PayOne's lawsuit against Home Depot over its use of PayPal's point of sale payments technology is not the first legal battle PayOne has pursued with an entity tied to PayPal — and, the company says, it may not be the last.
"While PayPal has recently announced a number of national retail partners, The Home Depot was the first to deploy and promote this technology. We continuously review the market and leave all options going forward," said Joe Lynam, president and chief executive officer of PayOne, in an email.
PayOne sued Zong, which is now a unit of PayPal, in 2011 for patent infringement, and added PayPal to the suit in early 2012. Zong's founder, David Marcus, is now president of PayPal.
Home Depot would not provide comment for this story. PayPal did not return request for comment by deadline. PayOne's lawsuit against PayPal/Zong is separate from the suit against Home Depot and is still ongoing, PayOne says.
"I can't comment on the specific case and whether it has any ground. However, I would say it is quite common to see an innovation rolled into the market, only for another company to claim that the technology infringes on their patent," says Zil Bareisis, a senior analyst at Celent.
PayOne is claiming Home Depot's use of PayPal's point of sale payment system, which allows users to make payments by giving the merchant a phone number and PIN, is covered by PayOne's patents.
"The PayOne patents protect the process of using a mobile phone number and associated personal identification data to initiate, authenticate and complete payments transactions," Lynam says.
While PayPal has deployed its point of sale technology with a number of retailers—Famous Footware, American Eagle Outfitters, Foot Locker, Jamba Juice, Toys R Us and Mapco are among its recent additions—Home Depot was PayPal's first publicly disclosed merchant partner and is for the moment the only retail defendant named in the suit.
PayOne is asking for an injunction against Home Depot and a reward of damages for its alleged breach of PayOne's patents.
PayOne's technology allows the use of a mobile phone and PIN to transact at the point of sale, as well as enable real-time authentication and fraud control. The company contends its patents cover these methods, as well as other functions. While PayOne has a number of licensing agreements with online companies and partners, it does not currently have licensing
Such patent disputes are "pretty common," says Rick Oglesby, a senior analyst at Aite Group. "Any time there is an investment flurry in a new technology, many patents get filed covering just about all of the potential applications of the technology from a variety of different angles. We'll see more of this in the mobile payments space moving forward, just like we have seen in the mobile device/mobile operating system space."
"You could have some slowdown in the deployment of the solutions, some merchants may hesitate to implement the PayPal solution for fear of getting added to the lawsuit," Oglesby says. "But I'd say that the innovation itself, such as product development, will continue in parallel with the lawsuit. It may actually speed up the innovation. If the lawsuit proves to have merit then there could be a need to innovate around it."