Heartland Filing Contradicts Its Own Statements About Abandoning Retail Customers

Proving that there's never anything so bizarre in payment security circles that some vendor can't upgrade it to surreal, Heartland Payment Systems and VeriFone this week issued dueling news releases. Each accused the other of either stealing intellectual property or trying to abandon Heartland's retail customers.

That was bizarre. But when Heartland issued a statement that directly—almost word for word—contradicted its own legal filings, the situation took an Alice In Wonderland twist that makes retail tech worth covering.

The backdrop to this food fight is a pair of lawsuits between the two vendors. VeriFone in September sued Heartland, accusing it of trying to sell a POS terminal that infringes on a patent owned by VeriFone Israel (formerly Lipman Electronic Engineering), a subsidiary of VeriFone Holdings, according to The Nilson Report. VeriFone specifically said that the new Heartland device infringes on a patent covering "an antitamper enclosure for electronic circuitry in a point-of-sale terminal," Nilson reported.

But Heartland then counter-sued, saying that VeriFone had threatened to cut off hardware, software and support services.

Then on Tuesday (Nov. 3), VeriFone issued a statement aimed at Heartland customers in which it offered to deliver—for free--"complete alternative support to merchants who are currently utilizing VeriFone payment solutions on Heartland Payment Systems‘ network."

VeriFone's statement said that it "is taking action to prevent any disruption to merchants after determining that the pending litigation over Heartland’s continual infringement of a VeriFone patent is likely to impact Heartland’s ability to maintain service levels with its customers. VeriFone has informed Heartland that it will terminate its support relationships with Heartland, effective end of day December 31, 2009."

At the time the release was issued, Heartland was about to hold an investor call, during which CEO Bob Carr would add $35.6 million to its breach costs for the quarter, including "reserves for offers we made to settle certain claims, as well as charges for the expected costs of settlement of certain other claims."

Hours later on Tuesday, Heartland issued a counter-statement describing the VeriFone offer as "a disingenuous attack" and dismissing suggestions that Heartland couldn't support its own customers without VeriFone's help. Heartland also labeled "false" the suggestion that VeriFone could support those Heartland customers.

"Heartland is fully capable--and will continue to be fully capable--of servicing all of its customers," the statement quoted Carr as saying. "In fact, VeriFone is not able to support our customers. They can’t, because our customers operate on our proprietary payments processing platforms. Heartland is the only entity that can provide full service--including ongoing service of VeriFone terminals--to them. This means our servicing of VeriFone-related issues is not--and will not be--impacted by VeriFone’s false claims and unethical attempts to scare our customers."

Heartland's statement would have been a powerful one, had it not been contradicted by Heartland's own legal filings. In its civil lawsuit against VeriFone, in the area where it's trying to argue that VeriFone's threat to cut off support is a big deal and worthy of legal intervention, Heartland addressed the issue.

"VeriFone is critical in serving existing customers and troubleshooting for problems with the POS terminals and credit card processing. Heartland provides troubleshooting and systems integration support for its merchants, which requires assistance from VeriFone," Heartland's brief said. "If Heartland were to be cut off from any support, its customers would be forced to reach out directly to VeriFone, which would result in a reduction of service to the customers."

Heartland did not return a call seeking clarification.

VeriFone did respond to calls to clarify, but it also issued a statement to refute some of the Heartland countercharges. For example, Heartland said that its payment system is proprietary and that VeriFone, therefore, couldn't support it.

"First, a majority of Heartland merchants do not use Heartland’s proprietary payment application, they instead use VeriFone’s SoftPay," the VeriFone statement said. "Second, Heartland’s application relies on VeriFone’s platforms, operating systems and libraries. VeriFone will provide operational support, which includes transaction reports, functional issues and operational issues. Merchants will continue to rely on Heartland for reconciliation of payment issues."

VeriFone said that "Heartland has approximately 240,000 merchants in total and VeriFone systems currently support an estimated 75 percent of Heartland's restaurant, retail and petroleum customers."

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