Gift Card Patent Troll Surrenders, Retailers Off The Hook

The case against the dozens of major retailers that have been sued for supposedly violating a payment patent continued to collapse Friday (July 8) when the patent holder—Card Activation Technologies (CAT)—surrendered the validity of any of its claims. This is good news for those chains, because it means the litigation against them is suspended and is very likely to be dismissed.

This immediately followed a federal judge's ruling that invalidated all but three of CAT's claims. Exactly one week after that federal court decision, CAT agreed to a stipulation stating it was surrendering the defense of those last three claims, effectively killing the case. The vendor will consider an appeal—and if the appellate panel reinstates the case, everything is back on—but the case appears dead for the time being.

CAT's filing pointed directly to the unfavorable court decision, but a footnote in the judge's decision pointed out that a reexamination of the patent by the U.S. Patent and Trademark Office (PTO) was likely to have wiped out the case anyway. "A non-final office action issued May 12, 2011, in which the PTO found every remaining claim [of the patent] invalid as either anticipated or obvious," wrote U.S. District Court Judge Kent A. Jordan.

CAT's Friday stipulation—which is a legal means of conceding a point so the other side doesn't have to bother proving it—essentially conceded the case was not winnable unless a higher court reverses many of the findings. "In light of the court's July 1 ruling and the record evidence in the case, defendant Card Activation Technologies stipulates that the remaining three claims are invalid in view of the prior art," the filing said, with the caveat that if it files an appeal and succeeds, it still has the right to defend its full case.

It also said that neither side will pay the other's legal fees and costs. Such payments are often a condition when the losing side's claims are considered to have been so frivolous that the litigation amounted to a nuisance lawsuit.

This case, over the last few years, has directly impacted some of the top retail brands in the U.S., including RadioShack, 7-Eleven, Nordstrom, Macy's, Starbucks, JCPenney, Sears, OfficeMax, TJX, McDonald's, Walgreens, Barnes & Noble, Aeropostale, Lane Bryant, Blockbuster, Fashion Bug, Cabela's, Guess, Panera Bread, Giorgio Armani, Caché, Denny’s, Sunglass Hut Trading and the Brown Group Retail (doing business as Famous Footwear).

Much of CAT's strategy has been based on suing—or threatening to sue—retailers and trying to pressure them into licensing the technology from the vendor. At the height of the case, Card Activation Attorney Mark Roth said the vendor had sent out almost 500 letters to retailers and was planning many more. “We’re going to be taking this to numerous other retailers,” Roth said in 2009. “The more we dig into it, the more people we find who infringe, everyone from golf courses to universities to mom-and-pop operations that have two stores."

The company directly challenging CAT's patent was a prepaid/stored-value vendor called Ceridian Stored Value Solutions (SVS). Many of its retail customers were among those sued. SVS issued a statement Friday claiming "complete victory."

“We initiated this litigation to protect our customers from being sued over a patent that should have never been issued,” said Ralph Rolen, SVS Executive Vice President and General Manager. “I am delighted that our view has been confirmed by the court process.”

What does this likely mean for the many retail chains that were sued? Well, that depends on whether they had already settled with CAT. Some—including Sears, TJX, OfficeMax and McDonald's—have indeed already settled and agreed to pay for full licenses. McDonald's was apparently the first to settle and it, therefore, paid only about $45,000.

Any retailer that had already settled is likely out-of-luck. First, the contract signed at that time almost certainly made the deal final—at least for the duration of the license agreement. Second, dollars received have already been paid out as shareholder dividends, so there's little to no money to recoup, even if a contract wasn't airtight.

For those chains still in litigation, though, the news is much better. "The outcome is significant for all retailers, but especially those already in litigation with Card Activation,” said Jason Hoffman, an attorney for SVS with Kaye Scholer LLP in Washington. “If [CAT] forgoes an appeal, the existing cases will be dismissed. If [CAT] appeals, the existing cases will be administratively stayed until the conclusion of the appeal. Either approach is a positive for the defendant retailers.”

A spokesperson for CAT did not respond to our requests for comment.