SmartMetric Inc. came up empty in federal appeals court April 11, but the payments-technology provider plans to continue its fight against three of the major card brands it says stole its patented technology.

For more than two years, Buenos Aires-based SmartMetric has insisted the payment card companies infringed on a patent it received from the U.S. Patent and Trademark Office for contactless smart card technology.

SmartMetric received its patent in February 2010 and filed suits against Visa Inc. and MasterCard Worldwide the following month. It added American Express Co. to its suit in December 2010. A federal district judge in California ruled in favor of the card companies last September.

SmartMetric appealed, saying the district judge did not interpret the patent correctly. But the U.S. Court of Appeals, District of Columbia Circuit, upheld the lower court ruling that patent infringement did not occur.

The ruling allows the payment brands to continue supporting contactless cards without paying SmartMetric royalties.

Visa card issuers offer payWave contactless cards to customers, while MasterCard supports PayPass; Amex dubbed its contactless offering ExpressPay.

SmartMetric intends to continue to pursue a second complaint against the card companies based on the EMV smart card security standard, which differs from the ISO14443 standard for contactless cards, an attorney representing SmartMetric tells PaymentsSource.

“On the face of the ruling, it looks like the credit card companies got everything they wanted, and we got nothing,” says attorney Patrick F. Bright of Glendale, Calif.-based Wagner Anderson & Bright LLP. “But the court sustained our position on the term ‘network’ as it applies in a parallel case as it relates to EMV technology.”

The definition of the term network is a key aspect because SmartMetric plans to stress the patent infringement still applies to how the EMV cards communicate with the payment networks, Bright contends.

“The credit card companies make the claim that they operate ‘private networks,’ and SmartMetric has a different interpretation of the term network,” Bright says.

But that will be for the courts to again decide at a later date.

Though included in the April 11 appeals court ruling on the contactless card patent case, Amex received a favorable “stipulation of noninfringement” judgment in California from federal Judge Jacqueline Nguyen last June, effectively clearing the company from the legal complaint.

Nguyen earlier, in September 2010, denied a motion by MasterCard and Visa to dismiss the suit, ruling that the card networks’ complaints about factual errors and omissions in the suit were not strong enough to halt continued hearings (see story).

The card networks argued that SmartMetric wrongly identified MasterCard’s Cirrus ATM and Visa’s Interlink point-of-sale PIN-debit networks in the U.S. as the network service providers for payWave and PayPass because the American ATM systems do not support contactless cards.

SmartMetric alleges the card networks infringed on a patent for a portion of the contactless system that allows the automatic connection from the card computer chip to the payments network. However, Nguyen also insisted that SmartMetric in an amended complaint provide more detail about specific technology components instead of its original broad assertions.

“We really view the appeals court ruling as a first step at this point because of the parallel case on the EMV question,” says Bright, who did not indicate when his client’s other case would be heard in court.

Legal teams for the card companies did not respond to PaymentsSource inquiries for comment.

Around the same time as the September lawsuit rulings in California, SmartMetric began emphasizing the use of a fingerprint biometrics scanner built into an EMV payment card as a way to eliminate PIN use in card-present transactions.

The company’s timing for that technology announcement coincided with card networks announcing timetables for EMV smart card technology migration into the U.S. market (see story).

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