The news about the AdvanceMe patent invalidation has spread like crazy (Including internationally).
I thought the way all the prior art was gathered was a unique story and apparently the New York Times did as well. You can see the article written entitled Playing Detective In A Patent Case.
In addition, the Electronic Transaction Association (ETA), the leading industry association of the credit card processing industry has a link right off their "latest news" section of their homepage entitled, AdvanceMe Patent Ruled Invalid.
The Wall Street Journal wrote about the AdvanceMe patent invalidation and referenced the NY Times article specifically how myself, David Goldin, President & CEO of AmeriMerchant was instrumental in invalidating the patent.
The story was also the cover story of ISO & Agent Weekly. A link to the article can be found here.
Prepaid Trends (page 8 of this issue) talks about how the US District Court ruled the AdvanceMe Patent invalid and I am quoted in the article saying, "If AdvanceMe had won, it would have had a legal monopoly on a patent that was not a novel idea."
It has even hit the international press. The International Tribune published a story about how the prior art was found to invalidate the AdvanceMe patent.
Payments News mentions the New York Times article today.
The intellectual property legal community has even given the Merchant Cash Advance Blog credit in assisting the invalidation of the AdvanceMe Patent. The 271 Patent Blog recently ran a story about this case.
And speaking of the intellectual property community, Vinson & Elkins, our attorneys in this litigation have posted a news release about this case. I also wanted to take the time to thank the team at Vinson & Elkins for their extraordinary work they have done on this case. We couldn't have chosen a better IP firm to handle this matter in the Eastern District of Texas. My hat goes off to Bill Schuurman, Brian Buss, Joey Gray, Floyd Walker, Hilary Preston and Graham Sutliff for their work to invalidate this patent (And for their patience of putting up with a lot of smoke and mirrors thrown to us by the other side and their attorneys). If any one of you are lucky enough to be sued like I was over patent infringment (or if you are the holder of a legitimate patent that you are looking to enforce), I couldn't recommend Vinson & Elkins highly enough for all they have done not only for my company, but the entire merchant cash advance and credit card processing industry.
If you need to choose local counsel for the Eastern District of Texas, Potter Minton was our firm and my thanks go out to Doug McSwane and his team.
I have to give a very special thanks to Jeff Sanders of Roberts & Ritholtz. Jeff was not only instrumental in helping the defendants choose Vinson & Elkins as national counsel and Potter Mitton as local counsel, but provided strategy that was second to none throughout the case.
I also want to thank everyone that came to trial, namely Tim Litle, Larry Bouchard, Lee Suckow, Skip Landon as well as everyone that provided testimony in the case including the former AdvanceMe employees.
And finally, a very special thanks to those not named above that made it possible for me to be able to fight this fight, you know who you are and thank you.
Thursday, August 23, 2007
Tuesday, August 14, 2007
AdvanceMe Patent Invalidated
As many of you know, I have been involved with a lawsuit from AdvanceMe the past year and a half over their “patent.” They have sued my company and other merchant cash advance companies. Well, I am proud to say we just received word from the court that Judge Davis from the Eastern District of Texas has INVALIDATED the AdvanceMe patent in one of the AdvanceMe patent cases. He writes in his MEMORANDUM OPINION AND ORDER on August 14, 2007 in ADVANCEME INC. vs. RAPIDPAY, LLC, ET AL that “The ‘281 patent is INVALID because it is OBVIOUS and ANTICIPATED."
Judge Davis also wrote, “The Litle & Co. prior art, the LeCard program, the Transmedia program, and the prior art Reserve Accounts were all available in the field at the time of the purported invention. Johnson [-- Barbara Johnson is listed as the inventor of the patent --] merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.”
I believe this is also the first patent case in the Eastern District of Texas whereby the recent Supreme Court ruling on patent obviousness in the KSR Int’l Co. v. Teleflex, Inc. helped invalidate a patent. In reference to the Supreme Court ruling, Judge Davis wrote,"There are multiple prior art references, not considered by the PTO when issuing the patent,that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc."
I would like to thank all of those that have helped me put together the information that was used to show the court that this patent was not a new and novel idea.
Any comments can be sent to dg@amerimerchant.com
Judge Davis also wrote, “The Litle & Co. prior art, the LeCard program, the Transmedia program, and the prior art Reserve Accounts were all available in the field at the time of the purported invention. Johnson [-- Barbara Johnson is listed as the inventor of the patent --] merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.”
I believe this is also the first patent case in the Eastern District of Texas whereby the recent Supreme Court ruling on patent obviousness in the KSR Int’l Co. v. Teleflex, Inc. helped invalidate a patent. In reference to the Supreme Court ruling, Judge Davis wrote,"There are multiple prior art references, not considered by the PTO when issuing the patent,that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc."
