SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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) November 25, 1998
NESTOR, INC.
(Exact name of registrant as specified in charter)
Delaware 0-12-965 13-3163744
(State of other jurisdiction (Commission (IRS employer
of incorporation) file number) identification no.)
One Richmond Square, Providence, Rhode Island 02906
(Address of principal executive offices)
Registrant's telephone number, including area code: 401-331-9640
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
1) On November 25, 1998, the Registrant announced the filing
of a federal and state antitrust lawsuit against HNC Software,
Inc. (NASDAQ: HNCS) for patent infringement and violations of
Sections 1 and 2 of the Sherman Act and the Rhode Island
Antitrust Act for fair business practices. The complaint in the
lawsuit, a copy of which is annexed as an exhibit hereto, focuses
on HNC's anticompetitive, exclusionary and predatory conduct in
the neural credit card fraud detection system market.
EXHIBITS
The following exhibit is filed herewith:
Exhibit No. Description
103 Complaint
SIGNATURES
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.
Dated: December 3, 1998 NESTOR, INC.
(Registrant)
By:/s/ Nigel P. Hebborn
Chief Financial Officer
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
NESTOR, INC., :
:
Plaintiff :
:
V. : C.A. NO.
:
HNC SOFTWARE INC., :
:
Defendant :
COMPLAINT FOR DAMAGES, INJUNCTIVE RELIEF, AND
DECLARATORY JUDGMENT
Plaintiff Nestor, Inc. ("Nestor"), through its undersigned
attorneys, makes its Complaint against Defendant HNC Software
Inc. ("HNC") as follows:
NATURE OF THE ACTION
1. This action arises under Sections 1 and 2 of the
Sherman Act, and Sections 6-36-4 through 6-36-6 of the Rhode
Island Antitrust Act, as well as the common law of Rhode Island.
Nestor seeks to recover compensatory damages, trebled, and
punitive damages, and to obtain injunctive relief, arising from
the anticompetitive, exclusionary, predatory and illegal conduct
of HNC, the dominant licensor for neural network software systems
to detect fraud in credit card transactions in the United States.
Nestor alleges that HNC has illegally excluded competition,
permitting it to obtain and maintain monopoly power through such
predatory conduct as unreasonably exclusionary agreements and
patent fraud. Nestor further alleges that, as a result of HNC's
illegal conduct, competition has been virtually eliminated, and
Nestor has been injured.
2. In this action, Nestor also seeks money damages and
injunctive relief against HNC for infringement of Nestor's prior
patent relating to the same subject matter, U.S. Patent No.
4,760,604, issued July 26,1988.
3. In addition, Nestor also seeks a declaration that U.S.
Patent No. 5,819,226, of which HNC is the assignee, is invalid
and unenforceable because of inequitable conduct before the U.S.
Patent Office (including fraud) and anticipation, among other
reasons.
JURISDICTION AND VENUE
4. This Court has jurisdiction over this matter pursuant
to Sections 4 and 16 of the Clayton Act, 15 U.S.C. 15 and 26,
and 28 U.S.C. 1331, 1337, and 1338(a); this Court also has
supplemental jurisdiction over the state law claims, which arise
from a common nucleus of operative facts with the federal
antitrust and patent claims.
5. Venue is proper in this District under Section 12 of
the Clayton Act, 15 U.S.C. 22, and under 28 U.S.C. 1391 and
1400, because HNC transacts business and is found within this
District and has, upon information and belief, committed acts of
patent infringement in the course of such business in this
District.
PARTIES
6. Plaintiff Nestor is a Delaware corporation with its
principal place of business located at One Richmond Square,
Providence, Rhode Island.
7. Nestor was incorporated in 1983 by a group of
businessmen and scientists (including among others, Dr. Leon N.
Cooper, winner of the Nobel Prize for physics in 1972, and Dr.
Charles Elbaum, both in the Physics Department of Brown
University) to develop computer systems patterned on the human
learning processes and to develop such systems into neural
network technologies that can use real world data to make
predictions in a variety of applications, including among others,
the prediction of risk, including fraud in credit card
transactions.
8. Since approximately 1989, Nestor has been engaged,
inter alia, in the business of licensing a neural network
software product designed to detect fraud in credit card
transactions. This product originally was called Fraud Detection
System (`"FDS") and, since 1993, has been called PRISMr.
9. Defendant HNC is a Delaware corporation whose principal
place of business is located at 5930 Cornerstone Court West, San
Diego, California.
