H&R Block: Jackson Hewitt Infringing on Emerald Patent

H&R Block Inc. has filed a patent infringement lawsuit against Jackson Hewitt Tax Services Inc. over H&R Block's Emerald prepaid card.

The Kansas City, Mo., company's complaint charges that Jackson Hewitt's tax refund prepaid card, the ipower CashCard, infringes on two patents licensed to H&R Block in 2006 and 2007.

Those patents protect the Emerald card, which like the CashCard can be used to store proceeds from tax refunds or refund-anticipation loans.

The suit, filed Feb. 8 in the U.S. District Court in Tyler, Tex., asks for a trial to determine if Jackson Hewitt violated the patents and seeks "adequate compensation, which cannot be less than a reasonable royalty, together with costs and interest." No amount was specified.

Jonathan M. Madsen, an associate patent lawyer at the Latham, N.Y., law firm Schmeiser Olsen & Watts, who is not involved in the case, said that though Jackson Hewitt introduced the CashCard in 2005, the product may violate H&R Block's patents, because the law considers validity on the basis of application date, not licensing, and H&R Block filed its patent applications in 1999 and 2000.

The suit could backfire on H&R Block, Mr. Madsen said. "If they said anything in their arguments to obtain patents which runs contrary to what they are asserting against Jackson Hewitt," Jackson Hewitt can use it to defend its own prepaid card, he said.

And since H&R Block spent eight years waiting on its patent, Jackson Hewitt could dig up "a lot of dirt," he said.

Mr. Madsen said Jackson Hewitt would likely refer to a 2007 Supreme Court ruling that sought to eliminate patents on obvious technologies and inventions. Its lawyers may also argue that H&R Block's patents are invalid on the grounds that the products are "lacking of novelty" and were common knowledge in the tax-preparation industry before the applications were filed, he said.

Jackson Hewitt, of Parsippany, N.J., did not return phone calls by press time. H&R Block did not comment by press time.

H&R Block has quarrelled with Jackson Hewitt before over financial services linked to tax-preparation services.

In 2006, Jackson Hewitt rolled out a loan that could be underwritten with a paycheck used to estimate a recipient's tax refund, instead of the W-2 form used for traditional refund-anticipation loans. H&R Block called the "paystub" loan a negative turn for the tax-preparation industry, but after losing 250,000 customers to Jackson Hewitt that tax season, it came out with a similar product the next season — the same season it introduced the Emerald card, which found 2 million takers.

Last year was a tough one for H&R Block; its chairman and chief executive officer, Mark Ernst, resigned and a deal to sell its Irvine, Calif., subprime lending unit, Option One Mortgage Corp., to a private equity investor fell through.

But "no one can fault them on their prepaid card program," Philip J. Philliou, a partner at the New York payments consulting firm Philliou Selwanes Partners LLC, wrote in an e-mail Thursday, who advised H&R Block on the Emerald card.

"The fact that Block has intellectual property around their prepaid card program is just further validation of their deep commitment to the space."

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