Merchant Cash-Advance Patent Invalid, U.S. Judge Rules in Texas

  AdvanceMe Inc. is appealing a U.S. District Court ruling in Texas that the company's patent for providing merchants cash advances against their future credit card receivables is invalid.
  The court's decision means, at least for now, that other vendors can continue to offer such services without having to pay licensing fees to AdvanceMe. Many such vendors sell their products through independent sales organizations, which in turn offer the service to their card-accepting merchant customers.
  AdvanceMe had alleged in a lawsuit filed in February 2006 that AmeriMerchant LLC, a New York-based competitor, infringed on its merchant cash-advance patent. Kennesaw, Ga.-based AdvanceMe later named additional defendants.
  U.S. District Judge Leonard Davis ruled that Barbara Johnson, creator and holder of the patent, "merely built on long-established prior art." Besides helping to found the company, Johnson remains a board member and stockholder, an AdvanceMe spokesperson says.
  "While [Johnson] ... implemented an aggressive marketing and business-development program that brought this financing method to widespread use, she did not invent a new business method," Davis noted in his Aug. 14 ruling. While Johnson's work exhibits "excellent entrepreneurship," ... "it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses," he ruled.
  AdvanceMe has appealed the patent invalidation, says Glenn Goldman, AdvanceMe's CEO.
  Marc Abbey, managing partner at Linthicum, Md.-based First Annapolis Consulting, says the ruling is "a pretty positive outcome for the cash-advance companies other than AdvanceMe."
  Had AdvanceMe's patent rights been upheld, the company could have required licensing agreements, which likely would have meant other companies would have to pay fees to AdvanceMe to provide merchants cash advances against future card receivables.
  In the long term, ISOs should continue to scrutinize merchant cash-advance partners, Abbey advises. "Lots of these [cash-advance] companies won't make it long-term because they won't be sizable enough to make it happen," he says.
  Competitors, of course, welcomed the court's decision.
  "If AdvanceMe had won, it would have had a legal monopoly on a patent that was not a novel invention," says David Goldin, president and CEO of New York-based AmeriMerchant. "This is extremely beneficial for the merchant cash-advance industry."
  Goldin says AdvanceMe approached his company about licensing its patent. "It appeared to me this patent was not novel," says Goldin, adding that he refused AdvanceMe's request.
  Following the filing of the suit, Goldin contacted other merchant cash-advance companies and created a joint defense. The effort paid off, he says. "We saved the industry," Goldin says.
  Had the patent been upheld, Goldin says ISOs and agents would have faced what he calls an "unfair" competitive advantage for AdvanceMe. Instead, he says, the court's decision strengthens fair competition.
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