Posted by Mark Brousseau
An interesting article from http://www.politico.com/ about the DataTreasury patent infringement lawsuit:
Senate, old legal woes drawn into patent fight
By: Lisa Lerer
A fight over a Senate patent bill is turning as nasty as the no-holds-barred race for the Democratic presidential nomination, with old legal problems resurfacing involving executives of a small Texas company targeted in a controversial amendment.
The amendment, backed by the country’s largest financial services companies, would prevent Plano-based DataTreasury Corp. from collecting potentially billions of dollars in damages from scores of banks in an ongoing patent lawsuit over electronic check processing technology. But as both the patent bill and the lawsuit move forward, old allegations are swirling about DataTreasury’s founder, Claudio Ballard, and chief executive officer, Keith DeLucia.
Lobbying efforts typically focus on survey data and dry policy papers, making the reemergence of decades-old civil and criminal problems particularly unusual. Ballard, according to court records, was sued by his father for fraud in 1988 over management issues at the small computer company the two co-owned. The case has been dismissed. In 1991, DeLucia, then known as Keith Wickey, was convicted of robbing an armored car in Suffolk County, N.Y., and served some time and probation.
DataTreasury acknowledged the old legal problems but dismissed them as having little to do with the company’s current business. “This is a desperate smear by a group of companies that have tried every other trick in the book and failed. Now what they are trying to do is assassinate the character of DataTreasury’s officers,” says company spokesman Eric Wetzel. “This special interest legislation is a clear example of large corporate infringers aggressively going after small companies.”
The banks may be big, but this no David and Goliath story, say financial services lobbyists. The banks argue that the amendment will prevent what they see as akin to a lawyered-up bank heist. Bank lobbyists categorize DataTreasury as a “patent troll,” a slur used in the intellectual property world to describe small companies that hold patents but do not produce any products.
“DataTreasury is Exhibit A of what’s wrong in the system,” says Steve Bartlett, CEO of the Financial Services Roundtable, an association that represents the country’s 100 largest financial services firms. “The law is tilted so badly in favor of plaintiffs that have no products and yet extort billions of dollars.” DataTreasury holds patents on technology that allows banks to settle checks by transmitting electronic images rather than paper documents.
Traditionally banks depended on paper checks, flying massive numbers of slips around the country for processing. But after the Sept. 11 terrorist attacks grounded billions of dollars’ worth of checks in 2001, regulators changed federal law to allow banks to shred the paper.
DataTreasury saw opportunity in the new law. The company had benefited from a controversial 1998 court ruling that broadened the definition of a patent to include business processes. In June 1999 and February 2000, the company acquired two patents covering a method for processing checks electronically. Later, Bank of America Corp., Chase Manhattan Corp. and IBM announced the creation of a new national digital archive of check images called Viewpointe.
In its complaint, DataTreasury alleges that the banks stole its technology and distributed it throughout the industry. Some major financial institutions, most notably JPMorgan Chase and Merrill Lynch, settled for what the company considers a “significant sum.” Cases against Bank of America, Citigroup, Wells Fargo and 53 other financial institutions were put on hold pending the results of a U.S. Patent and Trademark Office reexamination of the patents. The patent office upheld the patents several months ago, and last Wednesday the court lifted the stay, allowing the cases to move forward.
While the cases were on hold, the banks worked Capitol Hill. In July, Sen. Jeff Sessions (R-Ala.) introduced an amendment in the Senate Judiciary Committee to essentially grant the banks immunity from the suit. The Roundtable, with help from in-house bank lobbyists, briefed staffers of each member of the committee. The amendment was approved on a bipartisan vote. The Roundtable considers passing the Sessions amendment a top legislative priority.
“It’s right up there because it’s real money,” Bartlett said. “If we were talking about millions or even hundreds of millions, it wouldn’t be, but this could cost billions.” DataTreasury shot back with its own lobbying campaign. The company’s legal counsel, well-known Texas trial firm Nix, Patterson & Roach, recommended prominent Democratic lobbyists John Raffaelli and Ben Barnes. Both signed on to lobby for DataTreasury and have met with the staff of several committee members. DataTreasury points to a Congressional Budget Office study estimating that the amendment would result in litigation against the federal government, seeking compensation for taking private property.
The CBO estimated that the government’s liability in that case, based on typical settlement payments, would be roughly $1 billion. Bank lobbyists say they are working to adjust the amendment to ensure that taxpayers will not foot the bill. “That would be a bit like putting lipstick on a pig,” Raffaelli said. “The fact is that this is a giveaway to the banks.” Raffaelli has met with Sessions about revisiting the amendment. “Jeff Sessions has been very classy about dealing with us on this issue,” he said.
