Deluxe Data Corp. has sued Visa U.S.A., accusing it of stealing trade secrets by hiring away seven employees to work on Deluxe software.
The subsidiary of check-printing giant Deluxe Corp. obtained a temporary restraining order preventing the employees from any involvement with a debit card processing system that Visa licensed from Deluxe.
The seven people joined Visa's debit processing service in Englewood, Colo., late last year.
Deluxe said its ex-employees violated a confidentiality agreement that obligated them not to share trade secrets during and after their employment, according to sources familiar with the case.
Visa has used the software, called Advantage, to support its Visa check program since 1995.
Deluxe filed the suit in Milwaukee County Circuit Court in January. Visa, which is facing an unusual spate of high-profile legal battles, particularly on the antitrust front, made its response this week. It called the Deluxe action groundless and is seeking to remove or modify the temporary injunction.
Industry experts read more into Deluxe's motivations. They see the Wisconsin-based company going to great lengths to preserve its dwindling share of the automated teller machine and electronic funds transfer processing market.
Deluxe's position has eroded in recent years as the regional automated teller machine networks have grown through consolidations and have brought their processing functions in-house.
Ironically, Deluxe Data's president and chief executive officer, Robert Rosseau, formerly headed Visa's Interlink on-line debit card program, which is widely available in supermarkets.
Before his hasty departure last year from Diners Club, a Citicorp subsidiary of which he was CEO, Mr. Rosseau filed a formal complaint in Europe opposing a Visa policy that would have prevented member banks from issuing competing card brands like American Express. Visa has enacted such a rule in the United States; it is the subject of a U.S. Justice Department antitrust investigation.
Deluxe spokesman Stuart Alexander declined to comment on his company's suit or on Visa's response. Mr. Rosseau was not made available.
"Deluxe is a company in flux," said David Robertson, president of The Nilson Report, Oxnard. "Its core business-check printing-is not growing. Its EFT switching business is under constant attack as regional switches are consolidating."
Deluxe, he added, also faces heavy competition from overseas software firms.
"Deluxe is making an effort and investing in the software business," Mr. Robertson said. "It's a company that has lacked strong leadership for 10 years, and it is in a highly defensive posture."
Mr. Robertson said Visa paid $3 million to license the debit card software and needed to upgrade and customize it for proprietary use.
"Visa believes Deluxe's claims lack merit," Visa U.S.A. said in a prepared statement. "Visa had viewed that licensing agreement as an alliance with Deluxe Data that would provide Visa's member financial institutions with enhanced processing capability for Visa check cards and other debit processing services."
Paul Martaus, president of Martaus & Associates, a Clearwater, Fla., consulting firm, said that five years ago Deluxe Data was in a strong enough position to rival First Data Corp., the reigning titan in financial transaction processing.
"They were in the right place at the right time with the right corporate mix," he said. "But they took their eye off the ball."
An analyst who covers Deluxe Corp. but insisted on anonymity said Deluxe Data, formerly A.O. Smith Data Systems, "has had a horrible track record" since the check printer acquired it in 1986.
"It was supposed to be a high-growth company, and it's not," the analyst said. "The need for the middleman (in EFT processing) has been eliminated."
Intellectual property lawyers said contract disputes of this kind are common.
"It would all be determined by whatever licenses and contract were in place," said Parker H. Bagley, a partner in the New York firm of Brumbaugh, Graves, Donohue & Raymond.
"Typically," he said, "the licensee, in this case Visa, would agree that the information is owned by Deluxe. It could be a basis for a breach if they were going outside the agreement."
Mr. Parker said courts typically strike down noncompete clauses they find overly burdensome, such as those that extend beyond a year or prevent employees from seeking similar employment within a large region.
