the filed document. The following summary is based on the narrative infringement allegations in the body of the complaint. (Compl. ¶¶57-78).
’566 Patent Infringement Allegations
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| A computing device for processing a transaction...via a transfer mechanism comprising a decentralized digital currency | The "Circle Platform" or "Circle Cybavo Cloud System," described as a combination of computers and servers that facilitate transactions on the Ethereum network using Ether. | ¶58, ¶63, ¶74 | col. 37:20-24 |
| a memory for storing a first asymmetric key pair... | The memory within Validator Node devices, which stores key pairs generated for prospective validators on the Ethereum network. | ¶61, ¶62, ¶66 | col. 37:26-28 |
| a network interface for receiving terms, the terms comprising... | The Validator Node devices receive terms, such as the 32 ETH stake required to become a validator, which is identified as the "first principal data." An epoch end is identified as the "expiration timestamp." | ¶61, ¶67, ¶69 | col. 37:29-36 |
| a computer processor...configured to... | The physical processors (e.g., Intel, AMD) in the Validator Node devices that execute the software instructions for transaction processing. | ¶62 | col. 37:37-40 |
| read the first private key from the memory | The accused device reads a user's private key from memory via a Wallet application to authenticate the user before they can use the application. | ¶71 | col. 37:41 |
| compute a first cryptographic signature... | The complaint alleges the device is configured to perform this step as part of the overall transaction process. | ¶70 | col. 37:42-43 |
| create an inchoate data record... | The First Client (a Circle validator) is alleged to create a "Complete Data Record" and sign it. | ¶72 | col. 37:44-45 |
| publish the inchoate data record to at least one of the first client device or the second client device | The device publishes the record via a "Complete Data Record that was created and signed by the first client." | ¶73 | col. 37:49-51 |
| wherein the inchoate data record is used by at least one of the first client device...to create a complete data record... | The complaint alleges this is performed by Circle's products and services, which create a transaction by broadcasting a complete data record. | ¶75 | col. 37:55-60 |
| wherein at least one of the first client device...verifies the recording of the complete data record...by observing an external state | This feature is alleged to be conducted by Circle products and services, particularly the Circle validators. | ¶77 | col. 38:43-49 |
No probative visual evidence provided in complaint.
- Identified Points of Contention:
- Scope Questions: The patent’s figures and description often depict a system with three distinct entities: a "facilitator", a "first client device", and a "second client device". The complaint alleges that the "computing device" (facilitator) and the "first client device" are the same entity (a Circle-operated validator node), and the "second client device" is a "prospective Validator Node." (Compl. ¶¶60, 64-65). This raises the question of whether the claimed three-party architecture can read on an accused two-party system where one party is "prospective."
- Technical Questions: Claim 1 requires the creation and publication of an "inchoate data record". The complaint, however, alleges that the accused system creates and signs a "Complete Data Record." (Compl. ¶72). What evidence the complaint provides that the accused system first creates a specifically "inchoate" (i.e., incomplete) record, as distinct from a "complete" record, may be a central factual dispute.
V. Key Claim Terms for Construction
The Term: "computing device"
Context and Importance: The definition of this term is critical because the complaint alleges that the claimed "computing device" (the facilitator) and the "first client device" are the same entity. (Compl. ¶¶60, 64). Whether the claims require these to be distinct entities could be dispositive for infringement. Practitioners may focus on this term because the patent's primary embodiment (FIG. 1) shows them as separate, but the specification contains language that may allow them to be combined.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification states that "aspects of one or both of the first client and the second client could coincide with the facilitator" and that client functionality could be ""embedded" in the facilitator." (’566 Patent, col. 9:43-50; col. 20:42-54). This language may support an interpretation where the facilitator and a client are the same device.
- Evidence for a Narrower Interpretation: FIG. 1, the patent's primary system diagram, clearly depicts the "Facilitator" (100), "Client A" (160), and "Client B" (170) as separate and distinct components. An argument could be made that this figure illustrates the intended architecture, and the "coincide" language refers only to minor functional overlap, not a complete merger of entities.
The Term: "inchoate data record"
Context and Importance: Claim 1 recites creating an "inchoate data record," which is then used to create a "complete data record." (Compl. ¶72; ’566 Patent, col. 37:55-58). The complaint alleges the accused system creates a "Complete Data Record." (Compl. ¶72). The distinction between an "inchoate" and a "complete" record is therefore central to the infringement analysis.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The patent does not provide a formal definition of "inchoate." A party could argue that any transaction record that has been created but not yet finalized on the distributed ledger is "inchoate" in nature.
- Evidence for a Narrower Interpretation: The plain meaning of "inchoate" is "just begun" or "not fully formed." Furthermore, the claim language itself creates a distinction by stating the "inchoate data record" is used to create a "complete data record", which strongly suggests they are different things at different stages of a process. (’566 Patent, col. 37:55-60). The detailed steps in the specification also describe creating an inchoate record and then later creating a complete record from it, reinforcing this two-step interpretation. (’566 Patent, col. 12:35-13:10).
VI. Other Allegations
- Indirect Infringement: The complaint alleges inducement by encouraging and instructing customers on how to use the infringing services. (Compl. ¶49). It also alleges contributory infringement, asserting that Defendants' products constitute a material part of the claimed invention and are not staple articles of commerce suitable for substantial non-infringing use. (Compl. ¶48).
- Willful Infringement: The willfulness claim is based on alleged pre-suit knowledge of the ’566 Patent. The complaint cites a notice letter sent on October 19, 2022, as well as a prior lawsuit filed against Circle's partner, Coinbase, on September 22, 2022, as events that put Defendants on notice. (Compl. ¶¶17-18).
VII. Analyst’s Conclusion: Key Questions for the Case
- A core issue will be one of architectural scope: can the patent's claimed system, which describes a three-party architecture of a facilitator and two clients, be construed to cover Defendants' accused system, where the facilitator and first client are alleged to be the same entity and the second client is a "prospective" participant?
- A key evidentiary question will be one of process mismatch: does Circle's accused system perform the specific two-step process required by Claim 1—first creating an "inchoate data record" and then using it to create a "complete data record"—or does it create a fully formed record from the outset, potentially falling outside the literal scope of the claim?
- A third question will relate to damages and willfulness: assuming infringement is found, the court will need to determine the appropriate royalty base for an invention related to infrastructural processes in the complex and valuable DeFi ecosystem, and whether Defendants' alleged knowledge from the Coinbase litigation or the notice letter constitutes the "egregious" conduct necessary for a finding of willfulness.