IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

SMART OPTIONS, LLC Plaintiff, v. OPTIONS AWAY, LLC, WHYTEEZEE, LLC, BITBEND, LLC, ROBERT BROWN and HEIDI BROWN Defendants.

) ) ) ) ) ) ) ) ) ) ) )

Case No. 14-cv-1824 Judge Mag. Judge

JURY TRIAL DEMANDED

COMPLAINT Plaintiff Smart Options, LLC (SmartOptions) files this Complaint against Defendants Options Away, LLC (OptionsAway), WhyTeeZee, LLC (YTZ), BitBend, LLC (BitBend), Robert Brown and Heidi Brown stating as follows: I. NATURE OF THE ACTION 1. note. II. PARTIES 2. Plaintiff SmartOptions is a limited liability company organized under the laws This is an action for patent infringement and to enforce a secured promissory

of the State of Delaware. Plaintiff has a principal place of business located at 600 West Chicago Avenue, Suite 300N, Chicago, Illinois 60654. Smart Options integrates its systems and methods for purchasing electronic options into such websites as www.optionit.com and, until recently, www.optionsaway.com. 3. Defendant OptionsAway is a limited liability company organized under the

laws of the State of Delaware with its principal place of business at 222 West Merchandise

Mart Plaza, 12th Floor, Chicago, Illinois 60654. Defendant WhyTeeZee, LLC is a limited liability company organized under the laws of the State of Delaware with its principal place of business, on information and belief, at 222 West Merchandise Mart Plaza, 12 th Floor, Chicago, Illinois 60654. Defendant BitBend, LLC is a limited liability company organized under the laws of the State of Illinois with its principal place of business at 201 South Taylor Street, Oak Park, Illinois 60302. Defendant Robert Brown is an individual and the Chief Executive Officer of OptionsAway; Mr. Brown is a resident of Oak Park, Illinois. Defendant Heidi Brown is an individual and is the Chief Marketing Officer of OptionAway; Mrs. Brown is a resident of Oak Park, Illinois. III. JURISDICTION AND VENUE 4. This Court has subject matter jurisdiction under the provisions of 28 U.S.C.

1331 and 1338(a), in that this action for patent infringement arises under the laws of the United States, including 35 U.S.C. 271 and 281-285. This Court has jurisdiction over the remaining non-patent claims pursuant to 28 U.S.C. 1367. 5. Personal jurisdiction over Defendants comports with 735 ILCS 5/2-209 and

the United States Constitution because Defendants do business in this judicial district, have committed and continue to commit, or have contributed and/or induced and continue to contribute to and/or to induce, acts of patent infringement in this judicial district as alleged in this Complaint, or otherwise have sufficient contacts with the state. 6. Venue is proper in this judicial district under the provisions of 28 U.S.C.

1391(b), (c), and 1400(b). IV. FACTUAL BACKGROUND 7. Smart Options is the owner of United States Patent Nos. 7,313,539 (539

patent) and United States Patent No. 8,301,550 (550 patent). Smart Options also owns 2

several related patents and patent applications. Smart Options does business as OptionIt, using the technology described and claimed in those patents and operates the website www.optionit.com. Smart Options also owns a substantial interest in OptionsAway, LLC, which operates www.optionsaway.com, a website that also used the inventions of Smart Options patents to sell and offer for sale options on airfare under a no w-revoked license. Smart Options has also authorized a number of other entities to use its inventions under nonexclusive patent licenses, including SteadyFare, Inc. and JetZet, Incorporated. 8. On December 25, 2007, the United States Patent and Trademark Office duly

and legally issued United States Patent No. 7,313,539 (the 539 patent) entitled Method and System for Reserving Future Purchases of Goods or Services. A true and correct copy of the 539 patent is attached hereto as Exhibit A. On October 30, 2012, the United States Patent and Trademark Office duly and legally issued United States Patent No. 8,301,550 (the 550 patent) entitled Method and System for Reserving Future Purchases of Goods or Services. A true and correct copy of the 550 patent is attached hereto as Exhibit B. 9. The application which became the 539 patent was filed May 5, 2008. The 550

patent shares that constructive priority date. 10. The inventions described and claimed in the 539 and 550 patents were

conceived of at least as early as March 1998. 11. The inventors diligently reduced to practice the described and claimed

inventions of the 539 and 550 patents. 12. The inventors of the SmartOptions system pioneered the concepts described

and claimed in the 539 and 550 patents.

