Fiserv Alleges FIS Infringed On Patents For Online Payment Software

January 30, 2012 Alex Woodie

Fiserv this month filed a lawsuit in federal court against rival IBM i banking software provider Fidelity National Information Services (FIS) and its Metavante subsidiary over alleged violation of its patents relating to online payments. The alleged violations involve patents held by Fiserv’s subsidiaries, CheckFree and CashEdge, that describe online financial activities, such as conducting account-to-account transfers, creating electronic transaction “pick lists,” and making payments on behalf of others.

Fiserv made a big investment in electronic bill and presentment technology in 2007 when it spent $4.4 billion to buy CheckFree, which at the time processed more than 75 percent of the 16 billion automated clearinghouse (ACH) transactions in the United States each year, according to Fiserv. Today, Fiserv claims CheckFree processes 52 percent of the 19 billion ACH transactions that occur annually in the U.S.

Fiserv bolstered its already strong position in online payments when it acquired CashEdge. Founded in 1999, CashEdge provides a range of online funds transfer services, such as account-to-account transfers, account opening and funding, data aggregation, small business payments, and person-to-person payments.

Both CheckFree and CashEdge have numerous patents to their names, and Fiserv alleges that FIS and Metavante violates at least three of them, including:

Patent 7,853,524, entitled “Systems and Methods of Risk Based Determination of a Form for Crediting a Payee on Behalf of a Payer.”
Patent 7,383,223, entitled “Method and Apparatus for Managing Multiple Accounts.”
Patent 7,792,749, entitled “Dynamic Biller List Generation.”

Specifically, Fiserv alleges that FIS and Metavante infringed upon these three patents by providing solutions that “process payment instructions, provide electronic biller notifications, and/or process account-to-account funds transfer transactions.” Instead of competing fairly, FIS and Metavante “are exploiting the innovative technologies that CheckFree and CashEdge have worked hard to develop and protect through patents,” Fiserv claims in its lawsuit.

Details of the alleged violations were included in Fiserv’s claims. According to the lawsuit, the ‘749 patent is being violated in part because FIS solutions allow its customers to initiate an ACH-based electronic bill transaction by enabling a payor to make a payment request, or to ask the payee to add the payee to the payor’s “pick list.”

Fiserv is also objecting to the automated way in which FIS solutions allow its customers to dynamically generate the electronic pathways required to complete the transaction, including creating the connections to the bank’s account databases, lining up a processor to carry the ACH transaction, and sending notifications to the payor.

Fiserv says the violation of the ‘524 patent involves FIS products that allow customers to make a payment on behalf of somebody else. Specifically, Fiserv says the way that FIS Payment Manager software goes about automating this sort of transaction–including determining risk either by checking the payer’s merchant account number or checking the payor’s credit limit–constitutes a violation of the patent.

Fiserv alleges FIS Payment Manager is also violating its ‘323 patent as it relates to the handling of account-to-account transfers. Specifically, Fiserv says that the way in which the product allows a third-party financial system to execute these transactions–namely, by first depositing money from a person’s account at one financial institution into an intermediate account not owned by the person, before then transferring the money into the person’s other account at a separate financial institution–is a violation.

Fiserv says the violations of these three patents was “willful” and therefore entitles Fiserv to “enhanced damages,” as well as attorney’s fees, costs, and expenses. The company is seeking a permanent injunction against FIS and Metavante, as well as a jury trial. The lawsuit was filed in U.S. District Court, Middle District of Florida, Jacksonville Division. FIS is headquartered in Jacksonville. Fiserv is based in Brookfield, Wisconsin.

According to court records, FIS has not yet responded to Fiserv’s complaint, which was filed January 5. FIS officials did not respond to requests for comment before this newsletter’s deadline.

FIS was created in November 2006 when Fidelity National Financial spun off its information services division into a separate entity and combined it with card issuer Certegy. FIS’ biggest acquisition was the 2009 purchase of Milwaukee, Wisconsin-based Metavante for $2.94 billion.

FIS and Fiserv compete (along with Jack Henry & Associates) to provide a range of solutions for banks and credit unions around the world. All three vendors sell so-called “core” processing software runs on IBM i–Horizon and Bancway in FIS’ case, and Premier and Signature in Fiserv’s case. They vendors also provide a range of ancillary products around their core processing systems, such as the electronic billing and presentment software at the heart of this lawsuit.

This isn’t the first time that Fiserv has been involved in federal litigation over patents. In fact, the company was recently involved in a landmark case where it was accused by Advanced Software Design Corp. of violating its patents related to check-fraud detection. Fiserv’s co-defendants were three Federal Reserve Banks, whom the plaintiff alleged Fiserv sold infringing software to.

Fiserv argued that if it had infringed on any patents, that any infringement “was done for the United States government and with the government’s authorization and consent,” which has been a legal and valid defense since the law was instituted in 1918 to protect the U.S. government from patent infringement lawsuits. Fiserv and the Federal Reserve Banks of St. Louis, Philadelphia, and Atlanta sought and won a summary judgment in the Eastern District of Missouri Federal Court in 2007. Advanced Software Design’s only remedy was to sue the U.S. government directly in the United States Court of Federal Claims.