10. On information and belief, HNC was formed in 1986 to
develop neural network predictive models to convert existing data
and business experiences into meaningful recommendations and
actions through a range of products, including among others,
software to detect fraud in credit card transactions.
11. On information and belief, since approximately 1991,
HNC has been engaged, inter alia, in the business of licensing a
neural network software product designed to detect fraud in
credit card transactions. This product is known as FALCON.
THE RELEVANT MARKET
12. On information and belief, the relevant product market
in which Nestor and HNC compete is the market for licensing and
servicing computer software to detect fraudulent credit card
transactions by using neural predictive models that evaluate
individual account and transaction data to identify fraud.
Hereinafter, this product market is referred to as the market for
"Neural Credit Card Fraud Detection Systems."
13. This product is marketed throughout the United States
to credit card issuers and third party processors of credit card
transactions.
14. On information and belief, the United States is the
relevant geographic market.
15. On information and belief, in addition to Nestor and
HNC, various other entities have developed Neural Credit Card
Fraud Detection Systems and have attempted to enter the market.
Apart from proprietary systems, none of these potential entrants
is currently competing.
16. Significant barriers to entry exist in the relevant
market because of the relatively small number of prospective
customers; because banks and credit card issuers are cautious and
conservative in making decisions with respect to the acquisition
of fraud detection software and extremely sensitive to threats of
instability in a vendor or threats of litigation; because the
technology required to compete in the relevant product market is
sophisticated; and because each individual purchase involves
significant commitment of capital so that the sales cycle in the
Neural Credit Card Fraud Detection System market is typically
lengthy and subject to a number of significant delays.
17. On information and belief, by reason of the
anticompetitive, exclusionary and predatory practices described
below, HNC has acquired monopoly power in the relevant market --
in HNC's Form S-4 dated September 29, 1998, it admits that it is
experiencing "an increasing saturation of market demand for the
Falcon product line." Similarly, its marketing literature from
late 1997 boasts that "23 of the top 25 Visa and MasterCard
issuers in the US [are] using a version of a Falcon Solution."
18. By contrast, in the United States market, Nestor has
been able to enter into few licensing agreements, while the
balance of the Neural Credit Card Fraud Detection Systems are
proprietary in-house systems.
19. On information and belief, in the worldwide product
market, HNC is in danger of achieving monopoly power, in that it
is able to exclude competitors like Nestor. In the same market,
Nestor's share remains small, while proprietary systems are
employed by a small number of potential customers.
BACKGROUND FACTS
Development of Nestor's PRISMr
20. On April 20, 1982, United States Letters Patent No.
4,326,259 for "Self Organizing General Pattern Class Separator
and Identifier" ("the `259 Patent") was duly and legally issued
to Dr. Leon N. Cooper, Dr. Charles Elbaum and others who then
assigned their rights in the `259 Patent to Nestor's predecessor
entity, Nestor Associates, no later than the date of its
issuance. A true and accurate copy of the `259 Patent is
attached hereto as exhibit "A".
21. Nestor was incorporated in 1983 and all rights in the
`259 Patent were assigned to it upon incorporation. Since that
date, Nestor has been and still is the owner of the entire right,
title and interest in and to the `259 Patent.
22. The `259 Patent described an information transfer
system which was the precursor for the PRISMr Neural Credit Card
Fraud Detection System.
23. On July 26, 1988, United States Letters Patent No.
4,760,604 for "Parallel, Multi-Unit, Adaptive, Nonlinear Pattern
Class Separator and Identifier" ("the `604 Patent") was duly and
legally issued to Dr. Leon N. Cooper, Dr. Charles Elbaum, Dr.
Douglas L. Reilly and Dr. Christopher L. Scofield, who assigned
their rights in the `604 Patent to Nestor no later than the date
of its issuance. Since that date, Nestor has been and still is
the owner of the entire right, title and interest in and to the
`604 Patent. A true and accurate copy of the `604 Patent is
attached hereto as exhibit "B".
24. The system taught by the `604 Patent was subsequently
developed by Nestor into its PRISMr Neural Credit Card Fraud
Detection System.
25. In early 1989, Nestor made various presentations, such
as to the Second European Seminar on Neural Computing/Commercial
Prospects, at which it described credit card fraud detection as
an application that it intended to develop for commercial sale.
