DCT
2:23-cv-00217
Cardtek Intl Inc v. Starbucks Corp
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: Cardtek International, Inc. (Kansas)
- Defendant: Starbucks Corporation (Washington)
- Plaintiff’s Counsel: Schiffer Hicks Johnson PLLC; Gillam & Smith LLP
- Case Identification: 2:23-cv-00217, E.D. Tex., 05/15/2023
- Venue Allegations: Plaintiff alleges venue is proper in the Eastern District of Texas because Defendant maintains a "permanent and continuous presence" in the district through its retail stores, where it allegedly commits acts of infringement.
- Core Dispute: Plaintiff alleges that Defendant’s Starbucks Rewards Program, primarily implemented through its smartphone app, infringes three patents related to systems and methods for converging multiple, independent payment sources into a single transaction.
- Technical Context: The technology concerns payment processing systems that can draw funds from different sources, such as a loyalty account and a credit account, to satisfy a single transaction total at a point of sale.
- Key Procedural History: The three patents-in-suit are part of a single family, with the '770 and '818 patents being continuations of the application that led to the '593 patent. The U.S. Patent and Trademark Office record for the '818 patent indicates it is subject to a terminal disclaimer over the '770 patent, a fact that may be relevant to potential validity challenges based on obviousness-type double patenting.
Case Timeline
| Date | Event |
|---|---|
| 2002-06-20 | Priority Date for '593, '770, and '818 Patents |
| 2006-05-02 | '593 Patent Issued |
| 2013-12-03 | '770 Patent Issued |
| 2020-04-21 | '818 Patent 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”
The Invention Explained
- Problem Addressed: The patent’s background section describes the inefficiency of using a multi-application "Smart Card" for a single transaction, such as a medical procedure requiring payment from both an insurance plan and a patient's personal credit card. Under prior art systems, a provider would have to access each payment application "horizontally" or independently, a process described as cumbersome and time-consuming ('593 Patent, col. 2:29-52).
- The Patented Solution: The invention proposes a system to "vertically" combine or "converge" information from multiple independent payment sources at the point of sale ('593 Patent, col. 2:30-35). This convergence allows for a unified process where a total transaction cost is determined, and the system processes information from the various sources (e.g., insurance, third-party credit, patient funds) to determine the amount to be paid by each and collect payment, all within a single overarching transaction ('593 Patent, col. 4:40-52).
- Technical Importance: The technology aimed to streamline complex, multi-payer transactions by automating the coordination and settlement of funds from different sources, thereby reducing manual processing and providing payment certainty to the service provider ('593 Patent, col. 3:16-21).
Key Claims at a Glance
- The complaint asserts independent method Claim 1 (Compl. ¶12).
- The essential elements of Claim 1 include:
- establishing a transaction total;
- storing "convergence information" on a "portable storage medium," where this information includes data about multiple payment sources and processing instructions for their ordered utilization;
- obtaining this convergence information at a point of sale terminal;
- processing the instructions to determine a primary payment source and at least one secondary payment source;
- communicating with the primary source to establish a primary payment amount;
- determining a secondary payment amount to satisfy the transaction total; and
- communicating with the secondary source to secure its payment.
- The complaint does not explicitly reserve the right to assert dependent claims.
U.S. Patent No. 8,600,770 - “Payment Convergence System and Method”
The Invention Explained
- Problem Addressed: As a continuation, the '770 Patent addresses the same problem as the '593 Patent: the inefficiency of horizontally processing payments from multiple sources stored on a single device ('770 Patent, col. 2:25-53).
- The Patented Solution: The '770 Patent claims a system and method centered on a "portable storage medium" that stores information for at least a primary and a secondary payment source, along with "convergence information." This convergence information contains instructions readable by a point of sale terminal for determining the "appropriate combination and order of utilization" of the payment sources to create a "single payment vehicle" ('770 Patent, Abstract; col. 11:30-50).
- Technical Importance: The invention provides a framework for a single storage medium to manage and execute a transaction involving multiple distinct financial accounts in a predetermined, automated sequence ('770 Patent, col. 4:36-44).