13.

On information and belief, conception of the inventions claimed in the 539

and 550 patents predates those claimed by anyone else. 14. In The Ticket Reserve, Inc. v. OptionIt, Inc. (09-cv-7375), the United States

District Court for the Northern District of Illinois broadly construed claim 1 of the 539 patent to cover electronic options on all goods and services that are not regulated by a government agency. In Smart Options, LLC v. Steadyfare, Inc. (12-cv-8042), the United States District Court for the Northern District of Illinois entered a consent judgment that resolved patent infringement litigation between the parties and required Steadyfare, Inc. to mark its website with Smart Options patent numbers. Steadyfare, like BitBend, sold options on airline tickets. See http://articles.chicagotribune.com/2012-10-12/business/ct-biz-1012-airfareoptions-20121011_1_chicago-board-options-exchange-option-costs-airfare/2. 15. According to 35 U.S.C. 282, the 539 and 550 patents are presumed valid.

The 539 and 550 patents are also enforceable. 16. Smart Options complies with the marking provisions of 35 U.S.C. 287.

OptionsAway marked its website with the 539 and 550 patent numbers, as well. 17. On or about March 5, 2013, SmartOptions created OptionsAway along with

BitBend LLC (BitBend). Defendants Rob and Heidi Brown (collectively the Browns) founded BitBend in order to sell options on airfare. The Browns, however, failed to adequately determine whether other entities had exclusive rights to sell electronic options on airfare. 18. In October 2012, SmartOptions contacted BitBend and the Browns to inform

them of SmartOptions exclusive rights and of SmartOptions desire to pursue a productive

working relationship with BitBend. Attached to this Complaint as Exhibit C is a true and accurate copy of an email string between G. Baker and H. Brown dated October 8, 2012. 19. Shortly after that exchange, BitBends intellectual property counsel, Brad

Hulbert, indicated that he would be reviewing SmartOptions patents and file histories. Attached to this Complaint as Exhibit D is a true and accurate copy of an email from B. Hulbert to G. Baker dated October 12, 2012. In that same exchange, Mr. Hulbert consented to direct business discussions between SmartOptions and the Browns/BitBend. Id. 20. By October 24, 2012, SmartOptions and the Browns/BitBend met in person.

See Exhibit E. The Parties continued to talk into November. Those talks were amicable and productive. Importantly, during those talks, a number of times, the Browns/BitBend unequivocally told SmartOptions that BitBend required a license to SmartOptions patents in order to lawfully conduct their business. As Heidi Brown put it on more than one occasion, but for the SmartOptions patents, BitBend would not be able to go forward. In short, BitBend readily admitted that its methods and systems infringed SmartOptions patents. A fact confirmed by OptionsAway agreeing to license the SmartOptions patents and apparently further confirmed by BitBends counsels review of the SmartOptions patents and file histories. 21. On or about March 5, 2013, Defendant OptionsAway entered into a Patent

License Agreement with Plaintiff SmartOptions. Section 14.3 of that now-terminated license includes an express provision allowing SmartOptions to seek judicial resolution of OptionsAways violation of any of [SmartOptions] rights in any SO Property. 22. Also on or about March 5, 2013, Defendant OptionsAway executed and

delivered to Plaintiff SmartOptions a Secured Promissory Note, which stated:

FOR VALUE RECEIVED, OPTIONS AWAY, LLC, a Delaware limited liability company (the Borrower), hereby agrees to pay to the order of SMART OPTIONS, LLC, a Delaware limited liability company, or its successors and/or assigns (the Lender), to the account set forth below, or such other account or place as the holder of this Secured Promissory Note (as amended, restated, supplemented or otherwise modified from time to time, this Note) may from time to time designate in writing to the Borrower, the principal sum of ONE HUNDRED FIFTY THOUSAND and 00/100 DOLLARS ($150,000.00) (the Loan), in lawful money of the United States of America.

