7:25-cv-00349
Aml IP LLC v. Schlotzsky's Franchisor SPV LLC
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: AML IP, LLC (Texas)
- Defendant: Schlotzsky's Franchisor SPV, LLC (Georgia)
- Plaintiff’s Counsel: Ramey LLP
- Case Identification: 7:25-cv-00349, W.D. Tex., 08/11/2025
- Venue Allegations: Venue is alleged based on Defendant having a regular and established place of business in the district and having committed acts of infringement there.
- Core Dispute: Plaintiff alleges that Defendant’s electronic commerce systems infringe a patent related to conducting online transactions using vendor-issued electronic tokens.
- Technical Context: The technology concerns closed-loop digital payment systems where a vendor issues its own proprietary digital currency to facilitate online purchases, particularly for micropayments, without relying on third-party financial institutions for each transaction.
- Key Procedural History: The complaint discloses that Plaintiff and its predecessors have entered into settlement licenses with other entities, but asserts these were to terminate litigation and did not involve an admission of infringement or an agreement to produce a patented article, which may be relevant to future arguments concerning damages and patent marking under 35 U.S.C. § 287.
Case Timeline
| Date | Event |
|---|---|
| 2000-01-26 | U.S. Patent No. 7,177,838 Priority Date |
| 2007-02-13 | U.S. Patent No. 7,177,838 Issued |
| 2025-08-11 | Complaint Filed |
II. Technology and Patent(s)-in-Suit Analysis
U.S. Patent No. 7,177,838 - "Method and Apparatus for Conducting Electronic Commerce Transactions Using Electronic Tokens"
- Issued: February 13, 2007
The Invention Explained
- Problem Addressed: The patent describes challenges in early internet commerce, including consumer reluctance to transmit sensitive credit card information online and the prohibitive transaction fees associated with using traditional payment systems for low-cost "micropayment" transactions (e.g., renting a single use of a software tool) ('838 Patent, col. 2:11-34).
- The Patented Solution: The invention proposes a system where a vendor directly sells its own proprietary "electronic tokens" to customers. Customers purchase a batch of these tokens from the vendor (either online with a credit card or offline via check), and the tokens are stored in a user account managed by the vendor. The customer can then spend these tokens to purchase or rent products and services from that same vendor, avoiding the need to use a credit card for every small transaction and bypassing third-party financial intermediaries ('838 Patent, col. 4:20-34, Fig. 3). The system is designed to give the vendor complete control over the token value and distribution ('838 Patent, col. 4:35-39).
- Technical Importance: This approach provided a model for a self-contained, low-overhead e-commerce ecosystem, making it economically viable for vendors to offer products or services at very low price points without incurring standard credit card processing fees on each individual sale ('838 Patent, col. 6:20-29).
Key Claims at a Glance
- The complaint asserts claims 1-28 of the '838 patent (Compl. ¶9). Independent claim 1 is representative.
- Independent Claim 1 requires:
- Opening a user account with a vendor for a user.
- Issuing one or more electronic tokens from the vendor to the user account, where each token has a value of at least a fraction of a dollar.
- Providing products and services for purchase from the vendor at micropayment levels, with prices listed in units of electronic tokens.
- Permitting the user to select a subset of products for purchase.
- Computing a total price in electronic tokens.
- Authorizing a purchase transaction at the vendor web site without requiring third-party authentication.
- If the user account contains sufficient tokens, permitting the purchase and subtracting the total price from the user account, where the transaction is not subject to a minimum processing fee.
- The complaint does not explicitly reserve the right to assert dependent claims but makes a blanket assertion of claims 1-28.
III. The Accused Instrumentality
Product Identification
The complaint identifies the accused instrumentalities as "systems, products, and services that facilitate electronic commerce using tokens" that are maintained, operated, and administered by the Defendant (Compl. ¶9).
Functionality and Market Context
The complaint does not specify a particular product by name (e.g., a specific mobile application or website feature). The allegations describe a general electronic commerce system operated by the Defendant (Compl. ¶9). Given Defendant is a restaurant franchisor, these allegations presumably target its online and/or mobile application ordering platforms through which customers purchase food and other goods. The complaint does not provide sufficient detail for analysis of the specific technical operation of the accused systems.
IV. Analysis of Infringement Allegations
The complaint references a claim chart in Exhibit B, but this exhibit was not provided with the filed document (Compl. ¶10). The following analysis is based on the narrative allegations in the complaint.