The Commerce Department also came down against the amendment. “Limiting patent holders’ rights and remedies in this instance could reduce innovation in this technology area,” Nathaniel Wienecke, assistant secretary for legislative and intergovernmental affairs, wrote to Sen. Arlen Specter (R-Pa.). “As a general matter, the administration does not support exceptions to patent protection based on a particular technology.”
DataTreasury is quick to point out that commercial banks were the 12th-largest donor to members of Congress last year, according to the Center for Responsive Politics. And the Roundtable spent almost $6.9 million on lobbying last year. The company says the banks’ campaign contributions to Sessions have influenced him, a charge his staff has denied. But name partners at Nix, Patterson & Roach have given more than $1 million to mostly Democratic candidates. DataTreasury’s lobbyists are also active players on Capitol Hill.
Raffaelli’s firm, Capitol Counsel, made about $4.6 million in lobbying fees in 2007, according to congressional filings. Barnes’ firm, The Ben Barnes Group, made more than $2.6 million in lobbying fees last year, including $120,000 from Nix Patterson. Bank lobbyists are confident the amendment will survive on the Senate floor, reasoning that it would be highly unusual for the committee to drop an amendment that it already has adopted. But DataTreasury isn’t so sure.
“It’s a last-ditch effort by a group of banks whose backs are against the wall,” Wetzel said.
Monday, March 31, 2008
Why The Fuss Over Remote Capture?
By Mark Brousseau
Many people believe that the future of electronic payment processing includes a growing trend toward including accounts receivable, check and deposit capture at the point of presentment. So what are the benefits of this strategy? And what about its challenges?
“The strategy of moving image capture to the point of presentment provides numerous advantages,” Wally Vogel (wally_vogel@creditron.com), president of Creditron, Inc., told me. “Obviously, there is the reduction of payment document handling and forwarding, and the associated lag time. This improves cash control and offers faster funds availability.”
“Beyond that, image capture at the point of presentment allows for greater control and audit capabilities,” Vogel added. “As soon as the document is scanned, it is captured and logged, and can be tracked through various processes for depositing, accounts receivable updates, and handling change of address requests and customer service inquiries, among other functions.”
With the proper systems in place, Vogel added, document images can be viewed from any authorized inquiry station on the network for customer purposes, within minutes of receiving the document. This means that data completion from image can be completed in a remote office or in a centralized location, providing greater flexibility while maintaining strict control and a complete audit trail for each transaction, wherever it is processed.
“One of the significant challenges of image capture at the point of presentment is the need to standardize rules, processes and practices across remote offices. Otherwise, users may not get the full advantage of remote capture,” Vogel said. “This may require a thorough business analysis and a willingness to unify business processes.”
What do you think? E-mail me at m_brousseau@msn.com.
Many people believe that the future of electronic payment processing includes a growing trend toward including accounts receivable, check and deposit capture at the point of presentment. So what are the benefits of this strategy? And what about its challenges?
“The strategy of moving image capture to the point of presentment provides numerous advantages,” Wally Vogel (wally_vogel@creditron.com), president of Creditron, Inc., told me. “Obviously, there is the reduction of payment document handling and forwarding, and the associated lag time. This improves cash control and offers faster funds availability.”
“Beyond that, image capture at the point of presentment allows for greater control and audit capabilities,” Vogel added. “As soon as the document is scanned, it is captured and logged, and can be tracked through various processes for depositing, accounts receivable updates, and handling change of address requests and customer service inquiries, among other functions.”
With the proper systems in place, Vogel added, document images can be viewed from any authorized inquiry station on the network for customer purposes, within minutes of receiving the document. This means that data completion from image can be completed in a remote office or in a centralized location, providing greater flexibility while maintaining strict control and a complete audit trail for each transaction, wherever it is processed.
“One of the significant challenges of image capture at the point of presentment is the need to standardize rules, processes and practices across remote offices. Otherwise, users may not get the full advantage of remote capture,” Vogel said. “This may require a thorough business analysis and a willingness to unify business processes.”
What do you think? E-mail me at m_brousseau@msn.com.
Saturday, March 29, 2008
Barron's High On Fiserv
Posted by Mark Brousseau
An interesting article on Fiserv in Barron's:
Fiserv Is Largely Immune To Banking's Plagues
By JACK WILLOUGHBY
THERE ARE SOME BANK-RELATED companies whose earnings are likely to rise this year.
One of them is Fiserv, a Brookfield, Wis.-based supplier of systems and services that provide banks with the wherewithal to post checks, open new checking and savings accounts, and keep track of loans. Because banks are its main clients, Fiserv (ticker: FISV) has seen its shares dragged down by about 20% since the summer of 2007, to 48.17 last week. But as a founder and former CEO George Dalton says, "No matter how troubled the bank may be, its customers still have to write checks, make payments and pay mortgages."
