Will Mobile Payments Be the Next Patent Battleground?

Source: Thinkstock

Source: Thinkstock

Apple Pay — the contactless payments system that enables the iPhone 6, the iPhone 6 Plus, and the upcoming Apple Watch to be used as digital wallets – has already had an impact on the burgeoning mobile payments industry. Like any nascent industry, there are many competitors trying to gain a foothold in this lucrative market that is expected to grow to $142 billion in the U.S. by 2019, according to Forrester Research. Some of these early competitors will eventually become leaders in the market, while others will inevitably fall by the wayside.

Some Apple Pay competitors have already adjusted their strategies or made new alliances in what can be seen as the beginning of this “survival of the fittest’” stage of the mobile payments industry. Soon after Apple unveiled its payments system in September 2014, eBay president and CEO John Donahoe announced that PayPal would be separating from eBay due to changes in the “competitive landscape.” Presumably this was to give PayPal more flexibility in how it competes with Apple Pay and other rivals.

Similarly, after Apple Pay was activated in October 2014, retailers with membership in the Merchant Customer Exchange (MCX) — a merchant-owned mobile commerce network that is developing its own mobile payments system called CurrentC – closed ranks and made moves to hamper the availability of Apple’s payments system. MCX members Rite Aide and CVS even disabled the Near Field Communications (NFC) readers in their stores rather than allow a payments system that would compete with CurrentC to flourish.

Source: gosoftcard.com

Source: gosoftcard.com

More recently, insider sources cited by TechCrunch claimed that Google was interested in acquiring Softcard, the mobile payments company founded by AT&T, T-Mobile, and Verizon in 2010. Formerly known as Isis before the unfortunate emergence of an identically named militant terrorist group, Softcard allows NFC-enabled mobile devices to be used as a contactless payment method. Not surprisingly, this competitor to Apple Pay is only available on smartphones running Android or Windows Phone. While this rumored acquisition could be seen as just another one of the “competitive landscape” changes sparked by Apple’s recent entry into the mobile payments industry, it could also signal the opening of a new front in the mobile industry’s long-running patent war.

According to TechCrunch’s sources, Google may be most interested in Softcard’s approximately 120 patents (or pending patents). This would explain why Google, a company that already has a mobile payments solution called Google Wallet, would be after a mobile payments company that appears to be performing quite poorly. Earlier this month, Re/code noted that Softcard laid off 60 employees in a restructuring move, while TechCrunch’s sources claimed that the company’s negative cash flow went as high as $15 million per month.

“Softcard is taking steps to reduce costs and strengthen its business,” said Softcard in a statement obtained by Re/code. “This includes simplifying the company’s organizational structure and consolidating all operations into its Dallas and New York offices, which involves layoffs across the company.”

If Google is after Softcard just to obtain its patents, this rumored acquisition could signal the beginning of a new patent war between the makers of two of the world’s biggest mobile operating systems. Soon after Google unveiled its open source Android operating system in 2007, Apple co-founder Steve Jobs vowed to destroy what he saw as a blatant copy of his company’s product. “Our lawsuit is saying, ‘Google, you fucking ripped off the iPhone, wholesale ripped us off,’” Jobs told biographer Walter Isaacson, according to Reuters. “I’m willing to go to thermonuclear war on this.”

Source: Google.com

Source: Google.com

In 2011, Apple filed a patent-infringement lawsuit against Android-based smartphone maker Samsung. That same year, Apple and several other major tech companies also founded Rockstar Consortium, a patent licensing company that outbid Google to acquire Nortel Networks’ patent portfolio for $4.5 billion, reports Reuters. Google responded by acquiring its own patent arsenal via its acquisition of Motorola Mobility for $12.5 billion in 2012, reports MIT Technology Review.

The patents acquired by Apple and Google were used as ammunition in the so-called “smartphone patent wars” in which both companies and their allies sued each other over various, supposed infringing aspects of each company’s mobile operating system. Although Apple achieved several significant victories — including a $1 billion-plus damages award against Samsung in 2012 — the overall patent wars were widely viewed by most industry watchers as a drag on innovation and waste of money that could have been better spent on production and research efforts.

Fortunately, the costly smartphone patent wars seem to be winding down. In May 2014, Apple and Google agreed to drop “all the current lawsuits that exist directly between the two companies,” reports the Financial Times. In August 2014, Apple and Samsung reached a similar agreement that ended the two companies’ patent litigation battles in all countries except for the U.S., reports the Wall Street Journal. Finally, in November 2014, Rockstar agreed to settle a series of lawsuits that it filed against Google and various Android-based smartphone makers. All three settlements will likely benefit consumers since the cost of litigating these various lawsuits was presumably added to the overall price of mobile devices.

Since Google’s interest in purchasing Softcard has yet to be confirmed, it’s impossible to say what is motivating the acquisition. “We don’t have a comment, background, deep background, off the record steer, nod, wink or any other verbal or non-verbal response to these sorts of rumors,” said Google in an emailed statement to TechCrunch. TechCrunch’s sources claimed that the price of the rumored acquisition may be less than $100 million. In any case, it would be unfortunate for the overall mobile payment industry, as well as consumers, if it turned out that Google’s purchase of Softcard was less about expanding the availability of Google Wallet and more about rearming for another costly patent war.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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