I would like to thank all of those that have helped me put together the information that was used to show the court that this patent was not a new and novel idea.
Any comments can be sent to dg@amerimerchant.com
Friday, August 10, 2007
AdvanceMe Patent Lawsuit - looking for Dining Ala Card Information
As many of you know, AdvanceMe got a patent issued that is about a credit card processor paying someone other than the merchant to reduce an outstanding obligation. You can see more about it at:
http://www.google.com/patents?id=XwwWAAAAEBAJ&dq=advanceme
AdvanceMe has started to sue many companies including mine, AmeriMerchant. We are set to goto trial in January and have a deadline coming up with the courts in August that we must produce all information / evidence that we will be using in trial.
We believe that companies were performing this "invention" well before July 1997 when it was "invented." A patent becomes invalid and unenforceable if one can prove that invention was not novel at the time the application was submitted to the patent office even though it was granted by the patent office. Furthermore, if the inventor knew about similar / existing inventions and didn't tell the patent office then it becomes invalid as well and the plantiff (in this case AdvanceMe) can be liable for legal fees.
With that said, we have identified several prior art systems to invalidate this patent (if you know of any others, please feel free to email me at dg@amerimerchant.com. All inquiries will be kept confidential). One such system was Dining Ala Card that provided cash advances to merchants and was repaid out of a merchant's future credit card receipts (this took place in the early 1990s).
We are currently seeking "prior art" (printed publications, websites, marketing materials, merchant agreements, etc.) dealing with Dining Ala Card prior to July 1997. If anyone knows where to find (or has) Dining Ala Card marketing materials, agreements, merchant contracts, and/or knew how it operated, knew someone that will know how it operated, etc. please email me at dg@amerimerchant.com. All inquiries will be kept confidential.
If anyone had interacted with senior management at AdvanceMe prior to September 2005 and believes they knew about similar systems (eg. Clever Ideas, Transmedia, idine/Rewards Network, etc.), please please email me at dg@amerimerchant.com. All inquiries will be kept confidential.
If someone also knows about credit card processors paying third parties instead of the merchant directly before July 1997, please email me.
We believe we have a very strong case that this patent is not a novel invention and there were many lenders/creditors, etc. that were getting paid out of credit card receipts before July 1997 and if the patent office was told about these systems/companies by AdvanceMe during patent prosecution, this patent would never have been granted.
-David
http://www.google.com/patents?id=XwwWAAAAEBAJ&dq=advanceme
AdvanceMe has started to sue many companies including mine, AmeriMerchant. We are set to goto trial in January and have a deadline coming up with the courts in August that we must produce all information / evidence that we will be using in trial.
We believe that companies were performing this "invention" well before July 1997 when it was "invented." A patent becomes invalid and unenforceable if one can prove that invention was not novel at the time the application was submitted to the patent office even though it was granted by the patent office. Furthermore, if the inventor knew about similar / existing inventions and didn't tell the patent office then it becomes invalid as well and the plantiff (in this case AdvanceMe) can be liable for legal fees.
With that said, we have identified several prior art systems to invalidate this patent (if you know of any others, please feel free to email me at dg@amerimerchant.com. All inquiries will be kept confidential). One such system was Dining Ala Card that provided cash advances to merchants and was repaid out of a merchant's future credit card receipts (this took place in the early 1990s).
We are currently seeking "prior art" (printed publications, websites, marketing materials, merchant agreements, etc.) dealing with Dining Ala Card prior to July 1997. If anyone knows where to find (or has) Dining Ala Card marketing materials, agreements, merchant contracts, and/or knew how it operated, knew someone that will know how it operated, etc. please email me at dg@amerimerchant.com. All inquiries will be kept confidential.
If anyone had interacted with senior management at AdvanceMe prior to September 2005 and believes they knew about similar systems (eg. Clever Ideas, Transmedia, idine/Rewards Network, etc.), please please email me at dg@amerimerchant.com. All inquiries will be kept confidential.
If someone also knows about credit card processors paying third parties instead of the merchant directly before July 1997, please email me.
We believe we have a very strong case that this patent is not a novel invention and there were many lenders/creditors, etc. that were getting paid out of credit card receipts before July 1997 and if the patent office was told about these systems/companies by AdvanceMe during patent prosecution, this patent would never have been granted.
-David
Tuesday, August 7, 2007
Thanks & Ask The Blogger
I wanted to thank everyone for all the positive feedback / emails I've received since launching this blog. This website has already been featured in many well respected industry publications including The Nilson Report.