Under 48-year-old CEO Jeff Yabuki, the company -- which has absorbed more than 100 enterprises over the years -- has sold off a mortgage-credit-reporting business, most of its health-management businesses and a majority of its investment-services group to pay down debt and refocus on its financial-services core.
It's also taken steps to solidify its already-substantial hold on that marketplace: Last year, Yabuki, the former chief operating officer for H&R Block, purchased electronic bill-payment leader CheckFree for $4.4 billion. The acquisition not only gets Fiserv into a fast-growing market, but allows it to sell its own wares to the big banks and corporations that CheckFree serves.
The company, says Yabuki, is "becoming a pure play in the provision of technology-processing to financial institutions." Fiserv last year got 75% of its $3.9 billion in revenue from these core services.
That also lets Fiserv participate in any forthcoming banking recovery without the same risks posed by a bank's credit portfolio.
FISERV'S SAGGING STOCK PRICE offers "an appealing entry point to an industry-leading financial-services processor poised to boost organic growth and margins," according to a report from John Kraft, an analyst at D.A. Davidson who has a Buy rating on the stock. He has a 65 price target on the shares, more than 30% above their recent value.
Fiserv stock now trades at about 14 times expected 2008 earnings of $3.42 a share, about in line with competitors such as Fidelity National Information Services, Metavante Holdings and Jack Henry & Associates. But that multiple doesn't reflect expectations that Fiserv's earnings will rise by almost 19% in 2009 due in part to economies achieved in the CheckFree purchase. The market is valuing the shares at about 12 times '09 earnings of $4.06 apiece -- below Metavante's 13.4 and Jack Henry's 16.6 but very near Fidelity's 11.9.
That's a pretty cheap multiple for a company that holds a commanding 34% share of the core processing business -- taking deposits and making loans -- that banks and credit unions do. Fiserv's customers, who renew its services at a healthy 90%-plus rate, usually sign three-to five-year contracts and pay a fee based either on the assets under management or the volume of transactions.
Although the number of banks almost halved from the early 1990s to about 8,700 by 2006, banking assets doubled to $12 trillion in that time. That provides plenty of opportunities for Fiserv. The drastic consolidation in the industry -- with all those legacy network systems to sort through -- also increases the need for technology solutions like those Fiserv provides.
Small banks or credit unions with limited technology groups outsource almost all of their transaction-processing chores to Fiserv, while others use a narrower selection of its systems.
The very biggest banks usually have their own systems -- however, Fiserv has begun to make inroads with them as well, and estimates that 88 of the largest 100 banks already use more than one Fiserv product. The CheckFree acquisition should help Fiserv improve its penetration still further.
The deal also offers both organizations a chance to diversify. Bank of America, for instance, previously accounted for nearly one-fifth of CheckFree's revenue, a portion that would be about 5% of the combined company's sales. And Fiserv can market its own suite of offerings to these bigger customers as well as CheckFree's electronic bill-payment and Internet services to its own customers.
CHECKFREE SHOULD CONTRIBUTE NOT only to Fiserv's revenue growth this year and next but also to margins, as Yabuki squeezes out costs. Kraft of Davidson estimates that operating margins should increase to 20% in '09, from 18%.
The Bottom Line:
Fiserv shares look cheap. Baring a long recession or major acquisition problems, they could rise by 30% or more in the next year.
Yabuki says the CheckFree merger is proceeding smoothly -- reflecting, in part, the fact that Fiserv, the product of the combination of a subsidiary of Midland Bank of Milwaukee and an affiliate of Freedom Savings and Loan many years ago, has done scores of these deals.
Yes, Fiserv is vulnerable if a sustained recession forces banks to curtail tech spending drastically, or if some of the expected synergies with CheckFree don't materialize.
But Yabuki argues that analysts and investors are unfairly painting Fiserv "with the same brush that's used on the banking system. Their basic idea," the CEO says, "is that the banks, our clients, would stop spending on technology in a slowdown. But they forget that the kind of processes we offer are really nondiscretionary."
Fiserv, which has bought back more than 36 million of its shares over the last three years, does have Wall Street fans. "This is a stock that could easily benefit from both earnings and multiple expansion, even in a slow economy," says Clark Shields, business-services analyst for T. Rowe Price, a buyer of the stock. He thinks the shares could rise more than 15, to north of 65, in the next 12 months. That kind of near-term gain isn't in the cards for most banks.
An interesting article on Fiserv in Barron's:
Fiserv Is Largely Immune To Banking's Plagues
By JACK WILLOUGHBY
THERE ARE SOME BANK-RELATED companies whose earnings are likely to rise this year.
