Rollback Rights

Despite Kroger-Excentus settlement, fuel-discount suits worry retailers assessing loyalty.

Angel Abcede, Senior Editor/Tobacco, CSP

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By now, any retailer with an aunt, cousin or neighbor who’s crazy into coupons has heard far too much about the thrill of fuel-pricerol lbacks—how the swipe of a loyaltycard at the pump will send numbers spinning back to reflect a healthy cents-per gallon savings.

It’s like winning the slots in Vegas. While not as pervasive as card readers in the pump, fuel rollbacks are becoming increasingly commonplace, primarily because of their visceral impact for consumers.

But what if the entire process and the technologies surrounding pump rollbacks were under patent protection, with the rights belonging to a single company?

As court and patent documents attest, some argue this is already the case, although others are also pleading the contrary. It’s why many retailers areon the fence about rollbacks, fearfulthat their decisions could land them in court—even as a high-profile lawsuit involving a major grocery chain recently ended in a settlement.

“We don’t want to be on the receiving end of lawsuits,” says Bob O’Connor, president of the three-store Jetz Convenience Centers, Hales Corners, Wis., near Milwaukee.“We don’t want to spend the time, effort or money on loyalty and marketing to have it taken away.”

Still, O’Connor firmly believes in the power of fuel rollbacks, as does Mark Johnson, CEO and chief marketing offi -cer of Loyalty 360, a Cincinnati-basedassociation for loyalty marketers. He says companies are seeing a measurable impact with fuel rollbacks.

“Retailers can [document how] people… are significantly more engaged and, ultimately, become more profit able customers,” Johnson says. “Rollbacks are interesting to consumers and can drive  behavior shifts.”

That potency makes finding a legalresolution that much more important to retailers. Speaking on condition of anonymity, a source close to the convenience-retail and loyalty scene says current lawsuits create an atmosphere “of uncertainty and dread.”

At the center of this swirl of legal activity is loyalty solution provider Excentus Corp. When the fuel rollback phenomenon began gaining momentum about four or five years ago, the Dallas-based firm began buying and filing patents related to the process of fuel discounting and, in particular,  rollbacks.

Between then and now, Excentus hasfiled several lawsuits, naming companies that they claim infringed on the patents and must work with Excentus to avert legal damages. The latest news on this front involves Cincinnati-based Kroger Cos.,for which a three-year-old case was finally resolved, moving to settlement despite a last-minute change of heart.

 At least four cases have caught public attention, with each at various stages ranging from settlement to ongoing:

Excentus vs. Safeway: Initially filedin 2009, the case involved alleged patentin fringement, with the parties settling in 2010.

Excentus vs. Giant Eagle: This 2011 case about failed business relationships as well as patent infringement was dismissed in July 2012 for venue reasons. However, this past February, Excentus refiled the suit in a federal court in Pittsburg

Kroger vs. Excentus: Filed in 2010,the case brings up patent-infringement issues that, despite a last-minute reinstatement of the case, were eventually settled this past summer.

Excentus vs. QuikTrip, et. al.: Filedin May 2012, the suit alleges patentin fringement incidents against the c-store chain and seven other parties. Litigation was still ongoing at press time.

With each case, Excentus is attempting to assert ownership of both tangible and intellectual property. In a release soon after filing its suit against Tulsa, Okla.-based QuikTrip, Excentus officials said, “They left us no choice but to file this suitas we are very serious about protecting our intellectual property.”

Others point out how lawsuits canplay out as effective business strategy. The anonymous source says for some companies opting to sue may be considered a go-to stance, and at the very least “an interesting policy.”

Unresolved Issues

The Kroger-Excentus suit, settled in the last week of July, drew much interest primarily because of how vast the Krogernetwork is. Besides about 800 c-stores operating through subsidiaries undernames such as Turkey Hill, Kwik Stop and Junior Food Stores of West Florida, thechain has more than 2,400 stores, 1,090 of which sell fuel .In 2010, Houston-based Shel l announced its partnership with Krogerto operate a fuel-price rollback program, potentially one of the first wide-scale implementations of a grocer-gas alliance, which other major oils followed.

With such a vast network at stake, the question becomes: Why did both companies settle?

No hints come from court documents. The actual filing describing the settlement merely talks of an “agreed-upon settlement,”with no resolution to allegation smade in the original suit or the countersuits that followed.

A hint of concrete development camein an Excentus statement last October, where the firm said the judge in the Krogercase issued a “claim construction order,”which Excentus said was “favorable to Excentus for key terms in dispute.”

The anonymous source quoted earlier says agreement on legal terms may notalways mean victory for either side, nor might they address critical aspects of the case.

One of the pivotal points in all the suits is the validity of the patents. In the case against QuikTrip, a loyalty provider and co-defendant called Midax Inc., Virginia Beach, Va., contests the very validity of the Excentus patents. In a statement released in July, Jim Nevill, president of Midax, called the Excentus  patents“invalid,” saying, “we know that significant prior art exists, and we firmly believe that evidence should invalidate each of the Excentus patents.”

