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American Express (AXP), Visa (V) and Mastercard (MA) are each currently being sued for patent infringement by SmartMetric (OTCQB:SMME), a very small biometric card development company that owns patent number 6,792,464. The '464 patent issued in September 2004 and is titled "System for Automatic Connection to a Network."

There are actually three current lawsuits by SmartMetric against the large credit card companies. The first lawsuit was filed in March 2010 against Mastercard and Visa and specifically accused their contactless card systems (Mastercard's PayPass and Visa's payWave) of infringing the '464 patent. The second lawsuit was filed in December 2010 against AmEx accusing its contactless card system (ExpressPay) of infringing. Then, in August 2011, SmartMetric filed a third lawsuit, this one against Mastercard and Visa regarding their credit card systems that involve inserting cards into card readers. All three cases were filed by SmartMetric in the Federal District Court in Los Angeles and are before the same judge.

In May 2011, the District Court judge issued an order interpreting various terms in the patent over which the parties disagreed as to their meaning. In light of that decision, which construed the patent to require the insertion of a card into a data card reader, SmartMetric conceded that the contactless card systems did not infringe. However, SmartMetric disagreed with the District Court's interpretation of the patent and filed an appeal to the Court of Appeals.

On March 5, the Court of Appeals heard oral argument in the appeal. You can download and listen to the 30 minute session mp3 from the Court of Appeals website. Quite interestingly, SMME.OB roughly doubled that day on volume that was its highest for over a year. Since then, SmartMetric has fallen back to its pre-March 5 levels. Neither AXP, V or MA moved, which makes sense because of their size.

Today the Court of Appeals issued its decision affirming one part of the District Court's interpretation of the patent, but reversing another part. Since SmartMetric had to win on both issues to win its appeal, the Court of Appeals therefore affirmed the finding of non-infringement by the contactless card systems. Generally, one would have expected SMME.OB to drop as a result of having its loss affirmed, but it actually moved up, meaning that the partial win on appeal may be seen as boding well for its case against Mastercard and Visa regarding their systems involving credit card readers. That case is just at its infancy, so it's too early to predict how it may turn out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Will American Express, Visa And Mastercard Get Swiped By SmartMetric?