Nestor Inc., which sells software used to help spot card fraud, has filed an antitrust suit against rival HNC Software.
The suit claims San Diego-based HNC has a stranglehold on the market for software that banks and third-party processors use to detect transaction patterns suggesting fraud or abuse.
The suit also accuses HNC of fraud and of patent infringement. It was filed Nov. 25 in U.S. District Court in Rhode Island.
Nestor, which is based in Providence, claims HNC acquired "monopoly power" through "exclusionary and predatory practices."
HNC denies the charges, said spokeswoman Patricia Campbell. It has not yet responded formally to the lawsuit but plans to defend itself vigorously, she said.
Nestor claims that HNC's exclusive relationships with clients-in contracts that last three or seven years-have shut competitors out of important relationships.
"These exclusionary contracts prevent any other competitor, including Nestor, from gaining access to the customers and data essential to successfully compete," Nestor said in its complaint.
Both companies offer so-called neural network software intended to predict bankruptcy, credit risk, and profitability. The rival products are HNC's Falcon and Nestor's Prism.
Addressing the monopoly charge, Ms. Campbell of HNC said Visa U.S.A., which sells a similar product called Cris, is a formidable competitor. "Visa certainly has many more banks signed up for its product than HNC does for Falcon," she said.
But Tom Spallone, director of marketing for Nestor's financial service's unit, said many banks that use Cris may also use Falcon or Prism software.
Mr. Spallone declined say whether banks using just Falcon products may also use Prism products. "That is covered by the lawsuit," he said.
Nestor said in its complaint that 23 of the top 25 Visa and MasterCard issuers in the United States are using HNC's fraud software. Nestor said its own share of that market remains small.
Ms. Campbell of HNC said her company has relationships with 80 banks and third-party processors. Nestor, by contrast, works only with Mellon Bank, NationsBank, Bank One, GE Capital, Bank of Nova Scotia, NICOS of Japan, some electronic transfer organizations, and Europay International, the company said.
Total System Services Inc., an Atlanta-based card processor, is among Nestor's largest clients. Ms. Campbell said Total System is preparing to use HNC's Falcon as well.
Nestor's lawsuit also seeks invalidation of an HNC patent, approved in October, for a process meant to detect fraud. Nestor, which obtained patents for its products in 1982 and 1998, said the HNC patent represents a "simple and obvious application of Nestor's own fundamental patented inventions."