Alex W. "Pete" Hart, the former head of MasterCard International and of Advanta Corp., has signed a five-year contract to promote a company that owns a smart card patent and plans to hit up the major U.S. card issuers for licensing fees.
The company, called Quest Products Corp., expects to earn the fees from a patent it holds on multiapplication smart cards - cards able to store more than one account.
Hiring Mr. Hart, who formally is a "special consultant" to Quest Products, was an explicit part of the company's strategy to gain the attention of big card issuers and extract fees from them, according to Herbert M. Reichlin, president of the company, which is based in Syosset, N.Y.
"Pete Hart walks through the top doors," Mr. Reichlin said. "We are looking to license our patent to the major institutions, and I understand what access means."
Quest Products' business plan goes like this: As U.S. credit card issuers' smart card offerings gather momentum, they will almost certainly encounter growing consumer demand to store multiple accounts. Companies that opt to meet the demand will owe licensing fees to Quest.
Mr. Hart, who has been an independent consultant in the cards industry since his departure from Advanta in 1997, said in a telephone interview that he decided to work with Quest Products after doing lengthy interviews with company executives and their intellectual property attorneys.
"It would appear that they appear to own the rights to very significant technology that has bearing on the future of the smart card business," he said. "I like what the attorneys have told me, and I like what I read about it. I am just a consultant, and I am offering them my best advice."
Asked whether the placing of multiple financial accounts on a chip card could be patented, Mr. Hart declined to discuss the specifics of the patent owned by Quest Products.
"I respect opinions of the patent counsel," Mr. Hart said. "My hope is we have a very clear claim to involvement in that activity. It would be premature for me to say much more than that."
Smart card consultant Jerome Svigals, director of the Smart Card Institute in Redwood City, Calif., predicted that a patent on multiple applications would not hold up to serious scrutiny. He holds several patents of his own on card technology and has developed both magnetic stripe and smart card technology.
"I think they are out of their minds for thinking they have a strong claim," he said, adding that microprocessor chips have been used to store multiple applications since the 1950s. "There is so much prior art on multiple applications on smart cards."
The U.S. Patent Office has been cutting down on the number of patents it grants for business methods, but there are still many companies like Quest that have broad patents and sometimes make money by trying to enforce them.
Quest's Web site describes the company as a product incubator that aims to bring to market various patented or patentable consumer products. Quest is seeking to bring to market a multiapplication smart card product of its own, Big1card, which is covered under its patent. Mr. Hart's responsibilities include the "development and commercialization" of Big1card, which Quest Products says can hold a wide variety of accounts, including credit, debit, frequent-flyer, telephone calling card, frequent hotel stay, and other loyalty programs.
Other products Quest is promoting - which Mr. Hart is not involved with - include "Rainbow Shades" sunglasses, which have a patented lens system that "allows the wearer to select up to three different lens colors by simply moving a slider on the frame." The company's Web site also lists "PhaseOut," a "patented device to help smokers quit smoking without the use of drugs, chemicals, or attachments."
Quest Products says it bought the smart card patent, which was issued in 1995, after stumbling upon it while conducting due diligence on a smart card project it was considering. When Quest executives found the patent, they said, they dropped their own smart card project and bought the patent instead.
"It is a broad patent that deals with the concept of having a credit card in the form of a chip that has memory, a processor, and the capability of storing a multiple number of company accounts," said Alfred R. Fabricant, a lawyer who represents Quest Products. "You have to learn enough about what other people are doing to make an intelligent assessment about whether it is infringing on your patent."
If a card has more than one financial account on a microprocessor chip, its issuer must talk to Quest Products, asserted Mr. Fabricant, a partner in the New York intellectual property law firm of Ostrolenk, Faber, Gerb & Soffen LLP.
To date, he said, he knows of no smart cards that infringe on the patent - which is valid only in the United States - because no U.S.-issued card carries more than one account yet. Mr. Fabricant considers this temporary.
"None of them got into the business of issuing chip cards to carry a single piece of information on them," he said.
Whether or not its patent proves formidable, Quest's hiring of Mr. Hart will probably increase its visibility and credibility with large credit card issuers. Mr. Hart was chief executive officer of MasterCard International from 1988 to 1994 and was founding chairman of its Cirrus automated teller machine processing network. He also was chairman of Maestro International, a MasterCard affiliate.
Mr. Hart was chairman and chief executive officer of Advanta Corp. of Spring House, Pa., from 1994 to 1997. At the time, it was a major credit card issuer, though it has since sold its consumer card portfolio to FleetBoston Financial Corp. and now issues only corporate cards.
Since Quest Products began publicizing its patent last November, when it introduced the Big1card, Mr. Fabricant said he has heard from "several large issuers" interested in discussing the matter. He declined to name them.
Quest Products is not the first company to make patent claims in the smart card field. Rival loyalty program vendors Welcome Real-Time of Aix en Provence, France, and Detroit-based Catuity Inc. have had their own squabbles over who owns the right to put loyalty programs on a smart card.
Welcome Real-Time filed a patent infringement lawsuit against Catuity's research and development facility in Australia, claiming that its smart card-based loyalty programs infringed on Welcome Real-Time's patents. Catuity has responded by offering its own patent. The suit is expected to be heard this spring in a federal court in Australia.