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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): MAY 21, 2001
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CATUITY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-30045 38-3518829
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2711 E. JEFFERSON AVE.
DETROIT, MICHIGAN 48207 (313)-567-4348
(Address of principal (Registrant's telephone number,
executive offices) including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
The judge in the Federal Court of Australia legal proceedings commenced by
Welcome Real Time (WRT) against Catuity for patent infringement in Australia has
released his decision. The judge adopted a very broad interpretation of the laws
and facts of this case and found that Catuity and its subsidiaries did infringe
on this Australian WRT patent.
Catuity and our legal counsel believe there are multiple grounds for appeal. The
ruling, effectively, opines that the printed "receipt" for a transaction using a
smart card constitutes a printed "coupon". The ruling also concludes that the
"index file" commonly used in a smart card is a consumer "behaviour file". These
conclusions are a significant departure from traditional Australian and industry
meanings and interpretations. In addition the ruling ignores key descriptions of
the invention in the patent and presents a characterization of the invention
that is neither referred to nor supported by the written claims. The
conclusions, if upheld on appeal, would result in a fundamental change in the
meaning of commonly used words in Australia.
In this case, Catuity was the defendant and based on our interpretation of the
patent, we had little choice but to argue our case. We, and our legal counsel,
obviously did not expect this outcome and do not agree with the conclusions.
Catuity has maintained and continues to believe that this case and the decision
will have limited impact on Catuity's business plans. We believe the impact on
customers and potential customers should be minimal for the reason outlined in
this release. We are discussing the ruling with them to determine what, if any,
impact the ruling, and any technical changes we may make, could have on their
business plans.
Catuity can avoid infringement of the WRT patent, for example, by simply ceasing
to print anything or by printing only messages that are not a "receipt" or
"evidence a transaction", or by making small changes to file and other design
features. The ruling concludes that Catuity only infringes the patent the first
time a smart card is used at a merchant to participate in a program; there is no
on-going infringement. The ruling also implies that the first Transcard system,
launched in trials in 1995, did not infringe the patent and one (i.e. one of
many) small design change incorporated in late 1996, caused the infringement.
The current version of the Catuity product can be easily modified to work around
the areas we were held to infringe. For example we can display messages on
terminal screens or revert to the 1995 design in the one area that was held to
infringe. Alternatively, Catuity could change the way the first transaction at a
merchant occurs, and avoid infringement of the patent. Any one of these
modifications should resolve the infringement issue. The modifications can be
completed in a short time so the ruling will have little impact on the future
technical operation of the Catuity product in Australia.
The Catuity product has generally been accepted by the market as being the best
product and these modifications are not expected to diminish the many
substantial advantages the Catuity product offers.
Irrespective of these matters, the facts remain that this case relates only to
Australia and does not have any jurisdiction or precedent value in the American
market since there is no similar patent grant in the United States where the
patent laws are different. Catuity's business focus is the American market and
our major relationships are with the leading providers of the payment
infrastructure in the United States and our primary customers are in America.
The patent issue only involves smart cards and does not impact our product as it
relates to magnetic stripe cards, a key benefit of our product scope.
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Catuity has always and continues to maintain that the Courts are not the best
place to resolve issues of this nature. In the market, the best product with the
best benefits, price and service will prevail. At a time when the market has the
momentum to move forward, all participants in the smart card industry should be
active in establishing standards and procedures and creating a forum to discuss
and resolve these issues in an efficient, fair and timely manner.
Catuity believes the American market will set the international standards for
the integration of loyalty programs with payment and that the release of draft
standards later this year could provide an opportunity for the establishment of
procedures to resolve issues common to all smart card industry participants.
In Australia we would prefer a "mediation of the patent issues" by key industry
participants rather than continuing litigation. There are a number of Australian
patents issued and pending, some or all of which may impact Catuity, Welcome
Real Time and other market participants.
Catuity is currently working to resolve this matter as quickly as possible.
Catuity has a range of options and will commence an appeal of this Australian
court decision if no more appropriate solution is forthcoming. From the Court's
judgment (and the Court is still to issue orders which may impact our
understanding of the judgment), it appears that Catuity can make relatively
small changes to its product and move forward, without any further threat of
infringement of the WRT Australian or any other corresponding patent.
The Annual Meeting of Catuity is to be held at 9.30am, May 24, 2001 in the AAPT
Theatrette, 259 George Street, Sydney, NSW Australia, and we will have further
comment and answer questions at this meeting.
In conjunction with the provisions of the "Safe Harbor" section of the Private
Securities Litigation Reform Act of 1995, this release may contain
forward-looking statements pertaining to future anticipated projected plans,
performance and developments, as well as other statements relating to future
operations. All such forward-looking statements are necessarily only estimates
of future results and there can be no assurance that actual results will not
materially differ from expectations. Further information on potential factors
that could affect Catuity, Inc. is included in the Company's Form 10-K, which is
filed with the U.S. Securities & Exchange Commission."
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CATUITY INC.
(Registrant)
By /s/ John H. Lowry
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John H. Lowry
Senior Vice President,
Chief Financial Officer & Secretary
Date: May 21, 2001
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