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A tiny company run out of the chief executive’s home in Coral Gables, Fla., contends in a lawsuit filed in federal court that Home Depot, Wal-Mart, Sam’s Club and Starbucks are infringing on its patent for the system that dispenses prepaid debit cards. Default Proof Credit Card Systems, a publicly traded company of just five employees that had no revenue last year, claims in a lawsuit filed Jan. 15 in U.S. District Court in Miami that the corporate giants are all violating its patent by dispensing prepaid debit cards without paying it a licensing fee for selling the cards. The cards allow retailers to sell store-specific rechargeable cards without using a bank. A regular customer at Starbucks, for instance, can buy a $20 Starbucks debit card and both use and recharge that card at any Starbucks. They are often sold as gift cards by many of the nation’s top retailers. The company is demanding “adequate” compensation for the alleged infringement, a permanent injunction prohibiting further infringement and attorney fees and costs. In a written statement, Starbucks said it “believes the allegations are groundless, and we will defend ourselves vigorously.” Bentonville, Ark.-based Wal-Mart, which owns Sam’s Club, could not be reached for comment. Don Harrison, spokesman for Atlanta-based Home Depot, declined comment. The cards, which are rechargeable and are not connected to a bank account, have become a growing method of payment in retail stores. Last month, Seattle-based Starbucks credited the prepaid cards it sells for helping to boost its first-quarter profits by 17 percent. The idea of a prepaid debit card has been widely developed by others but Default Proof claims it is the only company with a patent. And although he received his patent well after the proliferation of the technology, Default Proof chief executive Vincent Cuervo claims he invented the concept. “The patent application goes back to 1997, which is before any companies were using prepaid debit cards,” Cuervo’s attorney, David K. Friedland, said. Cuervo said the technology wasn’t widely used until 2000. In its approved patent application, Default Proof wrote that the closest — but nevertheless different — invention is the telephone debit card dispenser, which was patented in 1997. The seeds for the current conflict were planted in June 2002, when the U.S. Patent and Trademark Office granted Default Proof Credit Card Systems patent 6,405,182, which covers the “system for dispensing prepaid debit cards through computerized point-of-sale terminals.” According to ATM & Debit News, the named defendants in the case have sold millions of prepaid debit cards with billions of dollars in value. In an interview Tuesday, Cuervo, 74, said that in 2002, prepaid credit cards accounted for 22 billion transactions. Default Proof is claiming in the lawsuit that it should be paid a licensing fee for each transaction — a number that is easily in the millions of dollars. The case has been assigned to U.S. District Judge Ursula Ungaro-Benages. Default Proof is being represented in the case by Raymond P. Niro and Sally Wiggins, partners at Niro, Scavone, Haller & Niro in Chicago, and by Friedland and Leslie J. Lott, partners at Lott & Friedland in Coral Gables. Both firms have significant intellectual property practices. The patent was the culmination of nearly five years’ work for Cuervo, who first applied for patent protection on his prepaid debit card invention in 1997. Cuervo said the prepaid debit card idea came to him after watching the proliferation of bank debit cards. He said it struck him that there should be a debit card not connected to a bank account. Cuervo was a criminal defense attorney in Havana before immigrating to the United States in 1960. He operated a life insurance agency in Miami for nearly three decades before selling the business to start the prepaid debit card business. “The concept is to have the money stored inside the card, where you have controls on the amount you spend and you can’t overdraw your account,” Cuervo said. “Everyone likes it.” In August, after Cuervo’s company was awarded the patent, Niro, Scavone, Haller & Niro sent letters to several major corporations demanding that a licensing fee be paid to Default Proof Credit Card Systems. When no companies stepped forward to pay, Cuervo filed suit. Cuervo claimed in an interview that debit cards did not become widely used at many of these companies until 2000. Lawyers for Default Proof declined to say why the three companies named in the lawsuit were singled out. Since no company has yet paid any licensing fees, the enterprise has been a money-losing proposition for Cuervo, who said he was forced to sell his home and move to a smaller house to keep it going. The Default Proof shares (DPRS) trade on the Over The Counter Bulletin Board. On Tuesday, shares sold for $1.65.

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