$250 Million Lawsuit Launched Against VeriFone

Gail Chiasson, North American Editor

Creative Mobile Technologies LLC (CMT), provider of in-taxi media, advertising and payment technology, has filed a civil action against VeriFone Systems Inc. (VeriFone) and VeriFone Media LLC (VMS), seeking damages in excess of $250 million.

The suit charges the defendants with ‘wrongful, malicious, tortious and contractual breaches’ of CMT’s agreement with its exclusive in-taxi advertising partner, VMS, formerly Clear Channel Taxi Media LLC (CCTM). Among other things, the lawsuit seeks damages arising out of VMS’s failure to pay CMT in violation of its revenue-sharing obligations under their agreement and for VMS’s blatant disregard of CMT’s first refusal rights.

It appears that the lawsuit came out of the blue at VeriFone yesterday and that the company is still finalizing its legal team. Chris Polos, vice-president sales at VeriFone Media Solutions, says that the company cannot comment on on-going litigation and has no statement at this time.

The lawsuit alleges that VeriFone, including Douglas Bergeron, its CEO, knew of the existence of the exclusive agreement between Creative Mobile Technologies and Clear Channel Taxi Media when VeriFone purchased CCTM in 2009, and that VeriFone specifically acknowledged its subsidiary’s obligations under the agreement and said that those obligations would be honored.

Despite these assurances, the lawsuit alleges that VeriFone, a competitor to CMT, employed a combination of bad faith dealing and other tactics that caused VeriFone Media to breach the agreement in numerous ways. Among other things, the lawsuit alleges that VMS withheld financial information from CMT, delayed payments to CMT for certain advertising, refused to pay CMT for other advertising, and violated the agreement’s broad rights of first refusal by installing similar technology and placing advertisements in taxis outside of New York City without first offering those opportunities to CMT as required under the agreement. Such locations include Miami, Las Vegas, Atlanta, San Francisco, South Africa, and London.

The action was filed in the New York State Supreme Court in Manhattan by CMT’s attorneys Skadden, Arps, Slate, Meagher & Flom LLP and co-counsel Rosenberg, Calica & Birney LLP.

John L. Gardiner, partner at Skadden and co-head of the firm’s International Litigation and Arbitration Group, is the lead attorney on the case. He said, “As alleged in the complaint, while our client fully and faithfully performed its obligations under the agreement with VMS, even after VMS was acquired by VeriFone, VeriFone intentionally and maliciously caused its subsidiary VMS to violate its contractual obligations to CMT, causing severe damage to CMT, damage that CMT believes to be in excess of a quarter of a billion dollars. CMT intends to pursue its legal rights under the agreement with VMS.”

Background to the situation according to the press statement:
When CMT was founded in 2005, the company pioneered new technologies to comply with New York City’s taxi service enhancement needs, developing the Passenger Information Monitor (PIM), which made the unprecedented in-taxi advertising platform possible. CMT’s sales partner was CCTM with whom the technology company had entered into an exclusive Sales Representation Agreement starting in March 2006. CMT bore the financial burden of development, acquisition, and installation of all the in-vehicle technology, including the PIM, as well as the entire payment processing and content delivery infrastructure, while CCTM agreed to run the advertising program on CMT’s in-taxi screens as the exclusive seller in New York City taxis.

Given the disparity in the level of initial investment, CCTM afforded CMT the right of first refusal for the launch of similar technology in markets outside of New York City. The two companies also agreed to revenue sharing should CCTM advertise on non-CMT in-taxi media screens in New York City. As CMT alleges, the revenue-sharing violations are substantial and ongoing.

About Creative Mobile Technologies

Founded in New York City in 2005 by taxi industry leaders, CMT services more than 20,000 taxicabs in 30 states and over 60 cities with a variety of taxi technologies and customer enhancements, including credit and debit card processing, media and advertising content, text messaging, interactive passenger maps, GPS, electronic trip sheets, driver payment solutions, and back-office fleet management systems. CMT has more than 6,600 units in New York City alone. CMT’s unique ‘for the industry, by the industry’ business model has empowered taxi fleets and individual taxi operators throughout the country with customized solutions rooted in the company’s hard-earned taxi industry pedigree. CMT’s ‘FREEdom Solution’ integrates all of the technology including the necessary in-vehicle equipment, banking, and media components to help bring the American taxi industry into a new era of efficiency, innovation, and profitability.

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