The United States Court of Appeals for the Federal Circuit upheld a ruling from a lower court that the technical processes of Visa Inc., MasterCard Worldwide and American Express Co. that underscore Europay/MasterCard/Visa (EMV)-enabled contactless chip technology do not infringe on a SmartMetric Inc. patent. The April 11, 2012, ruling was met with approval by Visa and MasterCard.
In a statement, Visa said the card brand is "pleased the Federal Circuit unanimously affirmed the district court's ruling that Visa contactless chip products do not infringe upon SmartMetric's patent. This is an important patent win for payment card brands, including Visa." MasterCard added, "It was not necessary for the court to rule on the invalidity of the SmartMetric patent. This ruling signals an important win for contactless cards."
In September 2011, SmartMetric filed the lawsuit in the United States District Court for the Central District of California, claiming that Visa and MasterCard infringed on SmartMetric's U.S. Patent 6,792,464 (also known as '464) by "selling, offering to sell and using contact and contactless credit card systems that use data cards that, when inserted into a data card reader, help to establish a connection to a network."
The SmartMetric complaint asked for an injunction, prohibiting the brands from infringing on the patent. SmartMetric also asked the court to award it royalties for every Visa and MasterCard transaction that violated the patent.
SmartMetric believes Visa and MasterCard violate its patented system for automatic connection to networks each time a MasterCard or Visa card is swiped at the POS and routed through a back-end processing network. SmartMetric also alleges its patent is violated by the card companies when a contactless payment card is read by EMV technology at the POS, which facilitates connection to a network.
In January 2012, the federal appeals court ordered the case be heard by a three-judge panel on March 5. SmartMetric President and Chief Executive Officer Chaya Hendrick said the March 5 hearing was favorable to SmartMetric and that Visa- and MasterCard-branded EMV chip cards issued in the United States "are in direct violation of the SmartMetric Inc. patent."
The case was then sent to the federal appeals court in Washington, where AmEx became the new defendant.
The April 11 ruling from the federal court asserted that the district court's ruling was correct and that SmartMetric's patent does not involve contactless payments. "The district court's construction correctly reflects the plain and ordinary meaning of inserting a data card into a data card reader," the opinion said. SmartMetric had argued that its patent includes contactless payments because cards are inserted into the electromagnetic field of the card reader, just as a contactless EMV card enters the reader's field when it is waved or tapped on the reader.
But the federal court found fault with the district court's ruling that the term "network service provider" was limited to operators of public networks, therefore supporting SmartMetric's insistence that "network service provider" also referred to operators of private networks, such as intranets. SmartMetric claims the card brands' EMV cards violate SmartMetric's patent not only if they are used on public networks, but also on corporate intranets and other private networks.
In a statement, SmartMetric said it "welcomes the federal appeals court ruling and declares that it will now continue with its stayed hearing lawsuit against Visa and MasterCard, and will seek all legal remedies at the company's disposal including, but not limited to, damages for patent violation, as well as any other legal options open to the company."
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