Secret Online-Citi Settlement Leaves Industry Wondering

Article excerpt

When Online Resources and Communications Corp. and Citibank sued each other last year over patent infringement issues, each was quick to air its grievances through the news media.

Since they announced an out-of-court settlement earlier this month, the companies have clammed up about the details - by mutual agreement. But this has not prevented others in the payment services industry from talking about the implications of their agreement.

In fact, it appears there was some disappointment that a court confrontation was forestalled.

"I think a lot of people were looking at this litigation as ultimately providing guidance," said Robert G. Ballen, a partner in the Washington law firm of Schwartz & Ballen.

Mr. Ballen pointed out that many people have questioned the validity of payment system patents - a relatively new development lacking a body of precedent.

The Citibank-Online feud began last November, when Citibank filed its patent infringement suit in U.S. District Court for the Eastern District of Virginia.

Citibank claimed that Online, based in McLean, Va., violated three of the bank's patents by marketing a screen-enhanced telephone called ScreenPhone.

Online fired back with a countersuit in the same court seeking to invalidate Citibank's patents and to challenge the claims of infringement. Online claimed that Citibank simply wanted to eliminate competition in a desirable market - namely, the Washington area - where both companies are active in home-based services. Online's president, Matthew P. Lawlor, denounced Citibank's actions as "harassment."

Citibank remained characteristically closed-mouthed. However, in December a spokeswoman discussed Citibank's perspective, saying that the bank was "questioning" Online Resource's patent.

That remark touched on what many in the industry believed was at the heart of Citibank's attack on a relatively small player in the emerging home banking business.

Online obtained a broad patent in 1993 that appears to cover any bank transaction involving the debiting of a customer's account using a home device like a personal computer or screen telephone. …