HNC representatives attended and participated in at least one,
and on information and belief, many such seminars and tutorials
at which Nestor made such presentations, so that they were aware
of the invention and its commercial application as a credit card
fraud detection system.
26. For instance, Dr. Leon N. Cooper, one of the inventors
of the `259 and `604 Patents, presented Tutorial Number 2 on
Adaptive Pattern Recognition at the International Joint
Conference on Neural Networks in Washington D.C. from June 18 -
22, 1989. Robert Hecht-Nielsen, principal of HNC (and the
individual for whom it is named), was the Program Chair of that
Conference. Dr. Cooper's tutorial disclosed details of Nestor's
neural network system and, specifically, its application to the
detection of credit card fraud.
27. In March 1989, Nestor made a proposal to a prospective
customer, SLIGOS, a third party processor of credit card
transactions, to develop and market a Neural Credit Card Fraud
Detection System for it.
28. By November 1989, Nestor's Annual Report identified its
Neural Credit Card Fraud Detection System as a primary
application that it was developing for commercial sale.
29. During February 1990, Nestor and other developers of
such systems gave presentations on Neural Credit Card Fraud
Detection Systems at seminars aimed at prospective customers for
such systems.
30. On September 30, 1991, Nestor filed the SLIGOS license
agreement, dated October 26, 1990, and its attached technical
specifications with the Securities and Exchange Commission as
part of a Form 10K disclosure; as a result, it became publicly
available on or about October 1, 1991. Pursuant to Section
11(viii) of the License Agreement, the conceptual design of the
"SLIGOS Fraud Detection System" was specifically excluded from
the covenant of confidentiality.
31. In or about July 1991, Nestor published its User's
Guide for its Fraud Detection System. This User's Guide was
published for the purpose of permitting Nestor's customers to
obtain detailed and precise information regarding the operation
of the Neural Credit Card Fraud Detection System, as well as to
use as a marketing device to educate prospective customers about
Nestor's Neural Credit Card Fraud Detection System.
32. On December 21, 1991, Nestor announced publicly the
licensing of its Neural Credit Card Fraud Detection System to
Mellon Bank.
33. With its system patented and established with
commercial customers, beginning in about 1991, Nestor directly
and through agents began to market its Neural Credit Card Fraud
Detection System in the United States to banks, credit card
issuers and third party processors. However, despite the fact
that Nestor's PRISMr System is superior to FALCON, as well as
less costly for the user to install and maintain, Nestor has been
unable to compete effectively.
34. On information and belief, Nestor's difficulty in
competing despite its product's superiority in quality and price
is the result of the anticompetitive, exclusionary, and predatory
practices of HNC as described below.
Development of HNC's FALCON
35. On information and belief, in 1986, HNC was founded to
create software tools and to contract technology services using
neural network technology.
36. In December, 1991, HNC caused to be published results
of an installation of its Neural Credit Card Fraud Detection
System in a commercial bank user. Upon information and belief,
in order to have published results of that installation in
December, 1991, the system must have been installed prior to
September 7, 1991.
37. On information and belief, in or about 1992, HNC
created its "consortium" of fraud detection users and has
required participation in its consortium as a condition of
obtaining a license to use its Neural Credit Card Fraud Detection
System. In the same period, HNC introduced its current Neural
Credit Card Fraud Detection System, called "FALCON."
38. Meanwhile, on September 8, 1992, various individuals,
acting for HNC as assignee, and, on information and belief, aware
of Nestor's previously developed, patented, and publicly marketed
system, filed Application No. 941,971 for a patent relating to an
automated system to detect fraudulent transactions using a
predictive model such as a neural network to evaluate customer
accounts and identify potentially fraudulent transactions based
on learned relationships among variables. HNC's Application
fraudulently failed to disclose material prior art of which, on
information and belief, HNC's principals and agents were and/or
should have been aware, including the publicly available
technical specifications attached to the SLIGOS license agreement
described in 30 above. Moreover, HNC failed to disclose its
own licensing and installation of its system more than one year
earlier.
39. Thereafter, HNC began to market its system to third
party processors, banks and credit issuers through the means and
strategies described below.
40. On October 6, 1998, Application No. 941,971 was allowed
and United States Letters Patent No. 5,819,226 for "Fraud
Detection Using Predictive Modeling" ("the `226 Patent") was
issued to Krishna M. Gopinathan, Louis S. Biafore, William M.
