Federal Appellate Panel Backs Circuit City In Gift Card Patent Case

Written by Evan Schuman
June 26th, 2008

A federal appellate court backed a group of retailers Monday (June 23)–including Best Buy, Circuit City, Costco and Lowe’s—by ruling that their gift card systems do not violate any patents.

This case has been winding its way through the federal court system for almost four years. It began when a telecom reseller called Realsource Communications said a 1998 patent protected the way it dealt with phone card payments. Realsource further claimed that the retailers stole that patent when they crafted how they handled their gift card payment authorizations. The retailers involved were Best Buy, Circuit City, Costco, Lowe’s, Starbucks, Williams-Sonoma, Pottery Barn and Seattle’s Best Coffee

In the 1990s, Realsource designed a system that allowed the company to ship phone cards without any value on them. The phone card user would then activate it at a later time, discouraging thieves who wanted to steal prepaid cards.

Because Best Buy and the other retailers have a similar system with their gift cards, Realsource filed a lawsuit in 2004. In May 2007, a U.S. District Court judge said the retailers had created a different system because of the way those merchants used gift card numbers to verify gift card debits and additions.

The Appellate panel backed the federal judge. Although "the specification does indicate that the card number is retrieved from the debit card and sent by the merchant’s terminal to the computer," the panel’s decision said, "it does not appear to contemplate that the card number will be used in the data comparison necessary to validate the transaction."


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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