HNC Software Inc. has bared its knuckles in a legal brawl with Nestor Inc. by attacking Transaction Systems Architects Inc., Nestor's main backer.
The San Diego developer of predictive software filed a lawsuit June 15 accusing Omaha-based Transaction Systems Architects of patent infringement, unfair competition, false advertising, and trade libel.
HNC's move seems to be a response to a November suit in which Nestor, based in Providence, R.I., accused it of patent infringement and illegal and predatory competitive practices.
The same day HNC sued it also formally responded to Nestor's suit, calling Nestor's patent invalid and unenforceable.
An HNC spokeswoman, Patricia Campbell, said her company could not file a countersuit against Nestor directly. She did not say why.
Instead of suing Nestor, observers said, HNC went after Transaction Systems Architects, which owns 10% of Nestor, having invested $5 million in it last year.
Transaction Systems Architects, a developer of payments software, resells Nestor's fraud detection software to its 2,100 financial services customers.
The legal battles were triggered by a patent granted to HNC on Oct. 6. Nestor claims that HNC's software capabilities are already covered under its own 1988 patent.
Gary Craft, head of research at E-Offering, an on-line investment bank, said that Nestor was the first to develop a neural network system, but that HNC has been "more aggressive" in getting its system to market.
HNC has sold its fraud detection software to 19 of the largest 25 issuers of MasterCard and Visa cards. Nestor's product is used by Bank One Corp., BankAmerica Corp., and Mellon Bank Corp.
Neural networks, a complex form of software technology designed to mimic certain aspects of the human brain, are used for fraud detection, target marketing, and profitability analysis for banks and merchants.
The lawsuits represent "legal posturing more than anything else," Mr. Craft said. It is a case of "if you throw a tomato at me, I will throw an egg at you," he said.
Nestor's revenues and earnings have been hurt by declining software sales. Its stock was trading at midafternoon Friday at 68.75 cents, down 3 cents from a week earlier.
HNC's stock was trading at $29.8125, down $2.25 from the previous Friday's close. Transaction Systems Architects stock fell 18.75 cents, to $34.50.
Transaction Systems Architects has invested $6.5 million in Digital Courier Technologies Inc., a Park City, Utah, company that sells Internet payment processing software to merchants.
The Omaha company bought 1.25 million shares of Digital Courier common stock. The deal includes warrants for an additional one million shares, at $5.20 each.
Digital Courier's stock was trading at $5.531 at midafternoon Friday, down 28 cents from the previous Friday's close.