Exhibit G. The Secured Promissory Note also stated that

The outstanding principal amount of the Loan shall be repaid by the Borrower on the earlier to occur of (a) March 5, 2016, and (b) the date that Borrower incurs indebtedness or receives proceeds of one or more equity issuance(s) in an aggregate amount in excess of the Loan (the Maturity Date). In addition, within thirty (30) days after the last day of each calendar quarter, commencing with the quarter ending March 31, 2013, the Borrower shall deliver to the Lender an amount equal to fifty percent (50%) of the Net Cash Flow (as such term is defined in the Limited Liability Company Agreement of the Borrower dated as of March 5, 2013, as in effect as of the date hereof) generated by Borrower during such calendar quarter (or, with respect to the calendar quarter ending March 31, 2013, the portion of such calendar quarter beginning on the date hereof and ending on March 31, 2013) (any and all such prepayments, the Cash Flow Prepayments). The Cash Flow Prepayments shall be applied first to all accrued and outstanding interest on the Loan as of the last day of the applicable calendar quarter and second to the outstanding principal amount of the Loan as of the last day of the applicable calendar quarter.

Id. 23. Defendant OptionsAway also owes SmartOptions $100,000.00 under a

separate agreement referred to as the Side Letter. Attached to this Complaint as Exhibit F is a true and accurate copy of the Side Letter. Further, Defendant OptionsAway agreed to pay SmartOptions one half of the attorneys fees incurred in the creating of Options Away, LLC. Attached to this Complaint as Exhibit H is a true and accurate copy of email communications between the Rob Brown and Mac McNally, on March 4, 2013, in which Mr. Brown clearly acknowledges that OptionsAway will pay one half of those fees. Those fees totaled approximately $155,000.

24.

Defendant OptionsAway has not paid SmartOptions any amount of lawful

money of the United States of America outside of a purported annual interest payment under the Promissory Note; that purported payment was inaccurately calculated. 25. According to the Secured Promissory Note,

As security for the payment of each and every debt, liability and obligation of the Borrower under this Note and the other Loan Documents, whether now existing or hereafter arising, direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, independent, joint, several or joint and several and interest accrued on any of the foregoing, both before and after the filing of a bankruptcy petition by or against the Borrower (the Obligations), the Borrower hereby grants to Lender a first priority security interest in all of the Borrowers right, title and interest in and to all of the personal property and other assets of the Borrower, as further described on Exhibit A attached hereto, whether now owned or hereafter existing or acquired, together with all products and proceeds thereof (collectively, the Collateral).

See Exhibit G, a true and accurate copy of the Secured Promissory Note. In turn, the Secured Promissory Note states that
The term Collateral shall include all of the Borrowers now owned and hereafter existing and acquired: (i) accounts; (ii) chattel paper; (iii) contracts; (iv) commercial tort claims; (v) deposit accounts; (vi) documents (including but not limited to warehouse receipts and bills of lading); (vii) equipment and fixtures; (viii) general intangibles; (ix) goods; (x) instruments; (xi) inventory; (xii) investment property; (xiii) letter of credit rights and supporting obligations and records; (xiv) books and records; (xv) any and all other personal property and assets, and (xvi) all proceeds and products of the foregoing (in case, as such terms are defined in the Illinois Uniform Commercial Code as in effect on the date hereof). Id.

26.

Defendant OptionsAway owes Plaintiff SmartOptions the amount of the

Secured Promissory Note and interest (along with the attorneys fees incurred to collect such payment), as well as the amount of the Side Letter and one half of the attorneys fee incurred in creating OptionsAway, LLC.

27.