Ferguson and Michael A. Lazarus. The `226 patent indicates that
the inventors assigned their rights to HNC. A true and accurate
copy of the `226 Patent is attached hereto as exhibit "C".
HNC Exclusionary and Predatory Conduct
Exclusionary Agreements
41. On information and belief, on June 24, 1993, HNC
entered into a license agreement with First Data Resources Inc.
("FDR") and thereafter with Electronic Data Systems, Inc.
("EDS"), and Equifax, Inc., ("Equifax"), pursuant to which FDR,
EDS and Equifax act as service bureaus to provide an alternate
channel of distribution for end users to utilize FALCON; FDR,
EDS and Equifax pay HNC monthly usage fees. On information and
belief, these agreements effectively bar FDR, EDS and Equifax
from entering into any license agreement with any other seller of
Neural Credit Card Fraud Detection Systems -- such as Nestor --
and effectively prohibit them from permitting their clients to
have access to any other Neural Credit Card Fraud Detection
System. The terms of these exclusive agreements are at least
five (5) years and may be as long as twenty-five (25) years.
42. On information and belief, as a result of the
exclusivity provision of the agreements between HNC and FDR, EDS
and Equifax, and particularly the prohibition on permitting their
clients to use such other Neural Credit Card Fraud Detection
System as a client might otherwise choose based on quality and
price, HNC has prevented Nestor from competing effectively for
the business of banks and credit card issuers who are FDR, EDS
and Equifax clients. On information and belief, FDR, EDS and
Equifax together represent a significant part of the market for
third party processors of credit card transactions, so that a
significant percentage of the potential customers for Neural
Credit Card Fraud Detection Systems are effectively foreclosed
from doing business with anyone other than HNC for the life of
these agreements.
43. On information and belief, HNC has also prohibited FDR,
EDS and Equifax, as well as members of the HNC consortium, from
permitting the bank's own historic transactional information to
be employed in any other Neural Credit Card Fraud Detection
System. Because neural networks have predictive power that is
developed and improved with experience as the historic
transaction data increases in size, and because of the need to
use the bank's own transaction data to test the effectiveness of
a competitor's system, prohibiting Nestor or any other competitor
from obtaining access to such transaction data has effectively
prohibited any other system from being compared to FALCON for the
purpose of developing adequate customer confidence in such
competing product.
44. On information and belief, to further exclude
competitors from access to customers, HNC entered into exclusive
software installation and licensing agreements which continue
over three (3) to seven (7) years with its customers. As a
result of the overbreadth in time and the exclusive nature of
these relationships, as well as the prohibition on the underlying
transactional data being employed in connection with any other
Neural Credit Card Fraud Detection System, these exclusionary
contracts prevent any other competitor in the Neural Credit Card
Fraud Detection System market, including Nestor, from gaining
access to the customers and data essential to successfully
compete.
Below Cost Pricing
45. On information and belief, HNC prices its FALCON
product by charging the customer for installation services
through user specific proposals priced at either fixed-fee levels
or on a time and materials basis with travel expenses billed at
cost. After installation, HNC charges a user-based monthly
licensing fee.
46. On information and belief, in instances where HNC faces
competition from Nestor for particular business, it has reduced
its installation fee below cost, occasionally completely
eliminating all up-front pricing, for the purpose and with the
expectation that it can recoup the resulting losses through a
monthly licensing fee set at monopolistic levels after
competition from Nestor has been eliminated.
Attempt to Eliminate Nestor as a Competitor
47. In or about the Spring of 1997, HNC approached Nestor
about the possibility that HNC might acquire Nestor. After
Nestor responded by expressing interest in discussing the
possibility of a legitimate business venture, HNC, through its
President and Chief Executive Officer, Robert L. North, made
clear that the purpose of the acquisition was to eliminate Nestor
as a competitor. Upon learning of the true purpose of the
acquisition overture, Nestor terminated all such communications.
On information and belief, this proposal was made for the purpose
and with the illegal intent of excluding Nestor and of obtaining
and maintaining monopoly power.
Patent Fraud
48. On information and belief, HNC, through its agents,
procured the `226 Patent by fraud on the Patent Office, in that
they fraudulently failed to disclose Nestor's (as well as HNC's
own and others') prior development and marketing of Neural Credit
Card Fraud Detection Systems. Upon information and belief, HNC's
failure to cite material prior art known to it in connection with
its patent application was intended to mislead the Patent Office
and cause it to allow patent claims which, had the prior art and
prior public use been cited, would have been rejected. This
application was made for the purpose and with the illegal intent
of creating barriers to entry into the market, of excluding
Nestor and of obtaining and maintaining monopoly power.
