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January 25, 2010updated 04 Apr 2017 4:17pm

Heartland takes a harsh battering on two fronts

The year-end setback for the fifth-largest payments processor in the US came on 23 December when a US District Judge, Mary Cooper, rejected its lawsuit aimed at preventing payment systems vendor VeriFone from offering direct support to Heartlands merchant customers. Hostility between Heartland and VeriFone dates back to September 2009 when VeriFone filed a lawsuit against Heartland in which it alleged that a POS terminal being developed by Heartland infringes one of its patents.

By EPI editorial

For Heartland Payment Systems, 2009 ended on a bad note.

The year-end setback for the fifth-largest payments processor in the US came on 23 December when a US District Judge, Mary Cooper, rejected its lawsuit aimed at preventing payment systems vendor VeriFone from offering direct support to Heartland’s merchant customers.

Hostility between Heartland and VeriFone dates back to September 2009 when VeriFone filed a lawsuit against Heartland in which it alleged that a POS terminal being developed by Heartland infringes one of its patents.

Heartland stood its ground. VeriFone responded by announcing termination of its support relationship with Heartland for VeriFone payment systems from 31 December 2009.

Adding more fuel to the fire, VeriFone announced free support to Heartland merchants, arguing that this was to prevent the disruption litigation over the alleged patent infringement would have on Heartland’s ability to maintain customer service levels.

VeriFone estimates that three-quarters of Heartland’s customers rely upon VeriFone systems.

Retaliating, Heartland then launched a lawsuit alleging that VeriFone was “engaged in an unlawful and tortuous campaign to punish Heartland and injure any competition”.

Heartland also noted that “VeriFone is critical in serving existing customers and troubleshooting for problems with the POS terminals and credit card processing”.

However, in a seemingly contradictory statement Heartland’s founder and CEO Bob Carr said in a statement: “Heartland is fully capable, and will continue to be fully capable, of servicing all of its customers. In fact, VeriFone is not able to support our customers.”

Notably, in her ruling Cooper stated that Heartland’s contentions “contradict its own claims in this case.”

She added that Heartland’s own assertion “suggests an ongoing dependence and foreseeable adverse consequences upon withdrawal [by VeriFone] of such support.”

Commenting on Cooper’s ruling, VeriFone’s CEO Douglas Bergeron said: “Despite Heartland’s considerable efforts we believe the right thing to do is to ensure that those merchants do not experience any disruption or degradation in the support they receive for their VeriFone system.”

Settlement burden

Adding further to Heartland’s year-end woes were two multi-million dollar settlements relating to the data breach revealed by the processor in January 2009.

The biggest in US history, the breach involved theft of some 130 million payment card details from Heartland’s internal systems.

In the first settlement, Heartland will pay a minimum of $1 million, and up to a maximum of $2.4 million, to settle a class action lawsuit brought against it as a result of losses sustained due to the intrusion.

In addition, the processor will pay legal and other costs totalling $2.26 million relating to the settlement which could involve 2,500 or more members of the class action.

In the second settlement, Heartland agreed to pay American Express (Amex) $3.6 million in full and final settlement of claims relating to the intrusion.

The settlement with Amex was the first with a card brand.

A far more costly settlement followed at the start of 2010, with an agreement with Visa to provide issuers of Visa-branded credit and debit cards the opportunity to recover a total of up to $60 million with respect to losses they incurred as a result of the data breach.

Heartland will fund up to $59.22 million of the settlement, with the balance covered by its sponsoring banks, KeyBank National Association and Heartland Bank, and the intrusion-related fines imposed by Visa on the sponsoring banks.

Indicative of the impact of the settlements, Heartland anticipates total revenue of about $425 million in 2009 while net profit in the first nine months of 2009, excluding intrusion related losses, totalled $23.4 million.

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