Key Claims at a Glance
- The complaint asserts independent system Claim 1 and independent method Claim 7 (Compl. ¶¶33-34).
- The essential elements of Claim 1 include:
- a portable storage medium;
- at least one primary and one secondary payment source information stored on the medium;
- "convergence information" stored on the medium, comprising instructions readable by a point of sale terminal for determining the order of utilization of the payment sources to provide a "single payment vehicle."
- The essential elements of Claim 7 include:
- storing primary payment source information and "consumer credit instructions" on a portable storage medium;
- determining a transaction cost;
- obtaining this information at a point of sale 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 amount for payment to the consumer credit vehicle.
- The complaint does not explicitly reserve the right to assert dependent claims.
U.S. Patent No. 10,628,818 - “Payment Convergence System and Method”
Technology Synopsis
This patent claims a payment convergence system comprising a point of sale (POS) terminal with a processor configured to execute a "payment protocol." An associated input device provides "convergence information" to the terminal, which the protocol uses to determine the combination and order of a primary and secondary payment source for a transaction before its completion ('818 Patent, Abstract; col. 11:46-col. 12:21).
Asserted Claims
The complaint asserts independent system Claim 1 (Compl. ¶54).
Accused Features
The complaint alleges that the Starbucks POS terminal (processor) and the Starbucks App (as the "input device") together form the infringing system. The App allegedly provides the convergence information (rules for using Stars and stored funds) to the POS terminal to execute the payment protocol (Compl. ¶¶57-59).
III. The Accused Instrumentality
Product Identification
The accused instrumentalities are the Starbucks Rewards Program, primarily implemented through the "Starbucks Smartphone App," and the now-discontinued Starbucks Rewards Visa Card (Compl. ¶¶17, 27).
Functionality and Market Context
- The complaint alleges the Starbucks App functions as a "portable storage medium" that stores at least two distinct payment sources: "Starbucks Stars" (loyalty points awarded by Starbucks) and funds transferred to the App by the consumer from a personal credit or bank account (Compl. ¶18).
- During a purchase, the system allegedly calculates a transaction total, allows the consumer to apply Stars to lower the total, and then determines the remaining amount to be paid from the consumer-funded portion of the App (Compl. ¶¶19-20). This process of combining two payment sources in a single transaction at a point of sale is the core of the infringement allegation (Compl. ¶17).
- A screenshot from the Starbucks website is included to illustrate the transaction flow, which shows users can "Order and pay how you'd like" by various means, including paying "right through the app" (Compl. p. 8).
IV. Analysis of Infringement Allegations
'593 Patent Infringement Allegations
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| storing convergence information on a portable storage medium, said convergence information including data about a plurality of payment sources...and...processing instructions including order information for utilization... | The Starbucks App, on a smartphone, stores data on two payment sources (Stars and consumer-funded value) and includes processing instructions for their use. | ¶18 | col. 6:46-54 |
| obtaining said convergence information from said storage medium at a point of sale terminal... | The Starbucks App is used at a Starbucks POS terminal to initiate and process a payment for a purchase. | ¶19 | col. 6:55-59 |
| 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 first applies the value of redeemed Stars, then determines the remaining balance to be paid from the secondary source of consumer-transferred funds. | ¶20 | col. 6:60-67 |
| 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 calculates and applies the value of the redeemed Stars to the transaction total. | ¶20 | col. 7:1-5 |
| 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 after the Stars are applied, which is then paid from the consumer-funded part of the App. | ¶20 | col. 7:6-9 |
'770 Patent Infringement Allegations
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| a portable storage medium | The smartphone running the Starbucks App is alleged to be the portable storage medium. | ¶39 | col. 11:31-32 |
| at least one primary payment source information stored on said storage medium | The App stores "Stars" awarded by Starbucks, which are alleged to be the primary payment source. | ¶40 | col. 11:33-34 |
| at least one secondary payment source information stored on said storage medium | The App stores funds transferred by the consumer from their credit or bank account, alleged to be the secondary payment source. | ¶40 | col. 11:35-36 |
| 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... | The App contains information and instructions, readable by the POS terminal, that direct the system to apply Stars first to lower the transaction total, with the remainder satisfied by the secondary, consumer-funded source. | ¶¶40-41 | col. 11:37-50 |
Identified Points of Contention
- Scope Questions: A central question may be whether a software application on a general-purpose smartphone can be considered a "portable storage medium" or "Smart Card" as contemplated by the patents, which were filed in 2002 and heavily describe physical cards used in medical and dental contexts ('593 Patent, col. 1:26-29). The interpretation of "payment source" will also be critical, specifically whether loyalty points ("Stars") qualify as a payment source in the same manner as an insurance plan or credit account described in the patent specifications.
