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September 26, 2011 • Issue 11:09:02

SmartMetric initiates suit against Visa, MasterCard

SmartMetric Inc. Chief Executive Officer and President Chaya Hendrick recently promised her company would sue Visa Inc. and MasterCard Worldwide to protect a SmartMetric patent for contact and contactless smart card technology used to access card company networks automatically via contact points such as POS devices and ATMs.

On Sept. 2, 2011, Hendrick kept her promise alleging Visa and MasterCard infringe on SmartMetric's U.S. Patent 6,792,464 (also known as '464) titled System for Automatic Connection to a Network.

In SmartMetric v. MasterCard and Visa (No. CV11-7126) SmartMetric claims the two card companies are infringing on its U.S. patent '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 asks for an injunction against both MasterCard and Visa prohibiting them from infringing on the '464 patent. SmartMetric also asks the court to award it royalties for every transaction Visa and MasterCard enabled that violated its '464 patent.

Visa/MasterCard push

Meanwhile, both defendants are pushing for greater use of smart card technology in the United States. Visa recently said it will attempt to jump start domestic contactless payments by incentivizing merchants to install POS devices that accept Europay/MasterCard/Visa (EMV) cards - the card standard in Europe and much of the rest of the world.

EMV cards are smart cards; they use microchips instead of magnetic stripes to store cardholder information and transmit this information to the POS.

MasterCard confirmed it will apply its liability shift program to Maestro ATM transactions "as part of an effort to align technology efforts to prevent and manage fraud." According to MasterCard, the chip liability shift means that "when a counterfeit fraud transaction occurs in a country or region that has migrated to the chip platform, the liability for the transaction will shift to the non-chip-compliant party" - in most cases the acquirer.

Appeals process

SmartMetric is appealing a decision in a Markman hearing handed down by the U.S. Central District Court of California. A Markman hearing, also known as a claim construction hearing, is a pretrial hearing at which a judge rules on the meaning of key words in a patent infringement case. SmartMetric has repeatedly said it believes the court unfairly narrowed its patent with a "wrongful and inaccurate interpretation" of key words in its patent.

"SmartMetric asserts with great confidence that the court's construction of meaning is fundamentally wrong and flawed and that the court has made a substantial error that SmartMetric Inc. is confident will be overturned in a higher court," the company said in a June 2011 news release.

In the same release, SmartMetric noted it is still free to sue "patent infringers who fall within the court's own interpretation of the patent, namely the use of 'contact' cards to make a connection to a network."

Complaint filed

Rather than wait on the appeal of the Markman hearing, SmartMetric decided to press its two remaining viable claims. SmartMetric claims Visa and MasterCard violate its patented system for automatic connection to a network each time a MasterCard or Visa card is swiped and routed through a database of network service providers. SmartMetric also alleges its patent is violated by the card companies when a card is read by radio frequency identification and connected to a network.

In a U.S. Securities and Exchange filing shortly after the Markman decision, SmartMetric noted, "While the company is confident that the [Markman] judgment in the Visa and MasterCard case ... will be overturned on appeal, the results of any litigation [are] inherently uncertain, and there can be no assurance that we will prevail in the appeal of the litigation matters. We plan to pursue our claims and defenses vigorously and expect that the litigation matter ... will be protracted." end of article

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