Cardtek Intl Inc v. Kroger Co

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Cardtek International, Inc. (Kansas)
  • Defendant: The Kroger Co. (Ohio)
  • Plaintiff’s Counsel: Schiffer Hicks Johnson PLLC; Gillam & Smith LLP
• Case Identification: 2:23-cv-00045, E.D. Tex., 05/15/2023
• Venue Allegations: Venue is alleged to be proper in the Eastern District of Texas because Defendant has a permanent and continuous presence, operates stores, commits alleged acts of infringement, and maintains regular and established places of business within the district.
• Core Dispute: Plaintiff alleges that Defendant’s customer loyalty and payment systems, which allow for payment using a combination of rewards points and traditional funds at fuel centers, infringe patents related to converging multiple, independent payment sources into a single transaction at a point of sale.
• Technical Context: The technology relates to point-of-sale systems that can process a single transaction by drawing funds or value from multiple, distinct sources, such as a loyalty program and a credit card account.
• Key Procedural History: The complaint does not mention any prior litigation, IPR proceedings, or licensing history related to the patents-in-suit. The asserted patents are part of a family stemming from a 2002 provisional application, with the '770 and '818 patents being continuations of the application that led to the '593 patent.

Case Timeline

Date	Event
2002-06-20	Priority Date for '593, '770, and '818 Patents
2006-05-02	U.S. Patent No. 7,039,593 Issued
2013-12-03	U.S. Patent No. 8,600,770 Issued
2020-04-21	U.S. Patent No. 10,628,818 Issued
2023-05-15	Complaint Filed

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

U.S. Patent No. 7,039,593 - "Payment Convergence System and Method"

• Patent Identification: U.S. Patent No. 7039593, “Payment Convergence System and Method,” issued May 2, 2006.

The Invention Explained

• Problem Addressed: The patent describes the inefficiency and complexity for consumers and providers (e.g., healthcare offices) when a single transaction requires payment from multiple independent sources, such as a health insurance plan, a supplemental line of credit, and a personal credit card. (’593 Patent, col. 2:25-3:18). This process traditionally required separate, sequential inquiries and authorizations for each payment source, creating delays and uncertainty. (’593 Patent, col. 2:40-51).
• The Patented Solution: The invention proposes a system and method where information about multiple payment sources (e.g., insurance, credit card) is stored on a single "portable storage medium," such as a Smart Card. (’593 Patent, Abstract; col. 4:40-45). At the point of sale, a terminal reads this "convergence information" and processes it to determine how to allocate the total transaction cost among the various sources hierarchically, and then communicates with those sources to secure the full payment in a single, converged transaction. (’593 Patent, col. 4:46-54).
• Technical Importance: This approach aimed to streamline complex transactions by bundling multiple payment applications into a single vehicle, automating the determination of benefits and co-pays, and securing funds from all sources at the point of sale. (’593 Patent, col. 4:11-14).

Key Claims at a Glance

• The complaint asserts independent claim 1. (’593 Compl. ¶19).
• Claim 1 is a method claim with the following essential steps:
  • establishing a transaction total;
  • storing "convergence information" (including data and processing instructions for a plurality of payment sources) on a "portable storage medium";
  • obtaining this information at a point of sale (POS) terminal;
  • processing the information at the POS terminal to determine a primary and at least one secondary payment source;
  • utilizing the information to electronically communicate with the primary source to establish a primary payment amount;
  • determining a secondary payment amount to satisfy the transaction total; and
  • utilizing the information to electronically communicate with the secondary source to secure payment.
• The complaint reserves the right to assert other claims. (Compl. ¶20).

U.S. Patent No. 8,600,770 - "Payment Convergence System and Method"

• Patent Identification: U.S. Patent No. 8600770, “Payment Convergence System and Method,” issued December 3, 2013.

The Invention Explained

• Problem Addressed: As a continuation of the application leading to the ’593 Patent, the ’770 Patent addresses the same core problem: the difficulty of integrating multiple, distinct payment applications (like insurance and credit) into a single, efficient point-of-sale transaction. (’770 Patent, col. 2:25-3:18).
• The Patented Solution: The ’770 Patent claims a system, embodied in a "portable storage medium," that stores information for primary and secondary payment sources, along with "convergence information" comprising instructions. (’770 Patent, col. 10:31-35). These instructions are used by a POS terminal to determine the "appropriate combination and order of utilization" of the payment sources and to obtain payment from each to satisfy a transaction. (’770 Patent, col. 10:39-49).
• Technical Importance: The patent claims the physical system (the storage medium itself) configured to enable the converged payment method, shifting the inventive focus from the method steps to the apparatus that facilitates them. (’770 Patent, col. 10:25-26).