49. Immediately following the issuance of the `226 Patent,
on October 8, 1998, HNC began a pattern of informing prospective
customers that a license for the use of its `226 Patent is
essential to any fraud detection system and that "HNC is
reviewing competitive fraud detection products and exploring all
legal options for enforcing its patent."
50. Further after the `226 Patent issued on October 6,
1998, HNC began to make public statements and threats to the
effect that it is currently reviewing the conduct of any company
using a neural network system to analyze transactions and card
holder data in a predictive model to determine whether such use
is infringing on HNC's `229 Patent.
51. On information and belief, such threats of infringement
litigation were made for the purpose and with the effect of
raising barriers to entry into the market, of excluding Nestor
and of obtaining and maintaining monopoly power.
Disparagement and Other Disruption
52. On information and belief, HNC has offered extra
compensation to its sales and marketing employees and agents as
inducement to insure that Nestor does not obtain any contractual
relationships that might allow it to begin to gain market share
in the Neural Credit Card Fraud Detection System market.
53. On information and belief, HNC has caused its employees
and agents to make false statements to Nestor's potential
customers for the purpose and with the effect of deterring such
potential customers from doing business with Nestor due to
unfounded concerns over Nestor's financial viability, the cost
and business disruption of switching to Nestor or to any other
Neural Credit Card Fraud Detection System and involvement in
potential claims of infringement.
HNC Market Power
54. As a result of the conduct set forth above, by the end
of 1996, FALCON had been purchased by eighteen (18) of the twenty
(20) largest credit card issuers in the United States. By 1998,
HNC had saturated the United States market and obtained monopoly
power.
55. While HNC has faced competition from NeuralWare, Inc.
NeuralTech, Inc., and others, only Nestor remains as a competitor
marketing a neural system to the same companies that are HNC's
customers. HNC's anticompetitive, exclusionary and predatory
conduct is intended to eliminate Nestor as a competitor as well.
COUNT I
Violation of Section 1 of the Sherman Act
(Unlawful Exclusive Dealing and Other Exclusionary Agreements)
56. Nestor incorporates paragraphs 1 through 55 above as if
fully set forth herein.
57. HNC's agreements with third party processors such as
FDR, EDS and Equifax and its agreements with banks and other
credit card issuers unreasonably restrain competition and thereby
violate Section 1 of the Sherman Act because some or all of the
agreements (i) effectively prevent HNC's customers from using or
providing data to other sellers of Neural Credit Card Fraud
Detection Systems; and (ii) impose such restraints for
unreasonably long periods of time.
58. These agreements further unreasonably restrain trade
and restrict the access of Nestor and HNC's other competitors to
the bank's own transactional data and the customers that are
essential to permit effective competition, thereby restraining
competition in the Neural Credit Card Fraud Detection System
market in the United States.
59. The purpose and effect of these agreements are to
restrain trade and competition in the Neural Credit Card Fraud
Detection System market in the United States. These agreements
violate Section 1 of the Sherman Act, 15 U.S.C. 1.
60. The anticompetitive effect of these agreements is
substantial and continuing and has caused Nestor considerable
damage because it has been denied the ability to compete. This
negative effect on competition will continue unless enjoined.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
exclusionary and unreasonably anticompetitive conduct violates
Section 1 of the Sherman Act, and that it be preliminarily and
permanently enjoined from engaging further in any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT II
Violation of Section 2 of the Sherman Act
(Monopolization of the Neural Credit Card Fraud Detection System
Market)
61. Nestor incorporates paragraphs 1 through 60 above as if
fully set forth herein.
62. HNC possesses monopoly power in the market for Neural
Credit Card Fraud Detection Systems in the United States
geographic market.
63. HNC has engaged in the following exclusionary and
predatory conduct for the purpose and with the effect of
obtaining and maintaining monopoly power:
(a) imposing exclusionary agreements to prevent access
by Nestor and others to the customers and other facilities
essential to effectively compete;
(b) the knowing assertion and threatened enforcement
of the `226 Patent, which HNC's agents procured by fraud on
the Patent Office for the purpose and with the effect of
preventing Nestor from effectively competing;
(c) upon recognition that Nestor created a threat as a
potentially effective competitor due to the superior quality
of its product and pricing, specific conduct focused upon
Nestor to drive it from the market;
(d) below cost pricing;
(e) disparagement of Nestor and its financial
viability;
(f) attempt to acquire Nestor's technology for the
purpose of eliminating Nestor as a competitor; and
(g) other illegal conduct for the purpose of raising
entry barriers so as to prevent competitors like Nestor from
obtaining sufficient market share to compete effectively and
deterring other potential competitors from entering the
market.
