Intuit suit alleges Checkfree strayed

The suit alleges that Checkfree, 20 percent owned by Intuit, ran afoul of a contract that Intuit says gives it the exclusive right to negotiate with Web portals to provide online billing services. Checkfree, which provides the back-end technology for billing, entered negotiations with Yahoo last year, drawing a warning from Intuit, but Intuit later granted Checkfree an exemption, according to the complaint.

Since then, the suit alleges, Checkfree has begun negotiations with another portal not identified in the lawsuit.

The complaint for the first time confirms rumors that surfaced late last year that Yahoo plans to offer online billing services and that Checkfree and Yahoo were in talks. Such a deal carries high stakes for all parties involved, as it would take the largest Web portal into uncharted territories, potentially competing with large financial institutions as well as other Internet companies.

Intuit, a financial services portal, is seeking at least $1 million in damages and a court order to bar Checkfree from negotiating with "Web aggregators" and destination sites.

Billing services enable individuals to view and pay their bills over the Internet. For billers such as utilities and credit card companies, online bills are far cheaper than preparing them on paper and mailing them. Although the market is small now, 15 million households will regularly view some of their bills online by 2002, according to Jupiter Communications.

After Intuit announced the lawsuit last week, Checkfree's stock price slipped 19 percent over the following two days. On Thursday, the company issued a statement to investors calling the fluctuation "a market overreaction to, and misinterpretation of" Intuit's suit.

In its statement, CheckFree also said its contract with an undisclosed Web site, apparently Yahoo, is not affected by the Intuit suit. Regardless of the outcome of the Intuit suit, CheckFree will support bill presentment and payment through Internet sites, the company said.

Checkfree also said Intuit had agreed with the facts presented in its statement and authorized the statement's release.

Intuit's complaint states that it learned in late 1998 that Checkfree was negotiating with Yahoo without including Intuit. Intuit modified the original agreement to allow Checkfree a one-time exemption to remain in talks with Yahoo, according to the complaint.

The Atlanta Journal-Constitution reported recently that Checkfree had signed a bill presentment deal with Yahoo, but neither company would comment on that story. In its quarterly earnings report January 26, Checkfree said it had a major "Internet distribution contract" but did not name the customer.

Intuit's lawsuit states that at a San Francisco meeting last month between Intuit executives and Checkfree Chief Operating Officer Peter Sinisgalli, Checkfree stated that it had the right to market the service independently.

According to the complaint, Intuit said it learned on February 26 that Checkfree was negotiating with the unnamed portal site, which Intuit had also been talking to. The second set of discussions apparently triggered the suit.

Intuit declined to comment beyond last Wednesday's brief news release. Checkfree last week issued a statement that called the lawsuit, which was filed in Santa Clara County Superior Court in San Jose, "a difference of opinion" on how to interpret the contract. Yahoo declined to comment on the suit or its plans to offer online billing.

The suit also states that an exclusivity clause in the contract barred Intuit from distributing bills from MSFDC, a Microsoft joint venture and Checkfree competitor that has since changed its name to Transpoint. It also bars Checkfree from offering bill payment processing to merchants. Intuit says that exclusivity has been extended until October 2000, one year later than the original contract.

However, a Checkfree spokeswoman said, the company has been doing bill presentment on its Web site since March 1997, in addition to handling those services for financial institutions.

In September 1996, Intuit traded its money-losing online banking and bill-payment processing division for 12.6 million shares of Checkfree stock, which today represents a 19.9 percent stake. Intuit had acquired the unit, then known as National Payment Clearinghouse, in July 1994.