Best Buy, JC Penney Lose Challenge to Gift-Card Patents

Retailers including Best Buy Co. (BBY) and JC Penney Co. (JCP) lost a bid in court to invalidate patents owned by a Texas licensing company over prepaid electronic gift cards.

A federal jury in Marshall, Texas, today upheld two patents owned by closely held Alexsam Inc. The other defendants in the case were Barnes & Noble Inc. (BKS), Gap Inc., McDonald’s Corp. (MCD), Toys R Us Inc. and Home Depot Inc. Later trials will be held to determine whether the patents were infringed by the companies.

The patents, issued in 1999 and 2001, cover systems to activate and recharge stored-value cards, such as gift and phone cards. The trial focused only on the validity of the patents, with the retailers arguing that they didn’t cover a new idea and that Alexsam isn’t entitled to enforce the patents because of misstatements during the application process.

Alexsam first sued the companies in 2010, and the retailers joined forces to invalidate the patents. Separate trials will be held on infringement because each company has made slightly different arguments to back up their claims that they don’t use Alexsam’s inventions.

The licensing company has had mixed success in its other litigation over the same patents. It’s challenging a jury verdict of non-infringement won by Pier 1 Imports Inc. (PIR) IDT Corp. (IDT) is appealing a $10.1 million judgment lodged against it. Arguments in the IDT appeal were heard in March in Washington.

The case is Alexsam Inc. v. Best Buy Stores LP, 13cv2, U.S. District Court for the Eastern District of Texas (Marshall).

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To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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