64. Through the anticompetitive, exclusionary and predatory
conduct described in this Complaint, HNC has willfully obtained
and maintained a monopoly and, unless restrained by this Court,
will continue willfully to maintain such monopoly power by
anticompetitive and unreasonably exclusionary conduct. HNC has
acted with intent illegally to maintain its monopoly power in the
Neural Credit Card Fraud Detection System market and its illegal
conduct has enabled it to do so all in violation of Section 2 of
the Sherman Act, 15 U.S.C. 2.
65. As the result of said use of monopoly power by HNC,
Nestor has been damaged and will continue to be damaged unless
such conduct is enjoined by this Court.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
predatory and exclusionary conduct violates Section 2 of the
Sherman Act, and that it be preliminarily and permanently
enjoined from engaging further in any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT III
Violation of Section 2 of the Sherman Act
(Conspiracy to Monopolize the Neural Credit Card Fraud Detection
System Market)
66. Nestor incorporates paragraphs 1 through 65 above as if
fully set forth herein.
67. Through the acts described above, HNC has contracted,
combined and conspired with others to monopolize the Neural
Credit Card Fraud Detection System in violation of Section 2 of
the Sherman Act, 15 U.S.C. 2 .
68. HNC's market share in the relevant market creates a
dangerous probability of successful monopolization and in fact
has resulted in monopolization.
69. As a result of HNC's conspiracy to monopolize with
others, competition in the relevant market has been injured, and
Nestor has suffered and will continue to suffer irreparable
injury to its business as set forth above.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
conduct in furtherance of the conspiracy to monopolize violates
Section 2 of the Sherman Act, and that it be preliminarily and
permanently enjoined from engaging further in any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT IV
Violation of Section 2 of the Sherman Act
(Attempt to Monopolize the Neural Credit Card Fraud Detection
System Market)
70. Nestor incorporates paragraphs 1 through 69 above as if
fully set forth herein.
71. In engaging in the above-described conduct, HNC
specifically intended to destroy competition in the relevant
markets described above and in the worldwide market.
72. In furtherance of this intent, HNC engaged and is
engaging in anticompetitive conduct, including an attempt to
restrain trade alone and in combination with others as set forth
above.
73. Through the above conduct, HNC engaged and is engaging
in an unlawful attempt to monopolize the Neural Credit Card Fraud
Detection System market in the United States and worldwide, all
in violation of Section 2 of the Sherman Act, 15 U.S.C. 2.
74. HNC's market power in the relevant United States market
and, on information and belief, the worldwide market, creates a
dangerous probability of successful monopolization.
75. As a result of HNC's attempt to monopolize, competition
in the relevant market in the United States and worldwide has
been injured and Nestor has suffered and will continue to suffer
injury to its business as set forth above.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
conduct in furtherance of its attempt to monopolize violates
Section 2 of the Sherman Act, and that it be preliminarily and
permanently enjoined from engaging further in any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT V
Violation of Section 6-36-4 of The Rhode Island Antitrust Act
76. Nestor incorporates paragraphs 1 through 75 above as if
fully set forth herein.
77. HNC's conduct affects commerce in the State of Rhode
Island.
78. All of the actions alleged in violation of Section 1 of
the Sherman Act stated in Count I above also violate Section 4 of
the Rhode Island Antitrust Act, R.I.G.L. 6-36-4.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
exclusionary and unreasonably anticompetitive conduct violates
Section 6-36-4 of the Rhode Island Antitrust Act, and that it be
preliminarily and permanently enjoined from engaging further in
any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT VI
Violation of Section 6-36-6 of The Rhode Island Antitrust Act
79. Nestor incorporates paragraphs 1 through 78 above as if
fully set forth herein.
80. The actions of HNC as alleged in Count I affects
commerce in the State of Rhode Island.
81. The exclusive dealing described in Count I above also
violates Section 6 of the Rhode Island Antitrust Act, R.I.G.L.
