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Biometrics developer Pay By Touch has acquired smaller rival BioPay LLC of Herndon, Va., for $82 million in stock and cash, it announced Tuesday, ending a protracted patent battle that resulted in dueling lawsuits earlier this year. The deal caps a busy year for San Francisco-based Pay By Touch — technically known as Solidus Networks Inc. — during which the company also made two other acquisitions and received $130 million in funding. Tuesday’s acquisition unites two companies that develop technology enabling identification through scanning a finger on a touchpad for security and authentication. According to Pay By Touch President and COO John Morris, the companies serve two different markets. Pay By Touch operates in grocery stores, as well as tier-one and tier-two retailers for loyalty and payment programs. BioPay, meanwhile, has concentrated on check-cashing and payroll-cashing services in smaller retail establishments. “This was a case where it’s easy to focus on the limited places we were rivals and our public IP rivalry and lawsuits, but the reality is that we were established in and driving very different parts of the marketplace,” Morris said. On Jan. 24, BioPay filed a lawsuit asking a court to declare that patents Pay By Touch held were invalid and that BioPay was not infringing upon them. The suit came four days before Pay By Touch announced acquiring a new patent portfolio, including one for biometric cash-checking — a main area of focus for BioPay. In mid-February, Pay By Touch also filed a suit, partly in response to BioPay’s, alleging patent infringement. The two companies had a court date set for 2007. Under the terms of the deal announced Tuesday, Pay By Touch expects to acquire BioPay’s entire portfolio. BioPay operates in 1,600 retailers across 42 states and has 2 million enrolled customers, Morris said. This will add to the more than 60 of the top 100 retailers with which Pay By Touch partners, such as Piggly Wiggly Co., Albertson’s Inc. and SuperValu Inc., in nearly 300 stores across the U.S. with signed contracts for 7,000 more. Morris also said Pay By Touch plans further expansion into the U.K. and Mexico, and into vertical markets such as health care, hospitality through hotels and airlines, and in gaming, with their play-by-touch technology. Morris believes retailers are moving toward biometric identification to move shopping lines faster and reduce interchange, or the amount retailers must pay when purchases are made through credit- or debit-card transactions. Biometrics also helps establish more accurate one-on-one marketing relationships with shoppers for payment loyalty programs, Morris said. “We’ve made some key acquisitions to help retailers analyze data, create offers and deliver those offers” for customers, Morris said. Last week, the company announced a purchase of assets for Bristol, Conn.-based Capture Resource Inc., which offers loyalty programs and business outsourcing services. In October, the group announced its acquisition of the assets of credit-card processor Tucson, Ariz.-based CardSystems Solutions Inc., which suffered a credit card security breach in May, beating out electronic payments company CyberSource Corp., of Mountain View, Calif. The CardSystems deal came just weeks after Pay By Touch received a $130 million infusion from a group of hedge funds and other investors. UBS Securities of Zurich served as placement agent; Och-Ziff Capital Management of New York, Farallon Capital Management LLC of San Francisco and Plainfield Asset Management of Greenwich, Conn., and others provided debt and promissory notes. In 2004, Pay By Touch raised $50 million in two rounds of funding from Palo Alto, Calif.-based Mobius Venture Capital Inc. and the Los Angeles-based Gordon P. Getty Family Trust. An earlier $10 million round from undisclosed investors, announced in October 2003, was rolled into the second round. Asked about future prospective buys, Morris said: “We’re an acquisitive company by nature, always looking for strategic acquisitions.” Barring any necessary regulatory approval, the companies expect the deal to close in a few weeks. Cooley Godward of San Francisco advised Pay By Touch in the transaction. Copyright �2005 TDD, LLC. All rights reserved.

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