Starbucks’ mobile app

Maxim Integrated Products Inc. is suing Starbucks, Expedia, Capital One and Bank of the West, alleging these companies infringed several patents with their mobile payment apps.

In the Starbucks suit, Maxim alleges the infringement occurs when the Starbucks Card Mobile, Starbucks for iPhone and Starbucks for Android applications communicate with systems operated by or on behalf of Starbucks. The suits come at a time when more companies are introducing their own mobile payments apps based on the success of forerunners such as Starbucks, which recently reported that its mobile payment program exceeded 26 million mobile transactions since its launch a year ago.

“Maxim may have reviewed its patent portfolio and the growing market for mobile payment apps and services and decided to seek compensation from the companies that are operating in the space,” said Jason Koslofsky, an attorney with ArentFox LLP, Washington.

“The complaint indicates that Maxim alerted Starbucks to its claims in August 2011, and discussions about a resolution probably broke down between then and now.”

Licensing fees
The suit against Starbucks names four patents which focus on the transfer of information between a secure module and another module, an apparatus for transferring secure information between a data carrying module and an electronic device and the method, apparatus, system and firmware for secure transactions.

The other suits make similar allegations.

The suits may be a way to pressure Starbucks and the other companies to pony up a licensing fee for Maxim technology. However, retailers are not likely to want to give up any of the profits they are seeing from the growing mobile space.

“Maxim is probably looking to work out some kind of deal with the companies it sued, and the lawsuits were filed to increase the pressure on the companies to come to a resolution,” Mr. Koslofsky said.

“Additional licensing fees would be another cost of doing business for mobile payment developers, one they probably don’t want to have to pay,” he said.

The companies may decide to pay the licensing fee if the courts appear favorable to Maxim’s case. Or, they could look for a way to work around the patents in question.

Given the significant amount of money to be made in mobile payments, the suits are not likely to dampen brands’ enthusiasm for mobile payments unless the licensing fees and/or any development costs are significant.

“Companies from incumbent payment providers to device makers to mobile operators are all investing in the hopes of commanding a share of the mobile payments market,” said Charles Golvin, a principal analyst at Forrester Research, Cambridge, MA.

“Any holder of intellectual property will seek to exploit that IPR across as many of these providers as possible, and if their claim proves defensible then these providers will have to pay the toll,” he said. “Provided that toll still provides plenty of opportunity to earn profits, providers will pay it.”

Who is at risk?
Starbucks’ mobile payment program includes the nearly 7,000 U.S. company-operated stores, more than 1,000 Target stores and nearly 1,000 Safeway stores. It is also being expanded internationally.

Since January 2011, there has been $110.5 million reloaded onto Starbucks Cards directly through the mobile app.

Maxim makes highly integrated analog and mixed-signal semiconductors that enable system designers to free board space for new differentiating features in smartphones, tablets and other devices.

The company is seeking an injunction against Starbucks and damages.

If Maxim were to prevail in the suit, this might mean other mobile payment apps would be the focus of future suits.

“Maxim could sue other mobile payment app companies under the theories identified in its complaint, but it may first seek a legal victory or settlement with these initial entities to test the waters,” Mr. Koslofsky said. “If Maxim is successful, they may then move on to other companies.”

The outcome of the suit depends on the strength of the patents and how the courts decide here. For now, the patents are written too broadly to clearly indicate what this might mean for others looking to do mobile payment apps.

“Many companies are exploring mobile payments and mobile wallets – with multiple forms of payment – some in a fashion similar to Starbucks,” said Denée Carrington, a senior analyst at Forrester. “Those companies will likely want to understand what design features within the Starbucks, Expedia and Cap One apps that Maxim feels infringes on their patents in order to weigh the considerations.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York