Two fledgling biometrics vendors are locking horns in a patent dispute that could deal a major blow to the loser.
BioPay LLC of Herndon, Va., and Pay By Touch Networks Inc. of San Francisco sell merchants devices that let customers make payments from a checking account with a fingerprint instead of a check. Pay By Touch also lets customers make credit and debit card payments with a fingerprint.
Biometric traits such as fingerprints are unique to each individual, and some banks and credit unions already use them in place of a photo ID to verify customers' identities. In the payments world, biometric readers give customers an added convenience: Shoppers do not have to remember to bring a card or checkbook to pay for a purchase.
BioPay has offered authorization of payroll checks since November 1999, and its president said Pay By Touch is trying to undercut its head start in that market.
Industry observers say the spat shows just how competitive the young biometric payments industry has become as merchants increasingly adopt electronic alternatives to checks at the point of sale.
The dispute came to a head Jan. 18, when Pay By Touch won a patent describing a method for using biometrics for check cashing. The same day Pay By Touch announced an alliance with Certegy Inc. of St. Petersburg, Fla., to offer a check-cashing service to merchants.
In a lawsuit filed that day in the U.S. District Court for Delaware, BioPay accused Pay By Touch of falsely advertising that its patents give it exclusive rights to use the technology.
BioPay is asking the court either to invalidate Pay By Touch's patents or to rule that BioPay's products and services do not infringe on them.
Pay By Touch says it is still formulating its response to the suit, but Eric Bachman, its chief operating officer, said in an interview that it has not used its patents to legally threaten other companies.
Tim Robinson, BioPay's president, said it is ready for a fight.
"Pay By Touch is telling customers that they have exclusive patents on the ability to use biometrics to initiate payments," Mr. Robinson said. "That's just not true."
Mr. Bachman said it is not lying to customers. "We do have patents. We've got a whole roster of patents."
Pay By Touch owns 25 patents and has over a dozen applications pending. BioPay has no patents, but it does have 29 applications pending.
Mr. Bachman said he could not say whether BioPay has infringed on any of Pay By Touch's patents. However, "it feels like a one-way conflict," he said. "Even with this strong intellectual property base, we haven't actively pursued against folks who appear to be sitting on those patents."
The suit brings to the foreground a conflict that has simmered behind the scenes for a year or more.
Early last year Pay By Touch sent BioPay a letter detailing the patents it owned; Mr. Bachman said the letter was only a cautionary measure. At the time Pay By Touch did not feel obligated to sue BioPay, but "there was certainly an appearance" that BioPay could infringe on the patents, he said.
Mr. Robinson said that when he got the letter, "we looked at their patents - we don't violate any of them."
Ed Kountz, a senior analyst at TowerGroup, a Needham, Mass., unit of MasterCard International, said that "basically, the gloves have come off" in the fight between BioPay and Pay By Touch. "As competition has heated up, so has the rivalry."
A ruling "could be a significant blow" to the company that loses, Mr. Kountz said.
But Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., said that the suit may be a sign that the battle has already been lost.
"People don't take out the patent card unless everything else is failing," Ms. Litan said. "It's a measure of last resort."
However, the market for point of sale biometric technology is still young enough that Pay By Touch's patents could draw business away from BioPay, she said. "In this case, it's a fledgling market. They have a right to be concerned."
The suit may cause potential customers to shun BioPay, Ms. Litan said. "No one wants to do business with anyone who has lawyers surrounding them, suing everyone."
Mr. Robinson acknowledged that the patent suit could hurt BioPay's business. "It has the potential to slow down market adoption" of biometric technology at the point of sale, he said. "Merchants could choose to sit on the sidelines if the fight gets nasty."
But Mr. Bachman says the case is cut-and-dried. "We're quite confident that our patents are good."
