IP Law Daily, PATENT—S.D.N.Y.: Cryptocurrency exchange patents found invalid, DeFi infringement suit dismissed without prejudice, (Feb 12, 2026)

By Saurabh Kashyap, B.A., M.A., LL.B., LL.M.

Asserted claims recited abstract economic concepts on conventional blockchain technology and lacked an inventive concept; infringement claims were not plausibly pled.

The federal district court in Manhattan, New York, has granted a motion to dismiss a patent infringement action brought by developers of a decentralized finance protocol, holding that the asserted claims of two cryptocurrency exchange patents were invalid under 35 U.S.C. § 101. The court determined that the claims were directed at the abstract idea of currency exchange and price calculation and did not recite any inventive concept sufficient to transform that idea into patent-eligible subject matter. The court further held that the plaintiffs failed to plausibly allege direct infringement because they did not identify a required “reserve ratio constant” in the accused protocol and failed to plead knowledge necessary to support induced and willful infringement (Bprotocol Foundation v. Universal Navigation Inc., No. 1:25-cv-04214-JGK (S.D.N.Y. Feb. 10, 2026)).

Background. The plaintiffs, Bprotocol Foundation and LocalCoin Ltd., are entities operating in the decentralized finance (DeFi) ecosystem. They developed and released the Bancor Protocol, a blockchain-based system that enables cryptocurrency exchanges using smart contracts and automated market-making mechanisms. The defendants, Universal Navigation, Inc., and Uniswap Foundation, are associated with the competing Uniswap Protocol, another widely used decentralized cryptocurrency exchange platform built on blockchain technology.

In this lawsuit, Bprotocol asserted its U.S. Patent Nos. 11,107,049 (the ’049 patent) and 11,574,291 (the ’291 patent), both directed to “secure ledger networks” for executing cryptocurrency transactions. The ’049 patent was a continuation of the ’291 patent. The asserted claims described a system for exchanging cryptocurrency tokens using a constant product automated market maker (CPAMM).

After releasing the Bancor Protocol, the plaintiffs alleged that the defendants developed the Uniswap Protocol using the same automated pricing model. The plaintiffs filed suit alleging direct, induced, and willful infringement under 35 U.S.C. § 271. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the claims were patent-ineligible and inadequately pled.

Alice step one. The court analyzed eligibility under the two-step framework set forth in Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014). At step one, the court held that the claims were directed at the abstract idea of calculating currency exchange rates to perform financial transactions. It emphasized that currency exchange constituted a “fundamental economic practice long prevalent in our system of commerce.” The claims required collecting token status data, applying a mathematical formula using a reserve ratio constant, and updating a ledger—steps the court characterized as pricing and exchange calculations.

Relying on SAP America, Inc. v. InvestPic, LLC, 898 F.3d 1161 (Fed. Cir. 2018), the court noted that claims directed to collecting, analyzing, and presenting financial information fell within the realm of abstract ideas. The court also cited Mort. Grader, Inc. v. First Choice Loan Servs. Inc., 811 F.3d 1314 (Fed. Cir. 2016), which similarly held that financial calculations and data analysis were abstract.

Further, the court rejected the plaintiffs’ contention that implementing the pricing mechanism through blockchain and smart contracts rendered the claims non-abstract. Citing Affinity Labs of Texas, LLC v. DIRECTV, LLC, 838 F.3d 1253 (Fed. Cir. 2016), the court reiterated that limiting an abstract idea to a particular technological environment did not confer eligibility. The patents themselves acknowledged that blockchain and smart contract technologies predated the inventions.

Alice step two. At step two, the court examined whether the claims recited an inventive concept sufficient to transform the abstract idea into patent-eligible subject matter. Citing Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), the court recognized that patent eligibility was ultimately a question of law, though it could involve underlying factual issues.

The court concluded that the claims merely implemented the abstract idea of currency exchange using conventional blockchain components. It rejected the plaintiffs’ reliance on allegations in the complaint that described an “unconventional cryptocurrency smart-contract structure” that managed liquidity pools and improved computational efficiency. Quoting Sanderling Management Ltd. v. Snap Inc., 65 F.4th 698 (Fed. Cir. 2023), the court held that the complaint could not alter what the claims actually recited.

Further, the court cited Simio LLC v. FlexSim Software Products, Inc., 983 F.3d 1353 (Fed. Cir. 2020), explaining that features that merely reflect the abstract idea itself cannot supply the inventive concept. Because the claims relied on preexisting blockchain technology to execute a mathematical pricing formula, they failed Alice step two.

Direct infringement. The court further held that the amended complaint failed to plausibly allege direct infringement under 35 U.S.C. § 271(a). Citing Bot M8 LLC v. Sony Corp. of America, 4 F.4th 1342 (Fed. Cir. 2021), the court emphasized that a complaint must articulate why it is plausible that the accused product satisfies each claim limitation.

Each asserted claim required a “reserve ratio constant” (Rr). The plaintiffs alleged that in the defendants’ protocol, the reserve ratio constant “mathematically resolves to 1,” but the complaint did not identify any such constant in the defendants’ open-source code. Because the plaintiffs had access to the code, the court rejected their argument that discovery was necessary. Without factual allegations showing how the accused protocol satisfied the reserve ratio limitation, the complaint failed to provide adequate notice of infringement, as required by K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., 714 F.3d 1277 (Fed. Cir. 2013).

Induced and willful infringement. The court also dismissed the induced and willful infringement claims. To plead inducement under 35 U.S.C. § 271(b), a plaintiff must plausibly allege knowledge that the induced acts constitute infringement. Citing Nalco Company v. Chem-Mod, LLC, 883 F.3d 1337 (Fed. Cir. 2018), the court held that the complaint did not allege facts showing that the defendants knew of the patents before suit.

The plaintiffs asserted that the defendants had knowledge at least as of the filing of the original complaint. However, the court relied on Kaufman v. Microsoft Corp., 2020 WL 364136 (S.D.N.Y. Jan. 22, 2020), to hold that, in this district, a complaint itself cannot supply the requisite knowledge for ongoing infringement. Because the plaintiffs failed to allege pre-suit knowledge, the induced and willful infringement claims were dismissed.

Disposition. Thus, the court granted the defendants’ motion to dismiss in full and dismissed the complaint without prejudice. It allowed the plaintiffs 21 days to file an amended complaint, failing which the action would be dismissed with prejudice.

The Case is No. 1:25-cv-04214-JGK.

Judge: Koeltl, J.

Attorneys: Arian Joseph Koochesfahani (Quinn Emanuel Urquhart & Sullivan, LLP) for BProtocol Foundation. Benjamin Hershkowitz (Gibson, Dunn & Crutcher, LLP) for Universal Navigation Inc. d/b/a Uniswap Labs.

Companies: Bprotocol Foundation; Universal Navigation Inc. d/b/a Uniswap Labs

Cases: Patent TechnologyInternet NewYorkNews