No probative visual evidence provided in complaint.
’838 Patent Infringement Allegations
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| opening a user account with a vendor for a user | The complaint alleges Defendant's systems allow users to establish accounts to facilitate electronic commerce transactions. | ¶9 | col. 8:46-54 |
| issuing one or more electronic tokens from the vendor to the user account...each electronic token having a value of at least a fraction of a dollar | The complaint alleges Defendant's systems issue "tokens" that are used for electronic commerce. | ¶9 | col. 4:20-29 |
| providing products and services that may be purchased from the vendor at micropayment levels | The complaint alleges Defendant's systems offer products and services for sale via electronic commerce. | ¶9 | col. 12:25-34 |
| permitting the user to select, at any participating vendor web site, a subset of the products and services for purchase from the vendor | The complaint alleges Defendant's systems allow users to select products and services for purchase. | ¶9 | col. 12:30-44 |
| authorizing a purchase transaction at the participating vendor web site without requiring any third party authentication | The complaint alleges Defendant's systems facilitate purchase transactions using the aforementioned tokens. | ¶9 | col. 20:56-62 |
| if the user account contains electronic tokens having a value equal to or greater than the total price, permitting the user to purchase the selected subset...and subtracting the total price from the user account | The complaint alleges Defendant's systems complete purchase transactions by debiting the "tokens" from a user's account. | ¶9 | col. 12:38-54 |
Identified Points of Contention
- Scope Questions: A central dispute will likely be whether the "tokens" alleged in the complaint (Compl. ¶9) meet the definition of "electronic tokens" as claimed in the patent. The patent appears to describe a system where tokens are a form of prepaid digital currency purchased from the vendor ('838 Patent, col. 10:14-28). This raises the question of whether a modern restaurant's loyalty points or gift card balance, which may be the basis of the allegation, can be considered "electronic tokens" under the patent's claims.
- Technical Questions: The complaint lacks specific factual allegations mapping features of an identified Schlotzsky's product to the claim elements. A key question for the court will be what evidence supports the allegation that Defendant's system performs the claimed step of "issuing... electronic tokens" in the manner described by the patent, as opposed to operating a conventional gift card or loyalty rewards program.
V. Key Claim Terms for Construction
- The Term: "electronic tokens"
- Context and Importance: The construction of this term is fundamental to the entire case. The infringement analysis hinges on whether the accused functionality, presumably a gift card or loyalty point system, falls within the scope of this term. Practitioners may focus on this term because its definition will likely determine whether a technology developed in the late 1990s reads on modern, arguably distinct, e-commerce systems.
- Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The patent does not appear to provide an explicit, limiting definition. Language describing tokens as a way to "pay for such transactions without incurring the overhead of a credit card charge" could support a broader reading that includes any form of vendor-specific digital value used to bypass per-transaction fees ('838 Patent, col. 2:30-34).
- Evidence for a Narrower Interpretation: The specification consistently describes a process where a user first purchases tokens from the vendor using traditional money (e.g., credit card, check) and then spends those tokens ('838 Patent, col. 10:14-47, FIG. 4). The abstract states tokens "may be purchased from the vendor either on-line, using a credit card, or off-line." This could support a narrower construction requiring that the "electronic tokens" be a form of pre-paid digital currency, potentially distinguishing them from loyalty points that are earned rather than purchased.
VI. Other Allegations
Indirect Infringement
The complaint does not plead any specific facts to support a claim for indirect infringement, such as identifying instructional materials or other acts of inducement.
Willful Infringement
The complaint includes a prayer for a finding of willful infringement and treble damages, alleging the infringement was "deliberate or intentional" (Prayer for Relief ¶d). However, the complaint pleads no specific facts to support pre-suit knowledge of the '838 patent, which would be necessary to establish pre-suit willfulness.
VII. Analyst’s Conclusion: Key Questions for the Case
This case appears to present two primary questions for the court:
A core issue will be one of definitional scope: can the term "electronic tokens," which the patent describes as a form of purchased, pre-paid digital currency for micropayments, be construed to cover the features of a modern restaurant's online ordering platform, which may rely on gift cards or earned loyalty points?
A key evidentiary question will be one of factual support: given the complaint's general allegations, what evidence will Plaintiff produce to demonstrate that Schlotzsky's accused system actually performs the specific sequence of operations recited in claim 1, particularly the "issuing" of tokens and the authorization of transactions "without requiring any third party authentication"?