Three years ago, Donald and Matthew Auriemma set out to inject the credit card world with a dose of innovation.
The father-son team founded Back Pages Inc. to help patent and promote the innovative ideas of credit card entrepreneurs.
They named the company for a Bob Dylan song, "My Back Pages," and the products it has pushed were as unconventional as the singer: a credit card that offered points toward lottery tickets and a card linked to workers' 401(k) accounts.
These two ideas were taken up by banks before they foundered; many others never made it that far.
The Auriemmas have not lost their enthusiasm for such credit card exotica, but they have reversed their business course. Instead of representing the interests of inventors, the Auriemmas want to sign contracts with a few banks that will buy the rights to a steady stream of patented products.
"We hit a rock in the road, but we are back on the road again," said Donald Auriemma.
The partners and Back Pages are related to Auriemma Consulting Group of Westbury, N.Y., a research and consulting firm that Donald Auriemma founded and passed to another son, Michael.
The premise for Back Pages-also located in Westbury-is that the credit card industry lacks and needs innovation. "There is a search for the next big idea," Donald Auriemma said.
The Auriemmas see patentable ideas as the answer for bankers who want their products to be more appealing and difficult to duplicate. Moreover, banks that own products protected by patents can collect licensing fees from other users.
But patents-which are relatively rare at financial institutions-are often magnets for litigation.
Meridian Enterprises Corp., a St. Louis marketing company, has been in and out of court for years in lawsuits alleging that banks, card associations, and oil companies have infringed on its patent for processing gasoline rebates electronically.
Back Pages' patents have faced their share of controversy.
The idea for a credit card linked to 401(k) plans was brought to the Auriemmas by patent holders Franco Modigliani, a Nobel Prize-winning economist, and a partner, Francis Vitagliano. Banc One Corp. bought the idea and planned to issue the card.
The deal fell apart in late 1996 after Rep. Charles Schumer, D-N.Y., introduced a bill to ban such products out of concern that Americans would endanger their retirement savings. The Internal Revenue Service also dragged its heels on granting approval to the card, and consumer activists expressed outrage.
For the lottery card-on which Back Pages held the patent-Household Bank signed a letter of intent in 1995. Then Household bought Bank of New York's $3.9 billion AFL-CIO Union Privilege card portfolio, and its credit card strategy took a new turn.
"Household said, 'Time out,'" Donald Auriemma recalled, and the lottery idea went on a back burner.
But Bank of New York liked the idea, too. It signed a letter of intent with Back Pages in January 1997 to issue the lottery card.
Soon after, Bank of New York sold the rest of its card accounts to Chase Manhattan Bank.
The Auriemmas said another banking company is interested in the lottery card but, this time, not a top name.
In five years, they hope to have five bank clients. One would get first dibs on all their ideas and pay a premium for the privilege. The rest would be entitled to consider the ideas the lead client rejects.
"We are a magnet for new ideas," said Donald Auriemma. Some ideas are brought to the father and son by outsiders, and some are their own creations.
The Auriemmas typically turn down eight of 10 ideas that come their way. A sample reject: an idea to market credit cards to members of hate groups.
A more promising idea-which has been submitted to the U.S. Patent and Trademark Office-is a rewards program designed to keep balances at a bank. Because the patent has not yet been granted, the Auriemmas declined to offer specifics, other than to say it is a "balance acquisition program" designed to "break the back" of the balance transfer movement. The idea was tested at a U.S. bank that the Auriemmas would not name.
They also own rights to the Start card, which gives cardholders rebates that are deposited into an annuity or placed in an insured escrow account. NationsBank briefly offered Start, then abandoned the program.
Despite the industry's skepticism about patents, the Auriemmas are confident that "banks have awakened" to the need to protect ideas. "That wasn't so two years ago," said Donald Auriemma.