Much of that “prior art” or existing technology or processes “goes back to the1980s,” Nevill said, “in some cases more than 10 years before the first Excentus patent was even filed. In our opinion, it’s unfathomable that the patents [were] ever issued in the first place.”

Excentus replied with a statement of its own: “The U.S. Patent Office, Excentusand those who have licensed our patents believe that the Excentus fuel loyalty patents are valid. Statements by others accused of infringing these patents to the contrary, such as those recently made by Midax, are common. It is unfortunate that an accused infringer has made statementsin the press as opposed to in a courtproceeding supported by the clear and convincing evidence required by law tochallenge a validly issued patent claim,”said Stacey Smotherman, senior vice president and general counsel for Excentus.

A source in the U.S. Patent Office, speaking to CSP under condition of anonymity, says once given a patent application to review, “we have a finite amount of time to do a search.” That search isan online and print canvass of existing articles, publications or other documentation of what is stated in the application. Ifthe reviewer finds something dated priorto the application filing, he or she will not grant an application, he says.As in the Safeway suit settled in 2010,the Kroger-Excentus lawsuit fails to address the validity of the patents, confirm any actual infringement or detail any business arrangements between the two going forward.

Key Arguments

With the core disputes in the Safeway and Kroger cases disappearing without public resolution, all that’s left are questions and speculation. The anonymous source initially named in this article says court scrutiny of the patents to the point of resolving all claims made has yet to occur.

A second source, also close to the convenience-retail and loyalty game, agrees ,saying under condition of anonymity that if seen through, the case may have vindicated  Excentus, which could haves ent a strong message, especially with ahigh-profile retailer such as Kroger.“So why didn’t they?” he says.

The patent-office source says he is unfamiliar with the process of contesting a patent, but he believes when parties settle, it could be because of issues such as mounting legal fees or a real or imagined weakness on one side or the other.

Still, that second loyalty source expands the argument to pose a win-win scenario .If a patent-holding company wanted toturn a key partner into a valued client,maybe the two could reach terms agreeable to both. The ensuing settlementwould stop the drain of legal fees, guaranteea new and valued partnership and, for the new customer, create an advantageover the competition.

A settlement would mean that retailer “would also have protection under the patent,” he says. “Then you’d have competitor snot getting [into rollbacks] because they just don’t want to get sued.”

“It’s idle speculation,” says the first source. But a settlement would leave a retailer’s “hands free,” meaning the competition would have to deal with the patent holder. “It would be a competitive advantage.”

The Only Game?

While the cases move through the courts, Nevill’s Midax said his company wants to assure its customers and the public that Midax’s services continue to be available and reliable.“Midax is still serving thousands of retail customers with customized loyalty programs in the convenience store, community store and grocery retail space,” saida company statement. “Whether those loyalty programs entail fuel rewards,e-couponing or any other type of rewards, Midax strives to provide each retailer with a loyalty solution to meet its individual needs, including a payment and loyalty capability on a single card, for example, and ‘closed-loop’ payment systems which can be deployed in individual chains or between cross-marketing retailers.”

But while companies battle over patent issues, some in the industry believe that retailers are paralyzed on the issue of loyalty altogether, with challenges coming from both legal wrangling and confusion over what paradigm to use.

Anton Bakker, president of Outsite Networks, Norfolk, Va., said many loyalty programs that tie fuel to groceries are “essentially another fee … and the last thing we need is another swipe fee.”

Programs ought to encourage customers to purchase items at the c-store, not the same “six-packs and cartons” from supermarkets. “If someone is already my customer and that incremental sale [goes] to another vertical, it’s a fee,” Bakker says. “If I lose a cigarette sale or lose a carton, I pay more.”

Such opinions fail to sway retailer ssuch as O’Connor, who eventually would like to include rollbacks among Jetz’s existing marketing and affinity programs. His company is developing 9,000-square foot locations that handle multiple profit centers, and he hopes to eventually franchise his business plan.

“We want to create a convenience brand that we can franchise,” O’Connor says. “Not only the [in-store] brand but with … a first-rate loyalty program.”

Breaking Down Rollbacks

In the case of Excentus, court documents recount the loyalty firm’s purchase of fuel payment patents from a company called Auto Gas in 2008. Prior to this, a business relationship involving gift cards and coalition-based loyalty programs (a loyalty model involving several non-competing retailers) developed between Excentus and grocery chain Giant Eagle, based in Pittsburgh. These activities appear to have shaped what would ultimately become a series of 10 patents that Excentus says defines its fuel-price rollback process and related technologies.

One of the patents, U.S. 6,321,984 B1, has language related to rollbacks: “When purchasing fuel, the customer inputs the received authorization code at the pump. … The pump controller then compares the customer-entered authorization code with the code received from the reward system. The pump controller then adjusts the purchase price by subtracting the discount amount and allows the fuel to be dispensed at the rate for this transaction only.”

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