VeriFone and Heartland legal spat escalates

VeriFone and Heartland legal spat escalates

An increasingly bitter battle between VeriFone and Heartland Payment Systems that has seen both file lawsuits in recent weeks, was stepped up today when VeriFone confirmed that it will terminate technical support relationships, and will instead offer free services to mutual merchant customers.

The wrangling is rooted in payment processor Heartland's move to develop an end-to-end encryption system in the wake of the massive data breach it suffered last year.

As part of this project, Heartland worked with Taiwanese manufacturing firm Unelectra International to develop a payment terminal, which was scheduled to be introduced to the US in the third quarter of 2009.

In September, rival manufacturer VeriFone filed a suit claiming the Heartland terminal violated one of its patents. The patent, issued in 2005 to Lipman Electronic Engineering - which the vendor later acquired and renamed VeriFone Israel - covers "anti-tampering enclosure for electronic circuitry".

According to the Green Sheet, Heartland responded with its own lawsuit a week later, accusing VeriFone of engaging "in an unlawful and tortuous campaign to punish Heartland and injure competition," and of a "xenophobic determination to prevent Heartland from obtaining the next generation of secure POS terminals from manufacturers in Taiwan and China."

VeriFone now says it has told Heartland that it will terminate its "support relationships" from 31 December affecting joint customers.

The firm claims that 75% of Heartland's customers in the retail, restaurant and petroleum markets rely on VeriFone systems.

In a statement, VeriFone says 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".

The company "is encouraging merchants currently supported by Heartland to immediately begin making arrangements to receive technical support from VeriFone".

The free support will be provided to any Heartland merchants that register before 15 December until the end of their processing agreements with Heartland.

In its third quarter results, posted today, it emerged that Heartland has a $35.6 million pre-tax provision for expenses related to the data breach that originally prompted the end-to-end encryption project, taking the total provision for the year-to-date to $67.6 million.

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