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The Green Sheet Online Edition

October 26, 2009 • Issue 09:10:02

Encryption debate heads to court

The race for card data security superiority has taken an unusual turn with two of the most vocal corporate advocates taking each other to court. Terminal manufacturer VeriFone Holdings Inc. was the first to get its points on the record by filing a patent infringement complaint against Heartland Payment Systems Inc.

At issue in the case is a patent acquired by VeriFone when it purchased Lipman Electronic Engineering Ltd. and renamed it VeriFone Israel Ltd. The patent (US 6,853,093 B2), issued in 2005, covers what is described as "anti-tampering enclosure for electronic circuitry."

In its complaint, which was filed Sept. 9, 2009, with the Federal District Court for the Northern District of California, VeriFone Israel asserted that a new card terminal Heartland wants to import and distribute in the United States, under the Heartland NP3000 moniker, infringes on that 2005 patent.

Dueling lawsuits

A week later, Heartland's attorneys were at Mercer County (New Jersey) Superior Court accusing VeriFone of trying to sabotage Heartland's efforts to develop and bring to market POS terminals that support end-to-end encryption of card and transaction data. Heartland, one of the top bankcard acquirers in the United States, is headquartered in Princeton, N.J.

The company became a vocal champion of end-to-end encryption after it was discovered in early 2009 that it had suffered a major data security breach despite having been deemed in compliance with the Payment Card Industry (PCI) Data Security Standard (DSS). The PCI DSS details the industry's baseline requirements for securing credit and debit card data.

Heartland's end-to-end encryption efforts, known collectively as the E3 Project, reportedly employ the highest level of encryption security available today. Heartland expects it will eventually replace the Data Encryption Standard (DES) and Triple DES methods for securing payment card data.


In its complaint, Heartland said it has spent "significant time, money and effort" working with a Taiwanese manufacturing firm, Unelectra International Corp., to develop E3 terminals. A successful test of one such terminal was completed in June 2009, the complaint said, and Heartland planned to introduce it to the U.S. market as the Heartland NP3000 during the third quarter of 2009.

VeriFone insists the Heartland NP3000 infringes on its 2005 patent, and that Heartland was aware of this fact but chose to ignore it. Asked about this claim, a Heartland spokeswoman told The Green Sheet, "Heartland respects the patent rights of others and has strong defenses to the allegations in VeriFone's complaint."

The lawsuit filed by Heartland, meanwhile, alleges that VeriFone and its CEO Douglas Bergeron have "engaged in an unlawful and tortuous campaign to punish Heartland and injure competition," and it accuses VeriFone of a "xenophobic determination to prevent Heartland from obtaining the next generation of secure POS terminals from manufacturers in Taiwan and China."

Among its specific allegations, Heartland charges that VeriFone has refused to do business with Heartland and will neither sell terminals to nor support existing VeriFone products used by Heartland and its clients until it abandons plans to import the UIC terminals.

Heartland also alleges in its complaint that VeriFone has put the squeeze on companies working on Heartland's E3 Project, even threatening to put some out of business if they do not cease working on that project.

Cases pending

Reached for comment, a spokesman for VeriFone described the litigation against Heartland as "a simple case about IP [intellectual property] infringement" and added that "VeriFone has already announced that it is committed to licensing the VeriShield Protect end-to-end encryption solution to the payments industry."

VeriFone's spokesman also mentioned the company's Sept. 30 announcement that it had become the lead investor in Semtek Corp. by doubling its investment in the technology developer and acquiring an option to purchase Semtek's remaining shares in the future. He also noted that the companies had entered into an expanded, worldwide agreement calling for "open licensing of the Semtek encryption technology to all other point of sale hardware vendors."

A spokeswoman for Heartland, meanwhile, insisted the New Jersey firm is "taking appropriate legal measures to protect our merchants from unfair and exploitative business practices" and "making E3 quickly and widely available to merchants." end of article

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