- Technical Questions: The complaint alleges a specific hierarchy where Stars are a "primary payment source" and funded value is "secondary" (Compl. ¶40). The factual basis for this fixed ordering will be a key point of discovery. The court will need to determine if the accused system's logic for applying a loyalty discount before charging a pre-funded account is technically equivalent to the claimed "convergence" of distinct payment sources.
V. Key Claim Terms for Construction
The Term: "portable storage medium" ('593 Cl. 1; '770 Cl. 1, 7)
- Context and Importance: This term's construction is fundamental to the infringement case. Defendant may argue the term is limited to the physical "Smart Cards" extensively discussed in the specification, while Plaintiff will likely advocate for a broader construction that encompasses modern devices like smartphones running an application.
- Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The '770 Patent specification mentions that the invention can apply to a "single Smart Card (or other data storage medium)" ('770 Patent, col. 5:42-44), suggesting the inventors did not intend to limit the invention strictly to a card format.
- Evidence for a Narrower Interpretation: Both patents' background and detailed description sections are replete with references to "Smart Card," a "plastic card similar to a credit card," and specific use cases in "a clinic's office" or a "dentist's office" ('593 Patent, col. 1:26-29; col. 9:24-27). This context could support a narrower definition tied to a dedicated physical device.
The Term: "convergence information" ('593 Cl. 1; '770 Cl. 1)
- Context and Importance: This term defines the core functionality of the invention. Whether the Starbucks App's logic for combining Stars and funded value meets the definition of "convergence information" will be a key dispute.
- Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification states that "Convergence information can include data, processing instructions, or both data and processing instructions" ('593 Patent, col. 4:65-67). This language is general and could be read to cover any set of rules for a multi-step payment.
- Evidence for a Narrower Interpretation: The specification elaborates that these instructions establish the "interrelation and interaction between the multiple payment sources," including "the order for utilizing the various payment sources" ('593 Patent, col. 5:6-10). A defendant may argue this requires a more complex, distributed processing logic than simply applying a discount before a payment.
VI. Other Allegations
Indirect Infringement
The complaint alleges that by making and offering the Starbucks App and its associated Rewards Program, Starbucks induces its customers to infringe the asserted method claims and contributes to that infringement (Compl. ¶¶22-23, 43-44, 62-63). The factual support rests on the allegation that Starbucks provides the necessary instrumentality (the app and backend system) for the infringement to occur.
Willful Infringement
The complaint alleges willful infringement based on the assertion that "Starbucks is and/or has been aware of this invention" (Compl. ¶24, ¶45, ¶64). It further alleges, on information and belief, that the technology was obtained from a "disclosure later patented by Robert David Sager" (Compl. ¶21, ¶42, ¶61). No specific facts regarding pre-suit notice or knowledge are provided.
VII. Analyst’s Conclusion: Key Questions for the Case
- A core issue will be one of definitional scope: Can terms like "portable storage medium" and "Smart Card," rooted in the 2002-era context of physical cards for complex medical billing, be construed to cover a modern software application on a smartphone used for a retail loyalty program?
- A key technical question will be one of functional equivalence: Does the accused Starbucks system, which applies loyalty points as a discount before charging a pre-funded account, perform the specific, ordered "convergence" of distinct "payment sources" as claimed in the patents, or is there a fundamental mismatch in technical operation and complexity?
- A third question concerns patentability over time: Given the long-running patent family with multiple continuations and a terminal disclaimer on the most recent patent, a central issue may be whether the claims of the later patents are patentably distinct from those of the earlier patents and the intervening prior art, raising potential validity questions for the court to resolve.