Judge Comes Down Against Heartland, Rules That Its Own Filings Undermine Its Position

A federal judge in late December 2009 slammed processor Heartland, dismissing its attempts to halt a marketing program by one-time partner VeriFone as being contradicted by Heartland's own court filings. But VeriFone is asking the court to keep secret the number of customers who have made the move from Heartland to VeriFone.

The denial of a preliminary injunction ruling wasn't entirely a surprise, as reports of Heartland's apparently contradictory statements had already surfaced. But when U.S. District Court Judge Mary Cooper issued a ruling in the case on December 23 that dismissed so many of Heartland's claims against VeriFone, that was a bit startling.

The background of this case is bizarre enough that a full recap is too much like science fiction to be believable. The short version, though, is that VeriFone accused Heartland of violating a patent, which caused VeriFone to say it was cutting off Heartland's support. VeriFone then started telling Heartland customers that VeriFone would be more than happy to support those customers directly—for free—in an attempt to get a lot of Heartland's retailers to move to VeriFone. This federal lawsuit is, for the most part, about Heartland wanting VeriFone to be ordered to stop stealing its customers.

Judge Cooper's ruling gave a lot of weight to a separate lawsuit between the two players involving the patent, one that was filed in Mercer County, N.J. In that lawsuit, Heartland argues that it relies on VeriFone for support. But in the Cooper case, it argues that it does not rely on VeriFone for support. And that's where the judge found most of the contradictions she cited.

"The Mercer County action is replete with assertions of Heartland’s dependence on VeriFone support in providing support to its customers. Heartland’s claims that it will have no problem whatsoever supporting VeriFone devices, despite VeriFone’s discontinuation of support, contradicts its own claims in this case and in the Mercer County action," she wrote. "These statements suggest that Heartland will have difficulty maintaining pre-dispute levels of service to Heartland customers using VeriFone POS terminals as customers’ terminals develop problems in the future. Heartland’s pleadings in the Mercer County action, inconsistent with its position in this case, constitute non-conclusive evidence for the Court to consider in this case."

When VeriFone initially argued that Heartland had contradicted itself with its filings in the Mercer County case, Heartland said the lines were taken out of context, that VeriFone was taking comments about gas stations and trying to apply them to other types of retailers."Heartland protests VeriFone’s reference to its claims in the Mercer County Complaint on the basis that the paragraph quoted was taken out of context. Heartland points out that the quoted paragraph was taken from a section of the Mercer County Complaint titled 'The Petroleum Industry,' and is inapplicable to the restaurant and retail merchants comprising most of the audience of VeriFone’s press releases and other documents," the federal judge wrote. "It is not clear to the Court that the distinction between Heartland’s petroleum merchants and Heartland’s retail and restaurant merchants is a significant one for purposes of the challenged statements. The Mercer County Complaint explains the fundamental functionality difference between 'freestanding' point of sale terminals typically found in retail and restaurant outlets and 'integrated systems' that provide inventory functions in addition to point of sale capabilities found in gas stations. However, the section of the Mercer County Complaint titled 'The Petroleum Industry' states that the relationship between Heartland and VeriFone is similar in the petroleum industry as it is to POS terminals generally."

But the judge paid particular attention to a concession made by an attorney representing Heartland. (Sayeth Heartland's board of directors: "Et tu, Brute?") "Counsel for Heartland conceded at oral argument that the Web site is targeted broadly to different types of merchants, including petroleum merchants, and that Heartland has 'a small segment of petroleum customers that they acquired in an acquisition not too long ago.'"

In an odd twist to this case, Judge Cooper's decision was issued on December 23 and, within a couple of hours, yanked back. Court officials said the decision accidentally included some material that the judge had agreed to keep secret. That confidential material was details about the number of Heartland customers who had moved to VeriFone.

Heartland Attorney Jonathan Korn, in a letter to the judge, unsuccessfully challenged VeriFone's claim that the numbers should be kept from investors and customers. "VeriFone, through its public statements, acknowledges that the number of customers who have registered is not confidential information. Indeed, in its very own [news] release, VeriFone has claimed that 'merchants from coast to coast are contacting VeriFone,'" Korn wrote. He then said the agreement to keep it secret happened during a conference call.

"During that conference, the parties discussed the confidential nature of the identities of the customers who have registered with VeriFone through its Web site or toll free number," Korn wrote on December 28. "There was no discussion relating to the confidential nature of the number of customers who have registered with VeriFone. That discussion did not occur because the number of customers, without any information identifying those customers, is not confidential information."

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