Q: It’s the 15-year anniversary of a patent infringement case you defended against AdvanceMe. This case paved the way for revenue-based financing products to be offered and for the industry to expand to what it is today. Tell us about the case, how you decided to file a suit and how the outcome changed the industry?
Goldin: AmeriMerchant (the original name before the rebranding to Capify) was a reseller for AdvanceMe in the early 2000s. We had decided to become our own funding source and were a large part of AdvanceMe’s business. Once we went on our own, AdvanceMe came to meet with me to offer me the ability to “license” their patent. Their patent was a method for splitting up a credit card processing settlement and paying a percentage to a third party. I knew from my credit card processing background this was not a new and novel idea that AdvanceMe told the patent office they created. The next day after our meeting, I came to my office and received packages from various patent law firms that I was sued in the Eastern District of Texas. I was never told in the meeting they had filed suit, but they wanted to make sure the lawsuit took place in the Eastern District of Texas, which at the time was next to impossible for a defendant to invalidate a financial services business method patent. I knew the only way to win this case was to round up the entire industry to raise the funds to be able to fight them and win the case. I ended up spending nearly a year of my life hunting down “prior art” to invalidate this patent. I struck gold when I was introduced to Tim Little, a payments industry “legend” who indicated he had done merchant cash advances for mail-order companies in the 1980s. We also came across several other merchant cash advance companies that existed before the patent was filed including Clever Ideas. Some trivia, while we ultimately were never able to find enough documentation to prove it, it turns out American Express was doing some form of a merchant cash advance back in the 1970s. The court ultimately ruled that the patent was invalid and AdvanceMe soon filed an appeal that they lost very quickly. The story of invalidating a business method patent was so unheard of at the time that the New York Times, Wall Street Journal, and many industry publications did a story on this case.
Q: You pulled together an impressive group of influential leaders in our industry to fight this patent. How did you build consensus and bring the group together to fund this effort? What challenges did you hit along the way?
Goldin: We had a meeting at my lawyer’s office in NYC and I explained to the group that if AmeriMerchant lost or settled with AdvanceMe, there would be a precedent, and it was only a matter of time until they came after everyone. Most of the companies in the meeting joined the fight and made a financial commitment to fund the case. This meeting also spawned the industry’s first merchant cash advance association that has evolved into what is the SBFA today.
Q: Just to better understand how important this case was to the overall industry if you lost where would the alternative finance industry be today?
Goldin: If this patent was not invalidated, then companies today would be paying several percentage points to AdvanceMe to be able to do the equivalent of merchant cash advance/revenue finance or being prevented from using what the court ultimately would rule what their patent covered. AdvanceMe sued many companies and took a broad stance that their patent also covered ACHs. This patent would affect everyone from small providers to the largest providers offering revenue advance products such as PayPal and Square.
Q: The industry is facing significant regulatory challenges and there are a lot of groups, coalitions, and opinions on how to approach policy. From your experience building this group that eventually turned into the Small Businesses Finance Association, what lessons or advice can you offer finance providers today?
Goldin: When you have a third party that is looking to affect an industry, it is always better to come together as a group both from a financial and knowledge perspective, rather than take it on by yourself. The SBFA can be a textbook case of how competitors coming together can benefit the good of the industry.