6-36-6.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
exclusionary and unreasonably anticompetitive conduct violates
Section 6-36-6 of the Rhode Island Antitrust Act, and that it be
preliminarily and permanently enjoined from engaging further in
any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT VII
Violation of Section 6-36-5 of the Rhode Island Antitrust Act
82. Nestor incorporates paragraphs 1 through 81 above as if
fully set forth herein.
83. The actions of HNC as alleged in Counts II through IV
affects commerce in the State of Rhode Island.
84. The monopolistic practices alleged in violation of
Section 2 of the Sherman Act also violate Section 5 of the Rhode
Island Antitrust Act, R.I.G.L. 6-36-5.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its damages, trebled;
b) For its attorneys fees and costs;
c) That this Court adjudge and decree that HNC Software Inc.'s
predatory and exclusionary conduct violates Section 6-36-5 of the
Rhode Island Antitrust Act, and that it be preliminarily and
permanently enjoined from engaging further in any such conduct;
d) Such other and further relief as this Court may deem just
and proper.
COUNT VIII
Tortious Interference with Prospective Contractual and Business
Relationships
85. Nestor incorporates paragraphs 1 through 84 above as if
fully set forth herein.
86. Nestor has had, during the period with which this
Complaint is concerned, and continues to have, valuable
expectations of prospective contractual and business
relationships with banks, retail credit card issuers, financial
service companies and third party processors.
87. HNC was, at all relevant times, aware of the existence
of these prospective relationships.
88. HNC nevertheless acted in a manner which interfered
with the formation, establishment and continuation of these
relationships.
89. The above acts by HNC constitutes an interference by it
with Nestor's prospective advantage in that HNC, improperly and
without justification, maliciously and intentionally interfered
with the establishment of beneficial business relationships and
prevented Nestor's prospective advantage in the Neural Credit
Card Fraud Detection System market, causing damage to Nestor's
business.
90. By reason of this violation of law, Nestor is entitled
to recover its actual damages, injunctive relief and the cost of
suit herein.
91. The above-described conduct of HNC was done willfully
and wantonly to serve its own interests, despite HNC's having
reason to know, and maliciously disregarding, that there was and
is a substantial risk that this conduct would significantly
injure Nestor. This conduct entitles Nestor to punitive damages.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) For its compensatory damages;
b) Punitive damages;
c) For its attorneys fees and costs;
d) That this Court adjudge and decree that HNC Software Inc.'s
conduct and tortious interference with Nestor's prospective
business relationships has and will continue to cause irreparable
harm and that it be preliminarily and permanently enjoined from
engaging further in any such conduct;
e) Such other and further relief as this Court may deem just
and proper.
COUNT IX
Count for Declaratory Judgment of Patent Invalidity and Non-
infringement
92. Nestor incorporates paragraphs 1 through 91 above as if
fully set forth herein.
93. HNC has threatened Nestor with an action for
infringement of the `226 Patent and has intentionally used its
allegations of infringement to interfere with Nestor's conduct of
its business. An actual justiciable case or controversy exists
in this District between Nestor and HNC by virtue of HNC's
conduct and threats of an infringement action.
94. Nestor has not infringed any valid claim of the `226
Patent. The `226 Patent is invalid under the Patent Laws of the
United States, including but not limited to 35 U.S.C. 102(b),
(f) and (g). The `226 Patent is also invalid and unenforceable
because of HNC's inequitable conduct in procuring the `226 Patent
and its fraud on the Patent Office. Accordingly, Nestor is
entitled to a judicial declaration of the invalidity and non-
infringement of the `226 Patent.
WHEREFORE, Plaintiff Nestor, Inc. prays for relief as
follows:
a) That judgment be entered against HNC, including judicial
determination and declaration that the `226 Patent is invalid, is
unenforceable, or is not infringed by Nestor;
b) An awarded of damages equal to HNC's illegally earned
profits from its fraudulently obtained `226 Patent;
c) An award of reasonable attorneys' fees pursuant to 35 U.S.C.
285; and
d) Such other and further relief as this Court may deem just
and proper.
COUNT X
Patent Infringement
95. Nestor incorporates paragraphs 1 through 94 above as if
fully set forth herein.
96. Nestor manufactures, markets and sells in this district
and elsewhere in the United States a Neural Credit Card Fraud
Detection System covered by the `604 Patent.
