Jury Nails VeriFone in Software Patent Case But Clears Rival Ingenico

A little software company gone bust won big against leading point-of-sale terminal maker VeriFone Systems Inc. in a patent-infringement verdict June 8. A federal jury in Texas found after a five-day trial that VeriFone infringed on two patents held by CardSoft Inc. and awarded damages and royalties of $15.4 million. The jury also determined that VeriFone’s major U.S. rival and co-defendant Ingenico S.A. did not infringe on CardSoft’s patents.

San Jose, Calif.-based VeriFone on Monday said in a regulatory filing that it planned to appeal or otherwise challenge the verdict. The company estimated its losses from the litigation at $17.6 million but said they could go higher depending on interest expenses and possible future royalties on U.S. sales. The jury based its damages on a value of $3 per unit, with a unit presumably meaning one terminal.

The disclosures caused a sell-off in VeriFone stock Tuesday that chopped 6% off the company’s share price from Monday’s close. VeriFone did find two pieces of good news in the whole affair: the jury said CardSoft did not prove that VeriFone willfully infringed on the patents, and a financial analyst said VeriFone’s beaten-down stock, which in recent weeks has taken a hit because of questions about the company’s finances, now represents a good buy. A VeriFone spokesperson would not comment beyond the filing.

CardSoft in March 2008 filed the infringement suit against the big three U.S. terminal makers at the time: VeriFone, Ingenico, and Hypercom Corp., as well as three smaller industry firms, Way Systems Inc. and Hong Kong-based Shera International Ltd. and a sister company, Blue Bamboo (USA) Inc. Shera and Blue Bamboo settled with CardSoft last July. VeriFone bought Way Systems in 2010 and inherited Hypercom’s potential exposure after buying that company in 2011 even though its U.S. assets were spun off as Equinox Payments LLC. That left VeriFone/Hypercom and Ingenico as the remaining defendants going into the trial.

Ingenico said it and its outside lawyers “achieved a decisive victory” at the trial. “The June 8th jury verdict in the CardSoft case vindicated Ingenico’s firm conviction that it did not infringe on the patents at hand and that CardSoft’s claims were without merit,” a company statement says. “Ingenico is respectful of the intellectual-property rights of others and will always remain ready to mount a strong legal defense to rebuff those who wrongly accuse it of infringement of the intellectual-property rights of others.”

An Australian, Ian Charles Ogilvy, founded CardSoft in 1993 after five years of working for France-based Ingenico’s Australia affiliate, according to a court document. He developed a payments-software product called CardScript that he intended to work on any POS terminal regardless of hardware or operating system, and even on other hardware components such as electronic cash registers or telephones.

CardSoft opened a U.S. office in San Mateo, Calif., and in August 2005 Ogilvy received the first of the two U.S. patents related to CardScript that sparked the litigation. That one, Patent 6,934,945 (the ‘945 patent), is described as for “a method and apparatus for controlling communications,” according to CardSoft’s complaint.

Ogilvy received a second patent, No. 7,302,683 (the ‘683 patent) in November 2007. The complaint describes the ‘683 patent also as a “method and apparatus for controlling communications.” The lawsuit alleged the terminal makers essentially used CardSoft’s intellectual property protected by the two patents in their own products.

CardSoft reportedly is no longer in business. Its phone in San Mateo is disconnected. Three attorneys who represented CardSoft during the case did not respond to Digital Transactions News requests for comment. All or part of any payments VeriFone ultimately makes apparently would go to CardSoft’s creditors, according to sources.

The jury assigned 85% of damages to VeriFone and 15% to the former Hypercom. The court has not yet entered a judgment in the case.

The trial was held in the Marshall (Texas) Division of the U.S. District Court for the Eastern District of Texas, one of the country’s favorite venues for patent-infringement plaintiffs. “The patent situation in this country is very volatile and unpredictable,” says consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign, who has done patent work with payments-industry companies but was not involved in the CardSoft case. He adds that, “It’s really hard to explain to the average person all the arcane and complex aspects of our business.”