PayOne Sues The Home Depot over PayPal Deployment

PayOne filed a patent infringement lawsuit on Tuesday against The Home Depot over its use of PayPal's point of sale system, which lets customers checkout using PayPal at retail store locations. In the complaint, PayOne alleges that "Home Depot has indirectly infringed and continues to indirectly infringe the '500 patent by "knowingly and actively inducing others to infringe by intentionally aiding, assisting and encouraging the infringement of its customers through the PayPal In-Store Checkout System.""

PayOne had filed a lawsuit against Zong in 2011, which eBay acquired three months later in August for $232 million. Zong provides payment services through mobile carrier billing. Last year, the court granted PaymentOne's request to substitute PayPal as a defendant in place of Zong, and a PayOne spokesperson said the lawsuit is ongoing.

eBay CEO John Donahoe liked Zong so much he made the company's founder, David Marcus, PayPal's President after Scott Thompson left the company. In an interview last fall, Marcus told the Wall Street Journal part of the reason for expanding PayPal to in-store payments was to provide retailers with more data - unlike brick-and-mortar retailers, "online retailers know everything about you when you shop on their site," he said.

By the close of 2012, PayPal had agreements with 23 retail chains (18,000 physical stores around the U.S.) for its point of sale system and said it was expanding its availability to Australia. U.S. retailers include Dollar General, Abercrombie & Fitch, Barnes & Noble, Jamba Juice, JC Penney, Office Depot and ToysRUs.

Asked about other retailers who were using PayPal point of sale, a PayOne spokesperson said, "At this time the complaint only names The Home Depot."

In a press release issued on Wednesday, PayOne alleges that The Home Depot retail store deployment and use of PayPal's in-store checkout infringe on multiple PayOne patents including the use of a mobile phone number and a PIN (personal identification number) to complete the checkout process and payment at point of sale.

PayOne alleges that The Home Depot induces direct infringers of its patents, including, "without limitation, Home Depot customers that use the PayPal In-Store Checkout System."

The complaint seeks unspecified damages and a court-ordered injunction against future infringement by The Home Depot. The asserted PayOne patents include United States Patent No. 7,848,500, entitled "Method And Apparatus To Validate A Subscriber Line"; and United States Patent No. 7,848,504, entitled "Method And Apparatus To Validate A Subscriber Line."

PayOne says it pioneered "no credit card required" payments and has a 10-year track record in payment services that connect digital merchants, social media publishers, content providers, mobile app developers and network operators.

See update in Thursday's newsletter.