The Green Sheet :: GS Archives

F or several years, the industry has been trying to determine who, if anyone, has a patent on electronic check conversion. Now we know. LML Payment Systems Inc. finally has settled its claims against Global Transaction Systems LLC regarding ownership of U.S. Patent Nos. 5,484,9881 and 6,164,5282 (collectively, "Patent Estate").

Patent-holders Robert R. Hills and Henry R. Nichols originally had an agreement to sell the patent to a Canadian company, which through several holding companies, sub-companies and name changes emerged as LML Payment Systems Inc.3 The patent was transferred on March 11, 1998 from Hills and Nichols to ChequeMARK Patent Inc. (its indirect and wholly owned subsidiary, later named LML Payment Systems).

The patent office records clearly indicate that the Patent Purchase Agreement between Hills and Nichols and ChequeMARK Patent contained a "repurchase clause," exercisable in the event that $1,500,000 in funding or, in its stead, minimum funding of $45,000 per month was not in evidence. When ChequeMARK Patent failed to satisfy the minimum-funding criteria, Patent 5,484,988 was transferred from ChequeMARK Patent back to Hills.

All this seems straightforward, doesn't it? Ah, if only it were that simple!

LML Payment Systems issued press releases claiming that it still owned that patent, and it sued4 Hills and Mark Technologies Inc. (formerly known as ChequeMARK Technologies Corp.) in U.S. District Court, Middle District of Florida, in an attempt to solidify ownership of the technology and underlying patents.

LML, in an April 5, 2000 press release, included this statement from Patrick Gaines, President and CEO: "The result of this process has unequivocally confirmed to us certain truths regarding the patent. Electronic authorization, information capture and settlement of check transactions are all addressed ? from any location, at any time. Moreover, the patent addresses the electronic submission of transactions to a central database for approval electronically, combined with newly allowed and recently announced claims regarding Internet transactions. These two key cornerstones in our intellectual property estate should ensure a strong foundation in the electronic checking industry."

During an April 13, 2000 deposition, Hills testified that as far back as September 1998, he had filed documentation with the U.S. Patent and Trademark Office in an attempt to transfer the patent from ChequeMARK Patent to his name. LML confirmed that Hills has never been an employee, officer, director, authorized agent or authorized signatory of ChequeMARK Patent.

Nichols confirmed that he was in no way associated with filing any documentation related to any purported assignment of the patent from ChequeMARK to Hills, and that he indeed acted alone without seeking information or support. He also said that he had assigned his interest in the patent to a company named Global Technology, but LML and its legal counsel were unable to discover the legal existence of this company or locate any agent of record for it.

On July 20, 2000, Global Transaction Systems, (a Nevada limited liability company), as plaintiff, filed a complaint against LML in U.S. District Court, Southern District of Florida, for patent infringement, seeking a permanent injunction. LML's position in these matters is that since March 11, 1998 (the date LML purchased the patent), there has been no repurchase, sale or effective assignment of the patent and that ChequeMARK Patent remains the sole owner.

Then, on Sept. 8, 2000, LML was served with an amended complaint by Global Transaction Systems stating that U.S. Patent No. 5,484,988, through an alleged assignment from Hills, stipulates that Global Transaction Systems is the owner of continuations thereto. The motion was dismissed for lack of subject-matter jurisdiction, as reported in the Feb. 8, 2001 issue (01:02:01) of The Green Sheet.

In late January 2001, LML then requested sanctions against Global Transaction System's counsel, citing Rule 115 of the Federal Rules of Civil Procedure. LML requested sanctions in the form of its attorney's fees and costs incurred in defending the action that was dismissed for lack of subject matter.

Then, in early February, LML and ChequeMARK Patent filed suit against Global Transaction Systems, alleging that it had violated the Federal Lanham Act's unfair competition provisions.

Once and for all, on Aug. 17, 2001, LML announced it had settled its claims against Global and filed in the U.S. District Court for the District of Nevada. The filing was consistent with the Agreed Final Judgment entered Sept. 22, 2000 by the U.S. District Court for the Middle District of Florida, in the case of LML Payment Systems et al vs. Robert R. Hills, which adjudged that LML, through its subsidiaries, owned and held exclusive right, title and interest in the Patent Estate.

In addition, the corporation's wholly owned subsidiary, LML Payment Systems Corp., granted a non-exclusive, non-transferable, limited sub-license to Global. The sub-license agreement includes the payment of royalties on electronic check conversion on a per-transaction basis.

LML also has agreed to provide Global with processing services regarding electronic check conversion transactions under terms similar to those provided by the corporation to other independent third parties.

"We are pleased to have this ownership issue resolved to our complete satisfaction and look forward to pursuing our business objectives that involve both transaction processing and strategic licensing of the Patent Estate,'' Gaines said.

1 Patent 5,484,988 describes a system through which consumers authorize electronic access to their checking accounts by presenting their paper check to the merchant. 2 Patent 6,164,528 addresses Internet purchases where payments from checking accounts are authorized using the Internet. This patent specifically applies LML Payment Systems' electronic check processing methods to Internet purchases without limitation to device or network. 3 The two individuals (Hills and Nichols), saying they held the patent on check conversion, sold the patents and other rights to Leisureways Marketing, now known as LML Payment Systems. 4 United States District Court, Middle District of Florida, Jacksonville Division, Case Number 99cv217 5 Rule 11 requires that any pleading, motion or other paper filed with a court must be well grounded in fact and warranted by existing law.

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