The $14.5 Billion Question:
Do Visa And MasterCard Control The U.S. Smart Card Business?
By Jeff Green @pymnts
What's Next In Payments®
7:30 AM EDT August 11th, 2014
Do Visa and MasterCard have enough control over the U.S. payment card market that they can violate a smart card patent. A federal appeals court last week began hearing arguments in a case in which card vendor SmartMetric Inc. contends they do, and have.
In December, SmartMetric filed its appeal of a U.S. District Court ruling in California three months earlier that both networks did not infringe of the so-called “464” patent, more specifically U.S. Patent 6,792,464, which was issued in 2004. The company filed its appeal with the U.S. Circuit Court of Appeals in Washington, D.C.
In its dispute with the card networks, SmartMetric is seeking $14.5 billion collectively in damages and paid up royalties. It contends the networks are infringing on its patent “by selling, offering to sell, and using contact and contact/contactless credit card systems that use data cards that, when inserted into a data card reader, help establish connection to a network … that infringe” on its patent, according tothe complaint.
What’s interesting about the case is that Visa and MasterCard don’t issue cards, but they do support contact and contactless card technology through their brands, including contactless smart card payments through Visa payWave and MasterPass. They do, however, process card transactions and provide other services for their card-issuing customers.
The complaint contends the networks’ systems also violate SmartMetric’s patent by providing automatic access to their networks when EMV cards are inserted into readers and relay information to and from the electronic connectors of the card and reader, and when cards are inserted into a card placed within radio frequency identification (RFID) field formed by a contactless reader.
In September last year, U.S. District Judge Michael Fitzgerald issued a ruling, saying “I don’t see anything to determine here for a jury,” according to a Bloomberg BusinesssWeekreport. In that report, Joseph Melnick, a lawyer for Visa, noted that the card networks do fundamentally different things than what SmartMetric claims in its patent dispute. A court in an earlier lawsuit SmartMetric bought against the two networks similarly ruled there was no infringement.
In announcing its notice to appeal Fitzgerald’s decision, SmartMetric noted that the judge ruled against the networks’ motion to invalidate the patent.
“What now is at contention and the heart of the appeal to the federal court, is the question of who is the infringing party in the case?” SmartMetric said in arelease announcing its plans to appeal. “The company will show evidence previously presented to the court that, in the considered legal opinion of SmartMetric’s highly experienced legal counsel, the evidence demonstrates the control of claimed infringing technology by both defendants, Visa and MasterCard. It is a matter of law that a controlling party can be held liable for acts of patent infringement.”
Both Visa and MasterCard declined to comment on the appeal. In a statement to PYMNTS.com, SmartMetric President Chaya Hendrick noted that at the heart of the dispute is whether Visa and MasterCard control the card business in the U.S.
“They are contending they do not and, therefore, are not responsible for infringement,” Hendrick said. “We have provided to the court evidence that we believe clearly shows that the payments card companies do in fact control the elements of infringement as detailed in our patent.”
Following the hearing, Hendrick expressed satisfaction with how the three-judge panel handled the dispute. “We are very pleased with the questions raised by the panel of justices,” Hendrick said in an email to PYMNTS.com. “We now await the written ruling following their deliberations.”
e $14.5 Billion Question: Do Visa And MasterCard Control The U.S. Smart Card Business?
DECK: Patents are tricky things and companies will often go to great lengths to protect them. Last week, card vendor SmartMetric began arguments in its appeal to an earlier court ruling that Visa and MasterCard did not infringe on its smart card patent, as it claimed in a dispute filed in 2011. After various unsuccessful tries to convince a court that the networks in fact do, will it succeed this time?