My next entry I would like to answer some industry questions that might be out there. Please feel free to post your questions by clicking on the comments link below about the merchant cash advance industry or you can email them directly to me at dg@amerimerchant.com.
-David
My next entry I would like to answer some industry questions that might be out there. Please feel free to post your questions by clicking on the comments link below about the merchant cash advance industry or you can email them directly to me at dg@amerimerchant.com.
-David
Friday, August 3, 2007
Merchant Cash Advance Industry Has Become Mainstream
Within the past two months, I've been contacted by reporters of a half dozen non-credit card processing industry publications such as big city newspapers, business magazines and local papers who are all planning stories on the merchant cash advance phenomenon. There seems to be a basic underlying premise of all these articles that there is a huge demand in the marketplace for this type of alternative financing as many business owners can not get financing from a bank.
I've heard many nay-sayers tell me that the merchant cash advance space is just a fad. My response to that is in 1995, when I first started my previous business an Internet development company, there was a gentlemen that told me the Internet was just a fad too (Note: I sold that business three years later to a multi-billion dollar telecommunications company). I hope the merchant cash advance industry grows to be at least 1/1000 of the "Internet fad."
I've heard many nay-sayers tell me that the merchant cash advance space is just a fad. My response to that is in 1995, when I first started my previous business an Internet development company, there was a gentlemen that told me the Internet was just a fad too (Note: I sold that business three years later to a multi-billion dollar telecommunications company). I hope the merchant cash advance industry grows to be at least 1/1000 of the "Internet fad."
Tuesday, July 31, 2007
Paying off existing advances
One thing you will see very quickly once you begin selling merchant cash advance products is that you will come across merchants that are already in an existing merchant funding program. Similar to other financial products such as credit cards, mortgages, etc. there exists a large refinance model in the merchant funding industry.
What I mean by this is a merchant cash advance provider will provide a merchant who already has an advance with another provider the funds to pay off their existing advance and potentially have excess funds after paying off their balance. As someone who is selling this product you want to make sure that the merchant cash advance provider who is going to refinance the merchant, will pay the balance on the advance to their "last provider" directly and not to the merchant with the hope that they will pay the provider. The reason being is the merchant may not pay off their old advance and hence violate their contract by having two advances at once. In addition, you as the sales rep can potentially be liabile for something called "torturous interference" meaning that you knowingly helped the merchant violate its agreement with their original merchant cash provider.
The best way to avoid any trouble for the merchant, a sales rep or the new merchant cash advance provider is to ask a merchant if they are currently in a working capital program that requires them to either use a specific credit card processor exclusively or pay off their existing balance should they utilize another type of financing product after they got their initial merchant funding. (In almost all cases, the answer is yes). A responsible way to handle this is to ask the merchant for their current merchant cash advance statement which will show their balance and provide it to the new merchant cash advance provider that will be refinancing them. The new merchant cash advance provider should pay off the old provider directly and everyone will be happy and performing "best practices."
What I mean by this is a merchant cash advance provider will provide a merchant who already has an advance with another provider the funds to pay off their existing advance and potentially have excess funds after paying off their balance. As someone who is selling this product you want to make sure that the merchant cash advance provider who is going to refinance the merchant, will pay the balance on the advance to their "last provider" directly and not to the merchant with the hope that they will pay the provider. The reason being is the merchant may not pay off their old advance and hence violate their contract by having two advances at once. In addition, you as the sales rep can potentially be liabile for something called "torturous interference" meaning that you knowingly helped the merchant violate its agreement with their original merchant cash provider.
The best way to avoid any trouble for the merchant, a sales rep or the new merchant cash advance provider is to ask a merchant if they are currently in a working capital program that requires them to either use a specific credit card processor exclusively or pay off their existing balance should they utilize another type of financing product after they got their initial merchant funding. (In almost all cases, the answer is yes). A responsible way to handle this is to ask the merchant for their current merchant cash advance statement which will show their balance and provide it to the new merchant cash advance provider that will be refinancing them. The new merchant cash advance provider should pay off the old provider directly and everyone will be happy and performing "best practices."
Tuesday, July 24, 2007
Never Use The Four Letter Word
When you were child, you were probably taught to never use certain four letter words. In the merchant cash advance space, there is one word letter word that you never should be using when presenting this product to a merchant, "L-O-A-N."
