Heartland, VeriFone Food Fight Flares Up Again

In last week's saga of two security vendors filing exaggerated half-truth accusations at each other, Heartland Payment Systems issued a statement that apparently contradicted its own court filing. This week, the two firms are rumbling about a federal judge's decision and whether a Web site is still up or not in addition to generally throwing insults back and forth.

(For those who watch our coverage closely, we said last week that we were upgrading this particular food fight from bizarre to surreal. This week, it gets kicked up to borderline psychotic. If Heartland and VeriFone get any worse, we're going to have to hit an unabridged thesaurus somewhere.) Before we get into this week's barbs, here's a little background recap.

VeriFone started the dance by suing Heartland, accusing it of trying to sell a POS terminal that infringes on a patent owned by VeriFone Israel. When Heartland wouldn't agree with that assessment, VeriFone said it would cut off all tech support for the Heartland customers who use VeriFone technology, which is a lot of Heartland's customers. Heartland then counter-sued VeriFone for having threatened to cut it off.

Then VeriFone made a play to lure away Heartland's customers by offering free tech support if those customers would work directly with VeriFone. After that, Heartland issued its own statement saying that VeriFone can't support Heartland's customers because they're using proprietary Heartland programs. VeriFone disagreed and pointed out that Heartland had admitted in its lawsuit filing that its customers do need VeriFone's tech assistance.

We reported that last exchange last Wednesday (Nov. 4) and contacted Heartland late that afternoon seeking comment. It took Heartland almost five days to respond and decide that the comments were out of context. Their explanation of how the comments were taken out of context: "The comments in our litigation were about the petroleum business, which does not use desktop devices but uses store controllers for pay-at-the-pump devices. The critical issue here is that for the vast majority of our merchants--those using standalone terminals--not only can we provide all the support but VeriFone cannot provide full payments processing services and support."

Heartland also added a new accusation, saying that VeriFone apparently was negotiating with Heartland and wanted to charge Heartland some kind of a royalty fee for the technology. This accusation prompted a Heartland statement saying, "We refuse to charge our customers 'junk fees'–unnecessary fees that provide no added value or service. Our refusal to pass a new VeriFone-imposed junk fee onto our customers has angered VeriFone’s CEO and led the terminal manufacturer to make false claims about our service."

Also, Heartland's statement noted that the litigation papers in question were filed almost two months ago and added: "For obvious reasons, we have found alternative sources for some of those services since that time."

The store controller versus standalone terminal sounds plausible enough. In fact, the comments in the lawsuit were indeed under an area that discussed petroleum customers. This out-of-context argument centers on a legitimate point, namely that the technologies used are quite different.

But VeriFone doesn’t quite see it that way. "Out of context? You have the filing: It's their words directly. Regardless of the industry, VeriFone systems run on VeriFone operating systems. Heartland could not, should not mislead merchants about its inability to support VeriFone software and hardware," said VeriFone spokesperson Pete Bartolik. "The point that they don't seem to want to address is, whether it's in petroleum or convenience stores or other types of retail outlets, the software that runs the machine is still coming from VeriFone. This is pure obfuscation."There's more of this saga, but I should point out—fair is fair, after all—that VeriFone has routinely talked with us by phone while Heartland has stuck with E-mailed questions and answers. Not sure what that ultimately reveals, but it's always a credibility boost when a vendor answers unfiltered and in real time. Anyway, back to the show.

On Wednesday (Nov. 11), Heartland issued a statement saying that on Monday (Nov. 9), a federal judge "granted Heartland Payment Systems' application for an order to show cause against VeriFone Holdings Inc. The return date for an expedited hearing on Heartland's injunction on its Lanham Act false-advertising claims was set for December 7, 2009. No motion to transfer these claims to the Northern District of California as requested by VeriFone was granted at the hearing." The headline on this release said "Federal Court Grants Heartland Payment Systems’ Application For An Order To Show Cause Against VeriFone."

Sounds like Heartland won that hearing, right? Not quite. Not at all, in fact. Heartland was asking U.S. District Court Judge Mary Cooper to issue a temporary restraining order against VeriFone and the judge refused. Indeed, she said that the two firms can have discovery exchanges before the hearing and also penned in "to be supervised by the magistrate judge." (Yep, this judge knows when adult supervision is needed.)

In addition, Heartland's statement mentioned this line: "VeriFone took down the Web site that was using the Heartland name to lure Heartland customers." That statement was, in fact, not true; the Web site is definitely still up and referencing Heartland. But the plot thickens.

What VeriFone did change was the site's URL. Asked why the URL had been changed from http://heartland.verifone.com to https://freesupport.verifone.com, VeriFone's Bartolik initially said simply that the company likes that URL better. After some prodding, he said, "Even though there was no risk of confusion of who was operating the URL, we voluntarily changed the URL address to avoid any frivolous dispute over the Heartland tradename."

We're not so sure that a judge would view putting Heartland's name in a URL to steal customers from Heartland as that frivolous, but no matter. That URL change might also be why Heartland's version of the judge's statement may be a bit more truthful than it may initially have seemed. If part of Heartland's interest in the temporary restraining order was that the URL be changed, VeriFone's surrender on that point may have lessened the need for that order. As a practical matter, the TRO attempt was more likely trying to halt the entire situation. But if a changed URL is all you're offered, it's better than nothing.

An E-mail from Heartland late Wednesday (Nov. 11) said: "Heartland was asking for a temporary restraining order against the VeriFone Web site that used the Heartland name, and that was publicized by VeriFone in its press release. The Web site using the Heartland name was taken down by VeriFone." We're not so sure that changing the URL is the same as taking down the Web site. The old Web site—courtesy of Google cache—and the current Web site look fairly identical to us.

Stay tuned for next week's episode in this exciting melodrama. (If Carol Burnett hadn't called her soap opera "As The Stomach Turns," that's the name I'd have opted for.)

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