Key Claims at a Glance

• The complaint asserts independent claims 1 and 7. (Compl. ¶42).
• Claim 1 is a system claim comprising:
  • a "portable storage medium";
  • at least one primary payment source information stored on the medium;
  • at least one secondary payment source information stored on the medium; and
  • "convergence information" stored on the medium, comprising instructions readable by a POS terminal to determine the combination/order of payment sources and communicate with them to obtain a primary and secondary payment amount.
• Claim 7 is a method claim comprising steps of:
  • storing primary payment source info and consumer credit instructions on a portable storage medium;
  • determining a transaction cost;
  • obtaining the info at a POS terminal;
  • utilizing order information to determine an order for using the primary source and a consumer credit vehicle;
  • analyzing a primary payment amount and a remainder; and
  • assigning the remainder for payment to the consumer credit vehicle.
• The complaint reserves the right to assert other claims. (Compl. ¶41).

U.S. Patent No. 10,628,818 - "Payment Convergence System and Method"

• Patent Identification: U.S. Patent No. 10628818, “Payment Convergence System and Method,” issued April 21, 2020.
• Technology Synopsis: As a further continuation in the same patent family, the ’818 Patent claims a payment convergence system focused on the interaction between a POS terminal, a processor, and an input device. The invention describes a system where an input device provides "convergence information" to a POS terminal, which uses a payment protocol to determine the combination and order of a primary and secondary payment source prior to the completion of the transaction. (’818 Patent, col. 11:46-12:21).
• Asserted Claims: The complaint asserts independent claim 1. (Compl. ¶59).
• Accused Features: The complaint alleges that Kroger's POS payment system, including its fuel pump card readers, infringes by operating as the claimed payment convergence system. (Compl. ¶¶60-61).

III. The Accused Instrumentality

Product Identification

The accused instrumentalities are Kroger’s point-of-sale payment systems and methods, particularly as implemented through the "Kroger Shoppers Card" and the "Kroger Rewards World Elite Mastercard" at Kroger Fuel Centers and participating Shell locations. (Compl. ¶¶25, 27, 45). No probative visual evidence provided in complaint.

Functionality and Market Context

The complaint alleges that the accused system allows a customer to purchase fuel using a combination of payment sources in a single transaction. (Compl. ¶27). Specifically, a customer can use a Kroger card at the pump (the point of sale) to redeem "Fuel Points" to reduce the price per gallon. (Compl. ¶27). This redemption of points is characterized as the "primary payment source." (Compl. ¶27). The customer then pays the remaining balance with a conventional payment method like a credit card, debit card, or cash, which is characterized as the "secondary payment source." (Compl. ¶27). The complaint alleges this system "contains a convergence of payment sources at a point of sale through which a primary and secondary payment source are determined and drawn down to complete a transaction." (Compl. ¶27).

IV. Analysis of Infringement Allegations

’593 Patent Infringement Allegations

Claim Element (from Independent Claim 1)	Alleged Infringing Functionality	Complaint Citation	Patent Citation
establishing a transaction total	The total amount of the transaction is determined at the fuel pump point of sale.	¶27	col. 4:42-43
storing convergence information on a portable storage medium, said convergence information including data about a plurality of payment sources for the transaction and said convergence information including processing instructions	The Kroger Shoppers Card or Kroger Mastercard stores information related to the Fuel Points program (a payment source) and the associated credit/debit account (a second payment source).	¶¶25, 27	col. 5:46-52
obtaining said convergence information from said storage medium at a point of sale terminal while said storage medium is located at the location of said point of sale terminal	The customer uses their Kroger card at the card reader on the fuel pump (the POS terminal).	¶27	col. 9:26-30
processing of said order information by said point of sale terminal to determine from said plurality of payment source, a primary payment source to be utilized first for the transaction, and at least one secondary payment source	The system processes the transaction to use Fuel Points as the primary source to reduce the price, and a credit/debit card as the secondary source to pay the remaining balance.	¶27	col. 9:50-10:2
utilizing of said convergence information to communicate electronically through said point of sale terminal with said primary payment source to establish a primary payment amount	The system communicates to determine the value of the Fuel Points to be redeemed.	¶27	col. 8:54-57
determining a secondary payment amount to be obtained from said at least one secondary payment source to satisfy said transaction total	The system determines the remaining balance of the fuel purchase after the Fuel Points discount is applied.	¶27	col. 9:60-10:2
utilizing of said convergence information to communicate electronically through said point of sale terminal with said at least one secondary payment source to secure payment of said secondary payment amount	The system processes the customer's credit or debit card to pay for the remaining balance of the purchase.	¶27	col. 8:63-9:2

’770 Patent Infringement Allegations

Claim Element (from Independent Claim 1)	Alleged Infringing Functionality	Complaint Citation	Patent Citation
a portable storage medium	The Kroger Shoppers Card and/or Kroger Mastercard.	¶45	col. 5:46-49
at least one primary payment source information stored on said storage medium	Information related to the customer's Fuel Points account is stored on or associated with the card.	¶45	col. 6:30-33
at least one secondary payment source information stored on said storage medium	Information related to the customer's credit or debit card account is stored on or associated with the card.	¶45	col. 6:53-56
a convergence information stored on said storage medium, said convergence information comprising instructions readable by a point of sale terminal... for determining appropriate combination and order of utilization of said primary payment source information and said secondary payment source information... such that payment is obtained... by determining... a primary payment amount... and at least one secondary payment amount	The Kroger card contains or provides access to instructions that allow the fuel pump POS to first apply Fuel Points (primary amount) and then charge a credit/debit card for the remainder (secondary amount).	¶45	col. 10:35-49