Any person selling a true merchant cash advance product that is a factoring product, meaning you are purchasing a merchant's future credit card receivables at a discount, you need to understand the difference between a loan and a factoring product such as a merchant cash advance. (Note: there may be some "loan" products offered by companies to merchants that this article may not apply to, so I would check with your merchant cash advance provider whether or not they are offering a loan product or a factoring product. Almost every product I know of in the merchant cash advance industry with the exception of one or two is NOT a loan product). There are various state usury laws (usury is typically defined as the the maximum interest rate allowed by law) that a loan product must comply with.
The first distinction between a loan product and a merchant cash advance is there is no fixed time period with a merchant cash advance. For example, if you walk into a bank, every loan product they offer has a fixed time period - eg. a 30 year mortage, a 5 year auto loan, a 5 year SBA loan, etc. With a merchant cash advance, a merchant is simply agreeing to sell a percentage of their future credit card receivables at a discount and allowing a merchant cash advance provider to collect those payments by taking a set percentage of a merchant's future credit card processing sales. For example, lets say you purchased $20,000 worth of future credit card processing receipts for $16,000 from ten different merchants on the exact same day. And in this example, the agreement called for the merchant to collect 20% of the merchant's future Visa/Mastercard sales until $20,000 was collected and the advance was paid off. Each of the ten different merchants will pay off the advance in ten different time periods - one merchant may take seven months, another nine months, another twelve months, etc. Again, unlike a loan, there is no fixed time period with a merchant cash advance.
Another distinction between a loan and a merchant cash advance is there is no fixed monthly payment. A loan requires a fixed monthly payment amount (or in the case of some mortgages, a fixed bi-weekly amount). With a merchant cash advance, there is no fixed monthly payment as we are taking a percentage of a merchant's future credit card sales. For example, if a merchant's cash advance contract calls for 20% of their future Visa / Mastercard sales and they process $10,000 worth of these sales in Month 1 after taking the advance and $5,000 worth of future Visa / Mastercard sales in Month 2, then the amount they will pay back the merchant cash advance provider will be $2,000 Month 1 (20% of $10,000) and $1,000 Month 2 (20% of $5,000). As you can see, unlike a loan, there is no fixed monthly payment with a merchant cash advance. In addition to a legal difference, there is also a cash flow benefit to the merchant with a merchant cash advance compared to a traditional loan. That is, if their sales slow down, the amount they owe their merchant cash advance provider slows down since it's a percentage of their future sales that determines how much they pay back each month on their advance. With a bank loan, a merchant has to worry about making a fixed monthly payment to the bank regardless of how sales were that month. If they can't, they can default on their bank loan which can include the bank eventually foreclosing on personal assets that the borrower may have had to pledge.
Another difference between a merchant cash advance and a loan is there is no interest being charged with a merchant cash advance. A loan has an interest rate, while a merchant cash advance does not. A merchant cash advance involves buying future credit card sales at a discount. For example, if you are buying a merchant's future credit card sales for .75 on the $1, then you would purchase $10,000 worth of future sales for $7,500. You are buying these sales at a 25% discount, this is a discount (remember, this is a factoring product), not an interest rate. One of the reasons why there is no interest rate is because as discussed above there is no fixed time period to collect these sales purchased, it can take seven months, twelve months, fifteen months, etc. The time period it will take to pay off the advance is unique for each merchant as it is based on how much credit card sales the merchant actually processes
since they received the advance.
One of the key differences between a loan and merchant cash advance is their is no recourse with a merchant cash advance. One of the key attributes of a loan is there typically is a personal guarantee. A true merchant cash advance should be a purchase transaction and there is no recourse to the owner should they legitimately go out of business. With that said, this is not a free for all for fradulent merchants to take a cash advance and not pay it back. Most merchant cash advance provider contracts will have a fraud guarantee on the merchant personally. Some examples of a fraud guarantee where a merchant can be held personally liable are if a merchant misrepresented the information on their application that the merchant cash advance provider used to approve them, sells their business without paying off their balance on the advance, and/or disrupts the merchant cash advance provider's ability to collect the future credit card sales they purchased (this can be done by changing compatible processors, blocking ACHs, changing bank accounts, etc.)
In conclusion, when selling a true merchant cash advance product, you should be using the correct terminology such as "advance" instead of "loan" and "discount" instead of "interest." If a merchant asks you what is the difference, you should be able to point out the attributes of a merchant cash advance discussed above which are no fixed time period, no fixed monthly payment, no interest rate and no personal recourse.
To properly inform the merchant the type of product you are selling, I recommend putting a notice on your website, marketing materials, etc. that indicate it's a merchant cash advance. Something to the effect of "Note: This is a merchant cash advance factoring product and not a loan product."