One of them is Fiserv, a Brookfield, Wis.-based supplier of systems and services that provide banks with the wherewithal to post checks, open new checking and savings accounts, and keep track of loans. Because banks are its main clients, Fiserv (ticker: FISV) has seen its shares dragged down by about 20% since the summer of 2007, to 48.17 last week. But as a founder and former CEO George Dalton says, "No matter how troubled the bank may be, its customers still have to write checks, make payments and pay mortgages."
Under 48-year-old CEO Jeff Yabuki, the company -- which has absorbed more than 100 enterprises over the years -- has sold off a mortgage-credit-reporting business, most of its health-management businesses and a majority of its investment-services group to pay down debt and refocus on its financial-services core.
It's also taken steps to solidify its already-substantial hold on that marketplace: Last year, Yabuki, the former chief operating officer for H&R Block, purchased electronic bill-payment leader CheckFree for $4.4 billion. The acquisition not only gets Fiserv into a fast-growing market, but allows it to sell its own wares to the big banks and corporations that CheckFree serves.
The company, says Yabuki, is "becoming a pure play in the provision of technology-processing to financial institutions." Fiserv last year got 75% of its $3.9 billion in revenue from these core services.
That also lets Fiserv participate in any forthcoming banking recovery without the same risks posed by a bank's credit portfolio.
FISERV'S SAGGING STOCK PRICE offers "an appealing entry point to an industry-leading financial-services processor poised to boost organic growth and margins," according to a report from John Kraft, an analyst at D.A. Davidson who has a Buy rating on the stock. He has a 65 price target on the shares, more than 30% above their recent value.
Fiserv stock now trades at about 14 times expected 2008 earnings of $3.42 a share, about in line with competitors such as Fidelity National Information Services, Metavante Holdings and Jack Henry & Associates. But that multiple doesn't reflect expectations that Fiserv's earnings will rise by almost 19% in 2009 due in part to economies achieved in the CheckFree purchase. The market is valuing the shares at about 12 times '09 earnings of $4.06 apiece -- below Metavante's 13.4 and Jack Henry's 16.6 but very near Fidelity's 11.9.
That's a pretty cheap multiple for a company that holds a commanding 34% share of the core processing business -- taking deposits and making loans -- that banks and credit unions do. Fiserv's customers, who renew its services at a healthy 90%-plus rate, usually sign three-to five-year contracts and pay a fee based either on the assets under management or the volume of transactions.
Although the number of banks almost halved from the early 1990s to about 8,700 by 2006, banking assets doubled to $12 trillion in that time. That provides plenty of opportunities for Fiserv. The drastic consolidation in the industry -- with all those legacy network systems to sort through -- also increases the need for technology solutions like those Fiserv provides.
Small banks or credit unions with limited technology groups outsource almost all of their transaction-processing chores to Fiserv, while others use a narrower selection of its systems.
The very biggest banks usually have their own systems -- however, Fiserv has begun to make inroads with them as well, and estimates that 88 of the largest 100 banks already use more than one Fiserv product. The CheckFree acquisition should help Fiserv improve its penetration still further.
The deal also offers both organizations a chance to diversify. Bank of America, for instance, previously accounted for nearly one-fifth of CheckFree's revenue, a portion that would be about 5% of the combined company's sales. And Fiserv can market its own suite of offerings to these bigger customers as well as CheckFree's electronic bill-payment and Internet services to its own customers.
CHECKFREE SHOULD CONTRIBUTE NOT only to Fiserv's revenue growth this year and next but also to margins, as Yabuki squeezes out costs. Kraft of Davidson estimates that operating margins should increase to 20% in '09, from 18%.
The Bottom Line:
Fiserv shares look cheap. Baring a long recession or major acquisition problems, they could rise by 30% or more in the next year.
Yabuki says the CheckFree merger is proceeding smoothly -- reflecting, in part, the fact that Fiserv, the product of the combination of a subsidiary of Midland Bank of Milwaukee and an affiliate of Freedom Savings and Loan many years ago, has done scores of these deals.
Yes, Fiserv is vulnerable if a sustained recession forces banks to curtail tech spending drastically, or if some of the expected synergies with CheckFree don't materialize.
But Yabuki argues that analysts and investors are unfairly painting Fiserv "with the same brush that's used on the banking system. Their basic idea," the CEO says, "is that the banks, our clients, would stop spending on technology in a slowdown. But they forget that the kind of processes we offer are really nondiscretionary."
Fiserv, which has bought back more than 36 million of its shares over the last three years, does have Wall Street fans. "This is a stock that could easily benefit from both earnings and multiple expansion, even in a slow economy," says Clark Shields, business-services analyst for T. Rowe Price, a buyer of the stock. He thinks the shares could rise more than 15, to north of 65, in the next 12 months. That kind of near-term gain isn't in the cards for most banks.
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