A start-up Internet security company that is marketing a secure electronic transaction product has filed suit against Visa International over a smear campaign that it says scared away potential customers.
While big organizations like Visa are frequently the targets of lawsuits, what makes this one noteworthy is Visa's acknowledgement in November that one of its employees, vice president of technology, research, and development Paul Guthrie, was responsible for the attack on the company, ZixIt Corp. Mr. Guthrie was not available to comment for this story.
According to its complaint filed on Dec. 31 in the District Court of Dallas County, ZixIt claims that Visa was responsible for the "vicious attack designed to destroy ZixIt," an attack the company says resulted in severe damage to its business and its stock price. ZixIt shares, which reached an all-time high of $90, traded near $40 on Tuesday.
According to the complaint, Mr. Guthrie, who is responsible for evaluating new technologies that may be relevant to Visa, represented himself in messages on a Yahoo message board as the "person top financial institutions call to look at things like ZixIt."
A Visa spokesman, Michael Sherman, said Mr. Guthrie acted on his own and was not given approval to post the more than 400 messages about ZixIt that appeared on the message board during working hours. "All of our equipment is to be used for official business," Mr. Sherman said. "Obviously this was not official business." Mr. Sherman declined to discuss details of Mr. Guthrie's current status, other than to confirm that he remains on staff.
The lawsuit comes at an awkward time for Visa. The San Francisco-based association was sued in October by the Department of Justice for antitrust violations. That lawsuit, pending in the District Court for the Southern District of New York, alleges among other things that Visa and MasterCard - which is also being sued by the Justice Department - delayed the development of three types of products, including secure electronic payment technology.
Secure Electronic Transaction, known as SET, is a protocol for making payments over the Internet. Visa and MasterCard, along with several leading technology vendors, back SET, which has not taken off in the United States but is taking off in Europe.
Steve Mott, a former MasterCard executive in charge of the association's SET activities from 1995 to 1997, said dozens of solutions like SET are in the market. "It's awfully curious why this one [ZixIt] has raised so much commotion," he said.
Although Visa provides SET technology through SETCo, a venture it owns jointly with MasterCard, a Visa spokesman said the association does not consider ZixIt a competitor because Visa does not derive any profits from the SETCo arrangement.
Even so, Robert E. Litan, director of economic studies at the Brookings Institution and a former deputy assistant attorney general in the antitrust division of the Department of Justice, said the department may well be interested in the case because of its possible antitrust implications.
"I'm sure Justice would want to look into this if it's true, that this was authorized at least implicitly. It falls into the category of dirty tricks, similar to the Microsoft case," he said. "If Visa has an ongoing monitoring program of e-mail messages, it will make it more difficult to claim that this person was off on his own."
Mr. Litan disputed the idea, however, that Mr. Guthrie's continued employment suggested that Visa encouraged or condoned the activity.
"If Visa were to fire this employee, who otherwise had a great record, he may sue Visa for unjustified dismissal," he said.
In its complaint ZixIt claims that Visa's messages began two days after ZixIt's chief executive officer, David Cook, met with MasterCard executives to discuss ZixCharge.
Using at least seven aliases, the messages disparaged ZixIt on a variety of points. A sample of those messages includes these remarks: "I've researched the area enough to know that [ZixIt] management is full of it."
Another example: "We may find out that ZixIt is the result of a big April fool's joke by Cook or perhaps the outcome of a three-day tequila binge and drunken-bet payoff with Sanchez," a reference to Antonio Sanchez, who sits on ZixIt's board of directors.
ZitIt filed suit only after receiving a letter from Visa in which the company admitted its employee's role in the matter. In a Dec. 6 letter addressed to Mr. Cook, Visa's director of litigation, Steven Zelinger, said, "We have found that Mr. Guthrie's actions relative to ZixIt were taken wholly in his personal capacity."
Joe Barton, general partner of White Rock Capital, a Dallas-based hedge fund that owns about 10% of ZixIt and is the company's largest outside shareholder, said, "This is not an example of some small company trying to extort money out of Visa. This company has well-known shareholders, a quality board. David Cook's track record" speaks for itself.
Mr. Cook is an entrepreneur who founded the Blockbuster video rental chain.