• Identified Points of Contention:
  • Scope Questions: The patents-in-suit heavily emphasize "Smart Card technology," often describing a card with an embedded computer chip capable of dynamic data processing. A central question may be whether the accused "Kroger Shoppers Card" (which may use a magnetic stripe or barcode) and the standard "Kroger Mastercard" meet the definition of a "portable storage medium" storing "convergence information" as contemplated by the patents.
  • Technical Questions: The complaint alleges that redeeming points and paying a remainder constitutes the claimed "processing of... order information" to determine primary and secondary payment amounts. A potential issue is whether the Kroger system performs the specific, hierarchical determination and fund allocation described in the patents, or if it performs a simpler, two-step process (discount, then pay) that may not align with the claimed method. The patents describe a system that can "block" funds and manage complex co-pay and policy limit calculations, which may not be present in the accused loyalty program. (’593 Patent, col. 10:4-17).

V. Key Claim Terms for Construction

• The Term: "portable storage medium"

• Context and Importance: This term appears in the independent claims of both the '593 and '770 patents. Its construction is critical because the patents’ specifications frequently and consistently refer to a "Smart Card" with an embedded computer chip as the primary embodiment. The accused products, however, are a loyalty card and a standard credit card. The outcome of the case may depend on whether this term is construed broadly enough to cover conventional magnetic stripe cards or is limited to the more technologically complex "Smart Cards."

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The '593 patent states the invention can be used with a "single Smart Card (or other data storage medium)" (’593 Patent, col. 5:48-49), suggesting the term is not limited to Smart Cards. The '770 patent claims a "portable storage medium" without explicitly limiting it to a Smart Card in the claim language itself. (’770 Patent, col. 10:27).
  • Evidence for a Narrower Interpretation: Both patents' "Background of the Invention" sections are dedicated almost exclusively to discussing "Smart Card technology," including microprocessor cards with "on-card dynamic data processing capabilities." (’593 Patent, col. 1:21-2:10; ’770 Patent, col. 1:24-2:10). An argument could be made that the invention is defined by and limited to this specific technological context.

• The Term: "convergence information"

• Context and Importance: This term is central to how the patented system functions, as it comprises the "data" and "processing instructions" used to manage the multi-source payment. Practitioners may focus on this term because the complaint alleges that the ability to use points and a credit card constitutes infringement, but the patent describes "convergence information" as enabling a more complex, unified process. The dispute may turn on whether the information associated with the Kroger cards contains the specific type of "instructions" claimed.

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The patent states the information can include "contact information for the payment sources, member identification numbers, policy terms, credit limits, etc." and instructions on "the order for utilizing the various payment sources." (’593 Patent, col. 5:1-9). This could be interpreted broadly to cover the basic account and loyalty data on the Kroger cards.
  • Evidence for a Narrower Interpretation: The patent describes the information as enabling a "complex distributed processing" (’593 Patent, col. 9:46-48) and the creation of a "new bundled product by merging a person's insurance benefits with pre-approved credit." (’593 Patent, col. 4:33-36). This suggests a more sophisticated data structure than what might be necessary for a simple loyalty point redemption.

VI. Other Allegations

• Indirect Infringement: The complaint alleges inducement of infringement, stating that Kroger "has been and continues to directly and/or indirectly (by inducement and/or contributory infringement)" infringe. (Compl. ¶29, ¶47, ¶63). The factual basis appears to be that Kroger provides and operates the accused POS systems and payment methods, thereby causing its customers to perform the infringing acts.
• Willful Infringement: The complaint alleges that "Kroger is and/or has been aware of this invention" and that its infringement has been and continues to be willful. (Compl. ¶31, ¶49, ¶65). The complaint does not specify whether this alleged awareness is pre-suit or post-suit, nor does it plead specific facts (such as receipt of a notice letter) supporting pre-suit knowledge.

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

• A core issue will be one of definitional scope: can the term "portable storage medium", which is described throughout the patents in the context of technologically sophisticated "Smart Cards," be construed to cover conventional loyalty and credit cards that may lack on-card processing capabilities?
• A second central question will be one of technical and functional alignment: does the accused Kroger Fuel Points system, which applies a discount and then processes a separate payment, perform the specific "convergence" and hierarchical "processing of... order information" to determine and allocate payments from multiple sources as required by the claims, or is there a fundamental mismatch in the operational steps?
• A key evidentiary question will be what constitutes "convergence information" as claimed. The case may turn on whether the data associated with the accused Kroger cards contains the specific "processing instructions" for orchestrating a multi-source payment, or merely provides access to separate accounts that are processed sequentially.