None of the Defendants is presently authorized or licensed to practice

(directly or indirectly, literally or equivalently) any inventions claimed in the SmartOptions patents. 28. OptionsAway had a qualified exclusive license under the SmartOptions

patents from March 5, 2013 to October 2, 2013 (or, no later than October 23, 2013). To retain exclusivity under that license, OptionsAway was required to meet certain metrics. Specifically, subsection 2.2.1(i) of the license permitted SmartOptions to terminate the exclusive nature of the license when OptionsAway fails to achieve the applicable Metrics, as determined in good faith by SO, which determination shall be final and binding on the Parties; provided that the failure to achieve the Metrics shall only cause the Exclusive Period to terminate if SO determines in good faith that the Metrics have not been achieved for three (3) consecutive months, such determination to be made by SO in each case within five (5) business days after the end of the applicable month; provided further that in no event shall the failure to achieve the Metrics cause the Exclusive Period to terminate during the six (6) month period immediately following the Effective Date . Within five days of the end of the months of March, April and May 2013, SmartOptions determined in good faith that OptionsAway did not achieve the Metrics in each of those three consecutive months. Among other things, OptionsAway failed to partner with global distribution systems and technology companies to provide greater reach into the air travel sector. Smart Options has also determined in good faith that OptionsAway has not achieved that particular metric in any subsequent month. 29. On or about October 2, 2013, SmartOptions terminated the exclusivity of its

patent license to OptionsAway. On or about that same date, Chris Pappas hand delivered a copy of the termination to Rob Brown. A true and accurate copy of the Notice of Termination is attached to this Complaint as Exhibit I.

30.

On or about October 2, 2013, SmartOptions also notified OptionsAway that

SmartOptions was exercising its audit rights under section 5.2 of the now-terminated license between SmartOptions and Options Away. See Exhibit I. 31. On or about October 23, 2013, Rob Brown acknowledged that he had received

the Notice of Termination and also the Notice of Exercising of Audit Right. Attached to this Complaint as Exhibit J is a true and accurate copy of an email exchange between SmartOptions and Mr. Brown clearly showing that, at least as of October 23, 2013, Mr. Brown had possession of both Notices. 32. As of the date of this Complaint, OptionsAway has not cooperated with

SmartOptions to allow SmartOptions to exercise its audit rights under section 5.2 of the nowterminated license. 33. As of the date of this Complaint, OptionsAway has not provided

SmartOptions with any evidence that OptionsAway has ever met the initial 90-day Metrics detailed in the now-revoked license. 34. No later than October, 23, 2013, OptionsAway was notified in writing that

SmartOptions was exercising its rights under section 5.2 of the Patent License Agreement. OptionsAway failed to comply with that request and failed to act in good faith to facilitate the exercise of SmartOptions rights under that subsection. 35. More than 30 days later, OptionsAway had not cured that failure. As of the

filin of this Complaint, OptionsAway has not cured that failure. 36. Despite OptionsAwa ys failures, SmartOptions reached out to OptionsAway,

again in January 2014. In an email whose subject was Request to OA from the SO Board, SmartOptions wrote:
Rob,

A number of potential investors continue to ask us for information regarding OA. Because of their questions and our need to answer them, the SmartOptions' Board has asked me to contact you directly to discuss particular dates to perform the audit under Section 5.2 of the Patent License. Also, SO's Board has asked me to discuss the Promissory Note and the Side Letter, as well as YTZ's portion of the attorneys' fees incurred in creating OA. Lastly, the SO Board has asked me to clarify OA's Patent License immediately; presently, OA has a non-exclusive license. Please let me know when you are available tomorrow or later in the week. Thanks. Geoff

Mr. Brown and OptionsAway, again, failed to respond and failed to act in good faith to facilitate SmartOptions exercise of its rights under subsection 5.2 of the Patent License Agreement. On January 10, 2014, under the same email heading, SmartOptions wrote, again, to Mr. Brown and OptionsAway:
Rob, I have not heard form (sic) you regarding SO's need for a date to conduct the Section 5.2 audit. We also need to discuss the other items related to OA's financial obligations to SO under our agreements. Again, please call or email at your earliest convenience. Geoff

