Ensygnia Sues Paddle Over Alleged Mobile Payment Patent Infringement

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In a move that isn’t very, well, startup-y, two London-based mobile payment startups look set to meet each other in the UK’s High Court. TechCrunch has learned that Wayra-accelerated Ensygnia is suing Paddle* (Highgate Labs) for alleged patent infringement — an infringement that Paddle disputes and believes will be dismissed. The patents relate to log-in and payments.

“Our system operates in a crucially different way to that described in their patent,” says Paddle founder and CEO Ed Lea in a statement provided to TechCrunch when approached for comment on this story. “Furthermore, there is a granted European patent and a Stanford research paper that both predate the Ensygnia patent’s filing date.”

From a user’s (not legal or technical) point-of-view, both startups offer a similar proposition. They store a user’s credit card and delivery details and enable payments to be made using a mobile phone and accompanying app by scanning a visual code using the phone’s camera. Typically they enable users to shop via a desktop version of an e-commerce site and pay using their mobile phone to log in and make a payment — a little bit like a portable version of Amazon’s 1-click, though different of course.

Specifically, Ensygnia’s two granted UK patents (GB 2481663 B & GB 2489332 B) are for its “Onescan” process and cover both log-in and payment applications, including scanning visual codes like QR. It has recently filed its patents in 59 countries worldwide.

However, the decision to start legal proceedings by one early-stage startup against another over a patent dispute like this is quite unusual, especially within the UK’s startup scene. The conventional thinking is that it’s overly aggressive to go down the patent route, and a waste of time and money for what are early-stage and, by definition, moderately-funded companies, after all.

That said, Ensygnia’s backing appears to dwarf Paddle’s. It has raised $3.3m to-date from various investors (including Telefonica’s startup accelerator Wayra), compared to Paddle’s very modest £320,000.

“Being backed by significant shareholders to whom we owe a duty of care to safeguard our IP, we approached Paddle more than a year ago when we discovered what they were doing, as our view was that it was a clear infringement,” Ensygnia CEO and co-founder Richard H. Harris tells TechCrunch, explaining the decision to file suit.

“We have tried many times to reach a reasonable settlement with Paddle, even offering to engage an independent auditor to determine reasonable licensing fees given the fact they we’re also a startup,” he adds.

My understanding is that the two companies first attempted to reach an out-of-court settlement as early as October last year. However, the terms of any potential deal put on the table by Ensygnia were commercially unviable for Paddle, consisting of a license fee per transaction that outweighed what Paddle could realistically pass on to customers or absorb within its existing pricing. The two companies then met again in January, but were unable to find a commercial way forward, hence the decision by Ensygnia to file suit.

What’s also interesting is that patent licensing — rather than using patents purely to defend against another company’s patents — appears to be part of Ensygnia’s commercial plans quite early. In a press release announcing its second UK patent, the company stated that it would “work to protect its patent portfolio and confirmed that one potential international competitor had already withdrawn from the UK marketplace.”

“We much prefer meeting rooms to courtrooms, but if pressed we will not hesitate to vigorously defend our intellectual property which we are actively commercialising via our own product and OEM license arrangements,” Ensygnia’s Harris tells TechCrunch.

He also says the company has “incurred considerable costs and have had to invest considerable time” due to the dispute. The same, of course, can be said of the lesser-funded Paddle.

“We would rather not be in this situation and if we’d been given a reasonable commercial way of avoiding it [we] would have taken it,” continues Paddle’s Lea in a statement.

*not to be confused with with Paddle.com, another London startup that provides developer tools.