Friday, March 8, 2013
On another front, documents from the financial institution regulatory arm within the State of Illinois Department of Financial & Professional Regulation (IDFPR) confirm that mobile payment startup Square Inc. was issued a cease and desist order in January 2013. The order said Square does not have a required license to operate in the state.
PayOne, formerly PaymentOne Corp., is asking the federal court in the Northern District of California to award it unspecified damages and an injunction against Home Depot for future patent infringement violations. PayOne said the PayPal in-store checkout process available to consumers at Home Depot stores in the United States violates PayOne patents covering the use of mobile phone numbers and PINs to make payments at the POS.
The lawsuit goes back to May 2011, when PayOne filed suit in Northern California against mobile payments firm Zong Inc., seeking damages and injunctive relief for alleged patent violations. In July 2011, PayPal's parent company, eBay Inc., purchased Zong. In March 2012, PayPal expanded the Home Depot pilot of its in-store, cardless payment service. In May 2012, PayPal was substituted for Zong as the defendant in the patent case.
The complaint alleges Home Depot knew since November 2012 about PayOne's claim that PayPal's so-called "Empty Hands" payment scheme violated its patents, when PaymentOne wrote to Home Depot about its concerns. PayOne said Home Depot knowingly violated its patents "by providing to customers the PayPal in-store checkout system as an option of payment, promoting the PayPal system to customers through in-store and Internet advertising, and aiding, assisting and encouraging customers to complete a transaction using the PayPal in-store checkout system."
In addition to patents covering use of mobile phone numbers and PINs at the POS, PayOne patents also reportedly include a real-time authentication and fraud control system that covers, among other things, accounts tied to mobile numbers, as well as credit, debit and prepaid card accounts.
Joe Lynam, President and Chief Executive Officer at PayOne, said in a release discussing the Home Depot suit: "PayOne has invested significant time and money developing its proprietary mobile payment technologies designed to simplify the checkout process and the PayOne systems have been deployed by digital merchants across the globe.
"The 'mobile wallet wars' have moved beyond the digital world into the point of sale, but now face adoption challenges and substantial friction with consumer setup requirements, security concerns and lack of merchant required NFC [near field communication] infrastructure."
Lynam said PayOne's patents solve these problems by allowing instant wallet capability "that can be extended to the retail and physical world" for consumers with no pre-registration or friction at the POS and no NFC infrastructure required.
PayOne said the potential number of mobile payment users who would use instant wallet technology far exceeds the estimated two billion global credit cardholders today.
Meanwhile, Illinois issued Square the cease and desist order after the IDFPR's finding that Square is in violation of the state's Transmitters of Money Act (TOMA). The act requires any business "selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments" to be licensed by the IDFPR. The department ordered Square to stop doing business in the state and produce documents on all Illinois customer account activity, money transmissions and "independent reviews of Square's Anti-Money Laundering program."
The order called for Square to file those documents with the IDFPR by Feb. 19, 2013. IDFPR spokeswoman Susan Hofer told The Green Sheet that said she could not say if Square met the deadline. The order declares Square liable for fines of $1,000 per violation. A Square representative responded, "We've been in close contact with the Illinois Division of Financial Institutions for several months and are addressing their concerns." 
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