97. HNC has for some time past been and still is infringing
one or more claims of the `604 Patent in this District and
elsewhere in the United States by making and selling, and by
actively inducing the use by others in the United States, of a
Neural Credit Card Fraud Detection System coming within the scope
of the claims of the `604 Patent in violation of 35 U.S.C. 271
and will continue to do so unless enjoined by this Court.
98. Upon information and belief, HNC had actual knowledge
of the `604 Patent during the course of its manufacture and sale
and active inducement of others to use its Neural Credit Card
Fraud Detection System, and has willfully committed its
infringing activities.
99. As a result of the foregoing acts of HNC, Nestor has
been damaged and has suffered and will continue to suffer
immediate, irreparable injury unless HNC is enjoined by this
Court.
WHEREFORE, plaintiff Nestor, Inc. prays for relief as
follows:
a) An injunction preliminarily and permanently enjoining
defendant HNC Software Inc., its officers, agent, servants,
employees, attorneys and all other persons in concert therewith
from infringing Nestor's `604 Patent;
b) An award of damages pursuant to 35 U.S.C. 284 adequate to
compensate for the infringement, and including all lost profits
which Nestor has suffered directly or indirectly as a result of
the infringement, together with interest and costs as fixed by
the Court, and an increase of such damages to three times the
amount assessed in accordance with 35 U.S.C. 284;
c) An award of reasonable attorneys' fees pursuant to 35 U.S.C.
285; and
d) Such other and further relief as this Court may deem just
and proper.
NESTOR, INC.
November 25, 1998 By its Attorneys
_________________________
Patricia A. Sullivan (#2120)
Mark A. Pogue (#3441)
Jon M. Anderson (#3946)
EDWARDS & ANGELL, LLP
2800 BankBoston Plaza
Providence, RI 02903
(401) 274-9200
(401) 276-6611 (Telecopy)
Of Counsel:
Thomas D. Halket, Esq.
Halket & Pitegoff LLP
The Gateway Building, 11th Floor
One North Lexington Avenue
White Plaints, NY 10601
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
NESTOR, INC., :
:
Plaintiff :
:
V. : C.A. NO.
:
HNC SOFTWARE INC., :
:
Defendant :
DEMAND FOR TRIAL BY JURY
Plaintiff Nestor, Inc. hereby demands trial by jury for all
of the Counts set forth in the above-captioned Complaint that are
so triable as of right.
NESTOR, INC.
By its Attorneys
_________________________
Patricia A. Sullivan (#2120)
Mark A. Pogue (#3441)
Jon M. Anderson (#3946)
EDWARDS & ANGELL, LLP
2800 BankBoston Plaza
Providence, RI 02903
(401) 274-9200
(401) 276-6611 (Telecopy)
Of Counsel:
Thomas D. Halket, Esq.
Halket & Pitegoff LLP
The Gateway Building, 11th Floor
One North Lexington Avenue
White Plaints, NY 10601
CERTIFICATE OF SERVICE
I hereby certify that the Defendant in this matter was
served with a copy of this Demand for Trial By Jury together with
the Complaint herein on November 25, 1998, at its business
address of record below:
HNC Software Inc.
5930 Cornerstone Court West
San Diego, California
___________________________
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
NESTOR, INC., :
:
Plaintiff :
:
V. : C.A. NO.
:
HNC SOFTWARE INC., :
:
Defendant :
PROOF OF SERVICE UPON THE ATTORNEY GENERAL
Pursuant to Section 6-36-21 of the Rhode Island Antitrust
Act, plaintiff Nestor, Inc. hereby certifies that it has served a
copy of the within Complaint and Summons upon the Attorney
General of the State of Rhode Island on this 25th day of
November, 1998.
NESTOR, INC.
By its Attorneys
_________________________
Patricia A. Sullivan (#2120)
Mark A. Pogue (#3441)
Jon M. Anderson (#3946)
EDWARDS & ANGELL, LLP
2800 BankBoston Plaza
Providence, RI 02903
(401) 274-9200
(401) 276-6611 (Telecopy)
Of Counsel:
Thomas D. Halket, Esq.
Halket & Pitegoff LLP
The Gateway Building, 11th Floor
One North Lexington Avenue
White Plaints, NY 10601
CERTIFICATE OF SERVICE
I hereby certify that the Defendant in this matter was
served with a copy of this Proof of Service Upon the Attorney
General, together with the Complaint herein, on November 25,
1998, at its business address of record below:
HNC Software Inc.
5930 Cornerstone Court West
San Diego, California
___________________________
