True Return Systems v. MakerDAO

Overview

Filed October 5, 2022 in the Federal District Court for the Southern District of New York.

Summary: True Return owns a patent entitled “Method and system for separating storage and process of computerized ledger for improved function.” The patent purportedly addresses “computational, time, storage, and security constraints inherent to distributed ledgers (such as blockchains)” by “separat[ing] certain processing and storage functions from a base distributed computerized ledger (such as a blockchain) but link[ing] such separated processing and storage to the base distributed computerized ledger.” MakerDAO is a decentralized autonomous organization that issues the Dai stablecoin and whose governance rights are represented by MKR tokens. True Return accuses MakerDAO of infringing its patent.

Status: This case has had an unusual history. Because MakerDAO has no office, officers, or anywhere it can accept service, the judge allowed True Systems to serve the lawsuit via Twitter DM, posting on the MakerDAO forum, email, and mail to the MakerDAO Foundation headquarters. MakerDAO didn’t answer the complaint; instead, someone identifying as @MakerDAOdai sent a series of informal letters to the court. It said that MakerDAO purposely structured itself to be immune from judicial proceedings and asked the Court to allow a third party, Crypto Council for Innovation, to represent it in court. What followed was a flurry of letters from True Systems, MakerDAOdai, Crypto Council, and someone else purporting to represent MakerDAO with the handle @TeamMaker.

Nine months after the complaint was filed, the court ruled that Crypto Council was not allowed to participate in the case as a third party. In the meantime, True Systems filed a motion for default judgment, asking the court to award it $17.8 million in damages. Default was vacated by the judge on October 2 since MakerDAO appeared with counsel.

On November 6, MakerDAO filed a motion to dismiss, claiming that (1) it couldn’t be sued since it was not a person or corporate entity and (2) the complaint failed to state a claim for patent infringement since much of the activity accused takes place overseas.

Before there was any decision on the motion to dismiss, the plaintiff filed a voluntary dismissal. It looks like this may be due to a settlement that was forced by the death of the plaintiff’s sole owner.

Bottom Line: As with many blockchain patents, True Systems’ is vulnerable to an attack based on 35 U.S.C. 101 that the patent covers an abstract idea and is thus unpatentable. On the other hand, the big risk for MakerDAO is that it will be found to be a general partnership consisting of holders of MKR, making those holders responsible for any judgment.

Related Readings

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Docket

Selected filings from the docket, available for free, are below. The full docket can be accessed via Court Listener.

10/5/2022 - Complaint

11/11/2022 - Memorandum of Law ISO Plaintiff’s Ex Parte Motion for Leave to Serve Defendant by Electronic Means

11/23/2022 - Order Granting-in-Part and Denying-in-Part Motion to Serve

12/9/2022 - Letter from MakerDAOdai

12/16/2022 - Letter from MakerDAOdai

12/22/2022 - Letter from Crypto Council for Innovation

12/23/2022 - Letter from Plaintiff

2/14/2023 - Memorandum of Law ISO Plaintiff’s Motion for Default Judgement

2/14/2023 - Statement of Damages

2/15/2023 - Letter from Crypto Council for Innovation

2/16/2023 - Letter from makerDAOdai

2/20/2023 - Memorandum of Law ISO Crypto Council for Innovation’s Motion for Leave to Participate as Amicus Curiae

3/8/2023 - Letter from MakerDAOdai

3/9/2023 - Letter from Crypto Council for Innovation

3/9/2023 - Letter from Plaintiff

3/10/2023 - Letter from Crypto Council for Innovation

3/14/2023 - Letter from MakerDAOdai

3/16/2023 - Letter from Crypto Council for Innovation

6/20/2023 - Letter from Crypto Council for Innovation

6/21/2023 - Order Denying Crypto Council for Innovation’s Motion for Leave to Participate as Amicus Curiae

6/30/2023 - Letter from Compound Labs

7/6/2023 - Order on Motion for Extension of Time

7/6/2023 - Order re Letter from Compound Labs

7/28/2023 - Joint Letter re Relatedness

8/11/2023 - Letter from MakerDAO re Default

8/15/2023 - Response Letter from True Return

8/17/2023 - Reply Letter from MakerDAO

10/2/2023 - Order on Default

11/6/2023 - Defendant’s Motion to Dismiss

12/6/2023 - Plaintiff’s Opposition to Motion to Dismiss

12/21/2023 - Defendant’s Reply ISO Motion to Dismiss

8/9/2024 - Voluntary Dismissal

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