As 2022 came to a close, one of the first litigation cases over cryptocurrency technology was heard in a Texas court.
The dispute sees US-based crypto company Veritaseum Capital suing cryptocurrency provider Circle Internet Financial for allegedly infringing its patented digital currency trading technology.
Veritaseum’s software enables blockchain-based, peer-to-peer capital market transactions such as crypto payments, trading or “staking” (a method of earning rewards for holding certain cryptocurrencies).
Carl Brundidge, founding partner of Brundidge & Stanger and Veritaseum’s lead counsel, believes the sector is ripe for more legal action.
“There’ll be a number of entities asserting their patents in this space. In the US, the filing of patent applications regarding cryptocurrency and distributed ledger technology has increased substantially,” says Brundidge.
“You have companies like Citibank, Morgan Stanley, and all kinds of other financial institutions that are patenting what they believe are important innovations.”
Oleg Elkhunovich, a partner at Susman Godfrey, agrees that we are at the start of an upward trend in litigation. “As blockchain and crypto technology industry matures, we will see more disputes about IP, including patent rights.
“There is a tremendous amount of innovation in this space right now and astute players should and will seek to protect their patentable inventions.”
Circle and Cybavo named in complaint
In its complaint, filed on December 30 in the US District Court for the Eastern District of Texas, Wyoming-based Veritaseum alleges that Circle infringed its US patent No. 11,196,566 (‘566).
Veritaseum founder Reggie Middleton co-invented the patented technology, which is described as “enabling parties with little trust or no trust in each other to enter into and enforce value transfer agreements…”
Middleton licences this patent, awarded to him by the US Patent and Trademark Office (USPTO) in December 2021, exclusively to his company (Veritaseum).
Veritaseum is suing Circle, along with its subsidiary Cybavo, a cryptocurrency security firm based in Taiwan.
Veritaseum argues in its complaint that Circle could have been aware of the alleged infringement from at least as early as September 22, 2022 when Veritaseum sued cryptocurrency exchange Coinbase Global in that same month.
Coinbase is Circle’s primary revenue-generating USDC-issuance partner, via the issuance of USDC (USD Coin, a ‘stablecoin’ product tied to the US dollar). product. A stablecoin is a cryptocurrency token intrinsically tied to the value of a fiat currency or commodity or asset value.
Veritaseum is suing Circle for alleged infringement of the patent through its websites at Circle.com and Cybavo.com, “as well as other means”.
Middleton also has a patent for his invention filed at the Japan Patent Office, with another granted. While not connected to this current action, Veritaseum pointed out in its complaint that “Circle does a substantial amount of its business through its Japanese yen stable coin and various exchanges operating in Japan”.
Brundidge told WIPR that initial attempts to negotiate with Circle were unsuccessful.
“We contacted Circle in an attempt to enter into some type of negotiation with them to avoid a lawsuit,” he said. “We just were not able to agree on the format of these discussions, and so we pursued the action against them.”
Veritaseum is seeking a jury trial and damages of $350 million. Brundidge says he and his team expect the opposition to file a motion to dismiss.
Circle declined to comment when approached by WIPR.
Blockchain patent boom
There are thousands of blockchain-related patent applications being filed in the US, and indeed this technology has been the subject of patent applications in the US for at least a decade, according to research highlighted by law firm Kramer Levin.
But Brundidge believes that this lawsuit is “probably one of the first” in the US alleging infringement of cryptocurrency technology.
That said, Ravi Mohan, a partner in IP at Rutan & Tucker, says he is not surprised to see this type of litigation, especially against publicly traded companies, or prominent entities in the industry.
“Notably, after a brief review of the asserted patent, it’s interesting that it requires a tonne of elements to be infringed. This means that claims are likely narrow, but potentially more difficult to invalidate,” suggest Mohan.
“Another interesting thing,” he points out, “is that the asserted patent dates back to a provisional application filed in 2014—which is fairly early for blockchain technology in the grand scheme of things. For example, Bitcoin achieved more serious public attention in the 2016-2017 era, so this…
Read More: Crypto firm’s $350m patent suit could just be the start