A federal court decision appears to have ended the lawsuit that caused a rift between AdvanceMe Inc., the biggest and the oldest company in the merchant cash-advance business, and the rest of this growing industry.
But observers said relations between the company and its rivals are likely to remain cool for some time.
Last week the U.S. Court of Appeals for the Federal Circuit in Washington upheld a lower court's decision to reject the claims that AdvanceMe had filed against some of its competitors for violating its patent on the merchant cash-advance process, which finances small and midsize merchants by buying their future credit card sales at a discount.
The August ruling by the U.S. District Court for the Eastern District of Texas had invalidated AdvanceMe's patent: the court found that the patent "acknowledges that prior … methods and systems in the payment processing industry were identical or nearly identical to the claimed method and system" and ruled that the patented method was obvious. (The appeals court decision affirmed the ruling without comment.)
Mark Lorimer, the chief marketing officer of AdvanceMe, a Kennesaw, Ga., unit of Capital Access Network Inc., said, "We would have been happier to win, but we don't see any impact to our core business at all." A valid patent would have given AdvanceMe "an opportunity to add a royalty stream," he said, but the company will continue to "concentrate on portfolio performance and predictability. That gives us the access to capital, which is key to our business." AdvanceMe's board will consult with its lawyers about any further legal action, he said.
Jeremy Brown, the president of the North American Merchant Advance Association, a trade group in New York, said the patent invalidation was "the only logical conclusion" to AdvanceMe's claim.
"As an industry, we're not surprised," he said. "This method of splitting funds from a credit card processor has been used for a long time. The patent never should have been granted."
Mr. Brown is also the president and chief operating officer of RapidAdvance LLC in Bethesda, Md., which was not named as a defendant in AdvanceMe's suit, though other members of the trade group were, including AmeriMerchant LLC, Reach Financial LLC, First Funds LLC, and Merchant Money Tree Inc.
He reiterated that AdvanceMe was welcome to join the trade group if it wants to. "We would hope that they would reach out to us and repair bridges," he said. "Suing other cash-advance companies does not create good will."
David Fish, a senior analyst for the credit and prepaid advisory service of Mercator Advisory Group, said the industry had viewed AdvanceMe's suit "as really not playing fair."
He agreed that the ruling was not much of a blow to AdvanceMe.
"I don't think they are losing market share because they no longer have a patented solution," he said, pointing out that the patent had not prevented competitors from entering the industry. "They might have to change their marketing message a little."
Mr. Lorimer dismissed questions about negative industry feelings toward AdvanceMe. "There was no creation of ill will as far as we saw it," he said.
He also reiterated AdvanceMe's general support of industry cooperation without committing the company to joining the group. "We need to learn more about what they're going to do, what standards and practices they're going to advocate," he said. "As a general matter, we believe strongly in industry trade groups. Their primary function is to promote best practices. We think that's generally a good thing."
Mr. Fish said the ruling might encourage more bank participation in the merchant cash-advance field.
"Patent-risk-averse players," including banks, "were staying out of it until this decision occurred," he said.
Mr. Lorimer said he had not heard of any banks "seriously considering" direct entry into the merchant cash-advance industry and that, considering the current pressure on banks' credit, capital, and liquidity, "we have not seen anything in the market that would indicate banks' interest in getting into this space."
Last month AdvanceMe announced it had started an assessment unit to help banks and other institutions evaluate the worth and risk of merchant cash-advance portfolios. Mr. Lorimer said that, since the creation of the unit, "it's been busy and … we have spoken to a couple of banks that have asked us to look at some portfolios."
