Hallmark Settles Patent Lawsuit

Hallmark Cards Inc. settled a patent suit by Tumbleweed Communications Corp. that accused the largest greeting card company of infringing patents for sending greeting cards over the Web.

Hallmark agreed to license Tumbleweed’s technology for Hallmark.com products. The patents include a system for sending an e-mail delivery notification to the recipient. Financial terms weren’t released.

Tumbleweed Chief Executive Jeff Smith said the added revenue from this and two other settlements will help the company narrow its projected loss next year.

Tumbleweed sued Hallmark and No. 2 greeting card company American Greetings Corp. on Dec.5. American Greetings this month settled the suit filed in federal court in San Francisco, and in the third quarter Tumbleweed settled a similar suit against rival software maker Critical Path Inc.

“Significant dollars are changing hands that will have a material impact on our ’02 earnings,” Smith said in an interview. He declined to specify how much it would add to revenue or narrow Tumbleweed’s expected loss next year.

The Redwood City, Calif.-based software maker is expected to report a loss of 44 cents a share in 2002, the average estimate of four analysts surveyed by Thomson Financial/First Call.

Tumbleweed will continue to gain most of its revenue from selling software to companies such as Nike Inc., Gap Inc., American Express Co. and MetLife Inc., along with the Food and Drug Administration, Smith said.

The software covers a way of sending e-mail securely. For instance, Tumbleweed’s financial customers use the patented software for e-mail confirmation of stock trades or financial statements.

“The good news for us is that the intellectual property that we have in our portfolio, starting with applications we made back in 1995, is more robust than we anticipated,” he said.

In addition to the two patents that were the subject of the suits involving Hallmark, American Greetings and Critical Path, Tumbleweed owns four other patents and has applications for more than a dozen more, he said.

“Initially, the patent strategy was for defensive purposes,” Smith said. “Now we see an opportunity to use those patents for offensive purposes and to generate incremental revenue.”

Tumbleweed shares fell 17 cents to $5 in Nasdaq trading Monday.

Closely held Hallmark, based in Kansas City, Mo., also makes Crayola crayons and sells greeting cards and other products through about 47,000 stores in the U.S.