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The Green Sheet Online Edition

November 23, 2009 • Issue 09:11:02

The VeriFone, Heartland rift

As a trying year on most economic fronts draws to a close, two leading payments industry companies, global POS system manufacturer VeriFone and top-tier processor Heartland Payment Systems Inc., are on the verge of severing their business ties: On Nov. 3, 2009, VeriFone disclosed that it intends to terminate its support relationships with Heartland, effective end of day Dec. 31, 2009.

The month of November 2009 has since seen the Rashomon effect take hold, as dueling press releases from both parties to the deteriorating relationship have presented their sides of the conflict (these can be found under News From The Wire at www.greensheet.com).

Some of the events leading to this juncture were reported in "Encryption debate heads to court," The Green Sheet, Oct. 26, 2009, issue 09:10:02, and "Dueling Strategies: VeriFone-Chase, Heartland-Hypercom," The Green Sheet, Nov. 12, 2009, issue 09:11:01.

Legal actions began Sept. 9, when VeriFone, based in San Jose, Calif., filed a complaint for alleged patent infringement against Heartland with the Federal District Court for the Northern District of California. 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 covers what is described as "anti-tampering enclosure for electronic circuitry."

One week later, Heartland attorneys were at New Jersey's Mercer County Superior Court filing suit against VeriFone for allegedly 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.

Common goals, no synergy

Both companies are committed to applying end-to-end encryption technology to provide their customers comprehensive data security.

To that end, VeriFone - in addition to its ongoing research and product development - was instrumental in founding the Secure POS Vendor Alliance. The organization's stated aim is "to develop an end-to-end security framework and to enhance security elements of payment solutions which protect cardholder information and defend merchants and acquirers against security breaches, while reducing fraud and lowering risk for all electronic payment stakeholders."

And shortly after Heartland reported in January 2009 that it had been the victim of a massive security breach (the fallout from which the company has dealt with head-on throughout the year), Heartland Chairman and Chief Executive Officer Robert O. Carr formed the Payments Processor Information Council, a group of industry veterans dedicated to sharing information about data breaches and preventing attacks on payment networks.

It appears that VeriFone and Heartland have been unable to find a way to work together toward their common goals. According to Heartland, the discord between the two companies began when Heartland refused to work exclusively with VeriFone to produce terminals featuring "Heartland's state-of-the-art, end-to-end encryption technology."

A matter of support

The latest dispute revolves around support for Heartland merchants using VeriFone equipment. Though VeriFone is cutting off support for Heartland, it also stated in its Nov. 3 announcement that it is offering complete, alternative support to merchants who are using VeriFone payment solutions on the Heartland Payment Systems network.

"It is imperative that VeriFone merchants continue to receive support to accept card payments without any disruption," VeriFone CEO Douglas Bergeron said in a press release about the news. "VeriFone has a fiduciary duty to protect its intellectual property, but we have a 30-year reputation of quality that demands we protect our merchants first and foremost.

"Our extensive support desk resources will allow VeriFone to efficiently provide customers with a high level of service and shield them from the impact of litigation. We are making a special offer to provide this support free to all Heartland customers throughout the balance of their current Heartland processing agreement."

In response, Princeton, N.J.-based Heartland accused VeriFone of making false claims about Heartland in its Nov. 3 release. Heartland said VeriFone stated the processor is unable to support its customers that use VeriFone terminals.

"Heartland is fully capable - and will continue to be fully capable - of servicing all of its customers," Carr said. "In fact, VeriFone is not able to support our customers. They can't because our customers operate on our proprietary payment processing platforms. Heartland is the only entity that can provide full service - including ongoing service of VeriFone terminals - to them."

Heartland filed suit in the United States District Court for the District of New Jersey on Nov. 6, 2009, seeking to block VeriFone's Web site devoted to assisting Heartland customers who "may be impacted" by VeriFone's withdrawal of support for Heartland.

On Nov. 9, Pete Bartolik, VeriFone's Media Relations Director, indicated that at an emergency hearing requested by Heartland, the New Jersey court sided with VeriFone and denied Heartland's petition for an order prohibiting VeriFone from publicizing its free support offer to Heartland customers.

However, according to Heartland, the court granted Heartland's application on Nov. 9 "for an order to show cause against VeriFone," giving Heartland the opportunity to back up its assertion that VeriFone launched a public relations attack against Heartland by claiming Heartland can no longer support its customers.

The hearing on Heartland's claims and request for injunction filed under the Lanham Act (which prohibits such activities as trademark infringement, trademark dilution and false advertising) is set for Dec. 7, 2009.

No resolution yet

This acrimony is the last thing either CEO wants. Each man has enjoyed significant success in his life and has given back to his community in a number of ways.

Carr is an industry stalwart, founding member and officer of the Bankcard Services Association (the precursor to the Electronic Transactions Association), former member of the ETA's ethics committee, and long-time advocate for fair treatment of both merchants and the feet on the street. He noted that Heartland "did not ask for this" and apologizes to the company's customers for what he views as a distraction, not a threat to Heartland's ability to serve them.

Bergeron led VeriFone's transformation from a money-leaking division of Hewlett Packard in 2001 (when Gores Technology Group LLC acquired VeriFone) into its current position as a leader in secure electronic payment solutions; he has operations throughout the world to tend to.

Hopefully, the issues in contention will be resolved suitably and swiftly in the courts, and both the executives and the companies they lead will be able to return their full attention to doing what they do best. end of article

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