Toast Inc v. Gratuity LLC

1. Case Identification

• Case #: IPR2023-01408
• Patent #: 9,741,050
• Filed: September 18, 2023
• Petitioner(s): Toast, Inc.
• Patent Owner(s): Gratuity, LLC
• Challenged Claims: 1-13

2. Patent Overview

• Title: System and Method for Managing Gratuities
• Brief Description: The ’050 patent describes a system for managing and allocating gratuities for multiple clients (e.g., restaurants). The system features a central, remote server (potentially cloud-based) that receives transaction and employee data from local client business systems, such as Point of Sale (POS) terminals, and applies client-specific rules to calculate and return gratuity allocations.

3. Grounds for Unpatentability

Ground 1: Obviousness over Marshall - Claims 1-3, 8, and 10 are obvious over Marshall.

• Prior Art Relied Upon: Marshall (Application # 2008/0065396).
• Core Argument for this Ground:
  • Prior Art Mapping: Petitioner argued that Marshall discloses all limitations of the independent claims. Marshall describes a "GrataSoft" system for managing tips that can be implemented in a web-based manner, using a central server accessible by multiple clients. This server is configurable on a client-by-client basis to execute gratuity distribution rules. The system interfaces with third-party client systems (like POS systems) via an interface application to extract transaction and employee data and stores this data in a database. Petitioner contended that the terms "gratuity management system" (claim 1) and "payment management system" (claim 8) are functionally equivalent in this context and are both taught by Marshall's system.
  • Key Aspects: This ground asserted that Marshall, as a single reference, renders the core invention obvious, including the client-server architecture, remote data processing, and configurable rules engine central to the challenged claims.

Ground 2: Obviousness over Marshall and Webb - Claims 4-7, 9, and 11-13 are obvious over Marshall in view of Webb.

• Prior Art Relied Upon: Marshall (Application # 2008/0065396) and Webb (Patent 4,819,162).
• Core Argument for this Ground:
  • Prior Art Mapping: This ground addressed dependent claims requiring the client business system to comprise "additional devices" like time/attendance and payroll systems. Petitioner argued that Marshall explicitly contemplates interfacing with such systems. Webb was introduced as teaching a specific, practical implementation of interconnected restaurant systems, where a POS system (an electronic cash register) interfaces with a separate time and attendance system (a personal computer) that also handles payroll functions. The combination allegedly shows it was obvious for Marshall's client system to include these interconnected devices.
  • Motivation to Combine: A POSITA would combine Marshall and Webb because they describe compatible systems in the same field of hospitality management. A POSITA would have been motivated to use Webb's teachings to implement the interconnected local systems that Marshall’s remote gratuity system was designed to interface with. This combination would create an efficient hybrid architecture, keeping functions like POS and timekeeping local while centralizing complex gratuity calculations in the cloud.
  • Expectation of Success: Combining Webb's well-understood local system architecture with Marshall's remote processing system was a straightforward integration of known elements that would predictably result in a fully functional and efficient gratuity management system.

Ground 3: Obviousness over Phillips and Marshall - Claims 1-3, 8, and 10 are obvious over Phillips in view of Marshall.

• Prior Art Relied Upon: Phillips (Application # 2014/0365322) and Marshall (Application # 2008/0065396).

• Core Argument for this Ground:

  • Prior Art Mapping: This ground presented an alternative obviousness argument for the independent claims, with Phillips as the primary reference. Phillips discloses a central processing system that receives tip data from multiple POS systems at different venues and processes tip allocations. Petitioner argued that Marshall supplies the motivation and know-how to implement Phillips' remote system as a modern, web-based, cloud computing system, a feature Marshall explicitly teaches. Marshall also teaches a more detailed interface application (e.g., Aloha POS) that could be used to improve the data extraction and transfer from the local POS systems in Phillips to the central server.
  • Motivation to Combine: A POSITA would combine Marshall with Phillips to improve Phillips’ system. Incorporating Marshall's web-based, cloud-ready architecture would yield well-known benefits of efficiency, scalability, and security. Adding Marshall's detailed interface system would predictably improve the data flow between the local and remote components of the system disclosed in Phillips.
  • Expectation of Success: Implementing a known gratuity processing system like Phillips' using a well-known cloud architecture and interface system like Marshall's would have been a predictable and successful design choice for a POSITA.

• Additional Grounds: Petitioner asserted an additional obviousness challenge (Ground 4) for claims 4-7, 9, 11-13 based on the combination of Phillips, Marshall, and Webb, relying on similar motivations to add the time/attendance and payroll functionalities taught by Webb to the combined Phillips/Marshall system.

4. Arguments Regarding Discretionary Denial

• Petitioner argued that discretionary denial under §325(d) (Advanced Bionics) is improper because the petition presents the prior art in a substantially new way. It was argued that the Examiner never considered Marshall as a primary reference against the issued claims, never considered the combination of Phillips and Marshall, and never used Webb in any rejection.
• Petitioner also argued that discretionary denial under §314(a) (Fintiv) is unwarranted. The parallel district court case is in a very early stage, with infringement contentions recently served and claim construction yet to occur. The PTAB's Final Written Decision would likely issue just before the scheduled trial date, minimizing inefficiency and allowing estoppel to prevent conflicting outcomes.

5. Relief Requested

• Petitioner requests institution of an inter partes review and cancellation of claims 1-13 of the ’050 patent as unpatentable.