Check Conversion Patent 5,484,988 Contested

For several years players in the industry have been trying to determine who, if anyone, has a patent on the concepts that are becoming known as Check Conversion. While at least two patents have been granted that seem to deal with various aspects of the process of collecting paper checks at the point-of-sale through the use of the ACH system, one patent seemed to us to most closely mirror the current NACHA approved approach.¹

So if you are like me, you may have been wondering, why the “5,484,988” patent holder for Check conversion² has not been defending their patent against a multitude of “would-be” infringers.³ The answer may lie in the fact that a battle has been underway over the ownership of the patent itself.

The original patent holders, Mr. Robert R. Hills and Mr. Henry R. Nichols, entered into an agreement to sell the patent to a Canadian company, which through several holding company/sub-company iterations and name changes has come to be known as LML Payment Systems, Inc.⁴ According to records obtained by The Green Sheet from the U.S. Patent Office, the patent was transferred on March 11, 1998 from Messieurs Hills and Nichols to ChequeMARK Patent Inc. (apparently later to be called LML Payment Systems, Inc.)

The Canadian press has been slamming LML recently.⁵ Mr. David Baines an investigative reporter for The Vancouver Sun reported that the company is a front for two individuals suspended from the B.C. stock market (Don Choquer who was suspended in 1997 for two years along with Robert Moore, who is serving a five-year ban for fraud offenses relating to a Canadian company called Cam-net Communications Networks Inc.) and that the company is a money-losing public shell.

While LML is getting raked over the coal by the press, it has gone on the offensive issuing a press release on June 13⁶ denying the claims about its business, and noting that “The Company wishes to take this opportunity to refute certain errors and false allegations contained in the article and confirm to our shareholders and the public that the affairs of the Company have been and are conducted in utmost faith and in accordance with the highest legal standards.”

Perhaps an even more interesting aspect of the June 13 LML press release is the restatement by LML of their ownership of patent 5,484,988. “The Company’s intellectual property estate will include a recently allowed patent application regarding Internet checking transactions, in addition to U.S. patent No. 5,484,988.”

Returning to the documents secured by The Green Sheet, Inc., from the U.S. Patent Office, as of mid-June 2000, patent No. 5,484,988 is actually registered to Robert R. Hills⁷, with a patent office execution date of August 20, 1998.

According to patent office records, the Patent Purchase agreement between Messieurs Hills and Nichols to ChequeMARK contained a repurchase right exercisable in the event that a $1,500,000 funding or, in its stead, consecutive monthly minimum funding of $45,000 each were not evidenced. As a result of ChequeMARK Patent, Inc., having failed to satisfy minimum funding criteria as established with the Patent Purchase Agreement and pursuant to the repurchase rights provided Patent 5,484,988 was transferred from ChequeMARK Patent, Inc., to Robert R. Hills. So then, this issue is straightforward. The public company, LML Payment Systems, Inc., is issuing press releases that they own a patent that is actually registered to someone else, namely Robert Hills. Well no, it is not quite that simple. In fact, LML Payment Systems Inc., a Canadian Corporation, as successor to Leisureways Marketing, Ltd, a Canadian corporation and ChequeMark Patent, Inc. a Delaware corporation have sued⁸ Robert R. Hills, Mark Technologies, Inc. f/k/a ChequeMARK Technologies Corporation to attempt to perfect their ownership of the technology and underlying patents. Based on court records secured by The Green Sheet at the time this story was going to press, it appears that the dispute may soon be settled through court ordered mediation.

Perhaps the most interesting part of the case is that LML does not seem to be keeping its public stockholders informed of the current status of the Electronic Check Conversion patent, namely that they are currently involved in a legal action to secure the patent. The final result of this lawsuit should be interesting because it will allow the prevailing entity to finally take whatever infringement actions that it plans to take, and at this point it would seem that everyone in the industry would like to know that answer.

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© Copyright 2000; The Green Sheet, Inc.