Any person selling a true merchant cash advance product that is a factoring product, meaning you are purchasing a merchant's future credit card receivables at a discount, you need to understand the difference between a loan and a factoring product such as a merchant cash advance. (Note: there may be some "loan" products offered by companies to merchants that this article may not apply to, so I would check with your merchant cash advance provider whether or not they are offering a loan product or a factoring product. Almost every product I know of in the merchant cash advance industry with the exception of one or two is NOT a loan product). There are various state usury laws (usury is typically defined as the the maximum interest rate allowed by law) that a loan product must comply with.
The first distinction between a loan product and a merchant cash advance is there is no fixed time period with a merchant cash advance. For example, if you walk into a bank, every loan product they offer has a fixed time period - eg. a 30 year mortage, a 5 year auto loan, a 5 year SBA loan, etc. With a merchant cash advance, a merchant is simply agreeing to sell a percentage of their future credit card receivables at a discount and allowing a merchant cash advance provider to collect those payments by taking a set percentage of a merchant's future credit card processing sales. For example, lets say you purchased $20,000 worth of future credit card processing receipts for $16,000 from ten different merchants on the exact same day. And in this example, the agreement called for the merchant to collect 20% of the merchant's future Visa/Mastercard sales until $20,000 was collected and the advance was paid off. Each of the ten different merchants will pay off the advance in ten different time periods - one merchant may take seven months, another nine months, another twelve months, etc. Again, unlike a loan, there is no fixed time period with a merchant cash advance.
Another distinction between a loan and a merchant cash advance is there is no fixed monthly payment. A loan requires a fixed monthly payment amount (or in the case of some mortgages, a fixed bi-weekly amount). With a merchant cash advance, there is no fixed monthly payment as we are taking a percentage of a merchant's future credit card sales. For example, if a merchant's cash advance contract calls for 20% of their future Visa / Mastercard sales and they process $10,000 worth of these sales in Month 1 after taking the advance and $5,000 worth of future Visa / Mastercard sales in Month 2, then the amount they will pay back the merchant cash advance provider will be $2,000 Month 1 (20% of $10,000) and $1,000 Month 2 (20% of $5,000). As you can see, unlike a loan, there is no fixed monthly payment with a merchant cash advance. In addition to a legal difference, there is also a cash flow benefit to the merchant with a merchant cash advance compared to a traditional loan. That is, if their sales slow down, the amount they owe their merchant cash advance provider slows down since it's a percentage of their future sales that determines how much they pay back each month on their advance. With a bank loan, a merchant has to worry about making a fixed monthly payment to the bank regardless of how sales were that month. If they can't, they can default on their bank loan which can include the bank eventually foreclosing on personal assets that the borrower may have had to pledge.
Another difference between a merchant cash advance and a loan is there is no interest being charged with a merchant cash advance. A loan has an interest rate, while a merchant cash advance does not. A merchant cash advance involves buying future credit card sales at a discount. For example, if you are buying a merchant's future credit card sales for .75 on the $1, then you would purchase $10,000 worth of future sales for $7,500. You are buying these sales at a 25% discount, this is a discount (remember, this is a factoring product), not an interest rate. One of the reasons why there is no interest rate is because as discussed above there is no fixed time period to collect these sales purchased, it can take seven months, twelve months, fifteen months, etc. The time period it will take to pay off the advance is unique for each merchant as it is based on how much credit card sales the merchant actually processes
since they received the advance.
One of the key differences between a loan and merchant cash advance is their is no recourse with a merchant cash advance. One of the key attributes of a loan is there typically is a personal guarantee. A true merchant cash advance should be a purchase transaction and there is no recourse to the owner should they legitimately go out of business. With that said, this is not a free for all for fradulent merchants to take a cash advance and not pay it back. Most merchant cash advance provider contracts will have a fraud guarantee on the merchant personally. Some examples of a fraud guarantee where a merchant can be held personally liable are if a merchant misrepresented the information on their application that the merchant cash advance provider used to approve them, sells their business without paying off their balance on the advance, and/or disrupts the merchant cash advance provider's ability to collect the future credit card sales they purchased (this can be done by changing compatible processors, blocking ACHs, changing bank accounts, etc.)
In conclusion, when selling a true merchant cash advance product, you should be using the correct terminology such as "advance" instead of "loan" and "discount" instead of "interest." If a merchant asks you what is the difference, you should be able to point out the attributes of a merchant cash advance discussed above which are no fixed time period, no fixed monthly payment, no interest rate and no personal recourse.
To properly inform the merchant the type of product you are selling, I recommend putting a notice on your website, marketing materials, etc. that indicate it's a merchant cash advance. Something to the effect of "Note: This is a merchant cash advance factoring product and not a loan product."
Subscribe to:
Posts (Atom)