Again, Mr. Brown and OptionsAway never responded to SmartOptions email. 37. Compliance with subsection 5.2 of the Patent License Agreement was a

material obligation of OptionsAway. 38. 39. OptionsAway breached that material obligation. OptionsAway did not cure its breach of its material obligation to comply with

subsection 5.2 of the Patent License Agreement. 40. On March 3, 2014, SmartOptions terminated the Patent License Agreement

for cause. SmartOptions also revoked OptionsAways license to the SmartOptions patents. 10

V. CAUSE OF ACTION DEFENDANT'S INFRINGEMENT OF THE 539 PATENT 41. SmartOptions incorporates by express reference the allegations in paragraphs

1-40 above as if fully set out herein. 42. Defendants, through their website and mobile applications, have directly and

indirectly infringed and continue to directly and indirectly infringe one or more claims of the 539 patent literally and/or under the doctrine of equivalents. Defendants conduct violates, at least, 35 U.S.C. 271(a) and (b). 43. Rob Brown and Heidi Brown have also infringed, and continue to infringe, the

539 patent by actively inducing others to infringe the 539 patent. Rob Browns conduct violates, at least, 35 U.S.C. 271(b). Heidi Browns conduct violates, at least, 35 U.S.C. 271(b). 44. Defendants infringement of the 539 patent has injured SmartOptions, has

caused financial and other damage to SmartOptions, and will continue to do so unless enjoined by the Court. VI. CAUSE OF ACTION DEFENDANT'S INFRINGEMENT OF THE 550 PATENT 45. SmartOptions incorporates by express reference the allegations in paragraphs

1-44 above as if fully set out herein. 46. Defendants, through their website and mobile applications, has directly and

indirectly infringed and continue to directly and indirectly infringe one or more claims of the 550 patent literally and/or under the doctrine of equivalents. Defendants conduct violates, at least, 35 U.S.C. 271(a) and (b).

11

47.

Rob Brown and Heidi Brown have also infringed, and continue to infringe, the

550 patent by actively inducing others to infringe the 550 patent. Rob Browns conduct violates, at least, 35 U.S.C. 271(b). Heidi Browns conduct violates, at least, 35 U.S.C. 271(b). 48. Defendants infringement of the 550 patent has injured SmartOptions, has

caused financial and other damage to SmartOptions, and will continue to do so unless enjoined by the Court. VI. JURY DEMAND 49. Smart Options hereby demands a trial by jury of any and all issues triable of

right by a jury pursuant to the VIIth Amendment to the Constitution and Rule 38 of the Federal Rules of Civil Procedure. VII. PRAYER Smart Options requests a judgment from this Court including the following: a. Defendants Options Away, LLC, Robert Brown and Heidi Brown have directly and/or indirectly infringed claims of the 539 and 550 patents either literally or under the doctrine of equivalents; Defendants and their agents, servants, officers, directors, employees, and all persons acting in concert with it, directly or indirectly, be permanently enjoined from infringing the 539 and 550 patents; Defendants be ordered to account and pay to Smart Options the damages to which it is entitled as a consequence of the infringement of the 539 and 550 patents including lost profits and/or no less than a reasonable royalty; Damages be trebled for the willful, deliberate, and intentional infringement by Defendant in accordance with 35 U.S.C. 284; Declaring this case an exceptional case and Smart Options be awarded prejudgment interest, costs, disbursements, and attorneys fees herein in accordance with 35 U.S.C. 285; and, Defendant Options Away, LLC breached, and defaulted on, the Secured Promissory Note and other agreements related to the creation of Options Away, LLC; Damages for breach and default of the Secured Promissory Note, including but not limited to the entire unpaid principal balance of the Secured Promissory Note, together with all interest accrued thereon, attorneys fees

b.

c.

d. e.

f.

g.

12

h.

and all other sums due by the Options Away, LLC on all agreements related to SmartOptions; and, SmartOptions be awarded such other and further relief as this Court may deem just and equitable.

Respectfully submitted this 14th day of March 2014.

/s/ Geoffrey A. Baker Geoffrey A. Baker Smart Options, LLC 600 West Chicago Avenue, Suite 300N Chicago, Illinois 60654 (708) 707-8778 geoffb@optionit.com

13