Good news for retailers who offer gift cards to their customers for use in stores. For the second time in recent weeks, a jury found that a major retailer has not infringed patents related to prepaid gift cards. In the case of Alexsam Inc. v. The Gap Inc., et al, Case No. 2:13-cv-00004-MHS-CMC, Alexsam, a non-practicing entity (sometimes called by the less-complimentary moniker “patent troll”), sued The Gap for violating two patents that cover systems and methods for putting money onto store gift cards and activating the same at the point of sale. After six months of litigation in the Eastern District of Texas’ “rocket docket,” a popular federal court for patent litigation, Alexsam’s infringement claims were rejected by a jury. The Gap decision follows a similar non-infringement determination for Barnes & Noble who was also able to convince a jury that it also did not violate Alexsam’s patent rights.
In addition to the two retailers mentioned above, other companies have also been sued for allegedly violating the same patents including: J.C. Penney, Home Depot, Best Buy, and Toys “R” Us. Since the filing of these lawsuits in early January 2013, only The Gap and Barnes & Noble actions have gone to trial. Best Buy settled with Alexsam before trial and the remaining defendants await their day in court. J.C. Penney is scheduled to go to trial in October, while the trial dates for the remaining defendants have not yet been set.
Alexsam has not sued any additional companies for alleged violations of these two patents (Nos. 6,000,608 and 6,189,787) since the filing of these lawsuits. It may be that Alexsam is waiting to see how these seven test cases are resolved before moving forward with other lawsuits. While the first “wave” of defendants is not yet out of the woods, the jury decisions in the Barnes & Noble and The Gap cases are very promising for other potential targets. Nonetheless, retailers selling prepaid access should continue to monitor Alexsam’s activities and evaluate how these new developments may affect their own gift card programs.
Gift cards, or as they are often called in the regulatory sphere, “prepaid access,” are extraordinarily heavily regulated—federal and state consumer protection laws restrict the ability to expire or charge fees for such cards, for example, and the unclaimed property laws dictate that unredeemed cards may be escheatable to the government after a certain period of time. Most recently, new federal FinCEN regulations have focused on preventing the use of prepaid access for money-laundering purposes by requiring that sellers of reloadable cards may be subject to registration and reporting requirements, and the CFPB has announced its intention to regulate gift cards as well. The patent angle, however, is a relatively new twist in litigation in this sphere, adding a new layer of complexity to a field that was already labyrinthine from a regulatory perspective.