The Credit Card Holography Story

By: Dr. Kenneth Haines

In July 1981, the International Banknote Company (IBN) obtained the rights to a package of fundamental hologram patents that were created by Leith and Upatnieks at the University of Michigan (1). This acquisition was a significant event in the development of commercial holography. The patent package included the exclusive rights to the application of holography to credit cards (2).

The CEO of IBN, Edward Weitzen, had become interested in applying holograms to his companies products in1980. IBN was the largest security printer in the country and produced 70 percent of the currency in the world for countries that did not have their own such production capabilities. At the time, an illegal credit card company in New Jersey was the fifth largest producer of credit card, which demonstrated the ease of forging these products due to their lack of secure identification.

During 1980 and 1981 Weitzen negotiated with Eidetic Images Incorporated (EII) to acquire that company, since it had developed technology for making excellent hologram masters as well as several methods of their mass production (3). To that end, in October of 1981, he began negotiations to acquire an employment agreement with EII’s founder and chief scientist, Kenneth Haines (4), and followed that up with the purchase of EII in January of 1982. Prior to that time he had already acquired a company, Old Dominion Foils, which had demonstrated an excellent ability to mass-produce EII’s photoresist masters.

Perhaps Weitzen’s most ingenious move was to develop a hot stamp foil that could be embossed and applied to credit cards. EII’s team, led by Tony Lacapria, worked with a couple of other companies, Dri Print and later Crown Foils, to accomplish this. This development was very important to IBN because the resulting embossed foil was thin enough (a couple of microns) to be unobtrusive on the cards, contrary to the thicker embossed products which were unacceptable for that application.

When Weitzen personally approached Visa and Mastercard, he was in a vastly superior position to any other company, since he had a production company in place, he had a superior product, he had exclusive patent rights, and his product was ideal in that it was a holographic hot stamp foil. He obtained initial 3-year exclusive production agreements with Master Card and Visa, periods which were later extended. Master Card extended its exclusive agreement to beyond 2011(5). EII began working on the Master Card project in October 1982, resulting in a final holographic master in February 1983. This was followed up with the Visa dove master in August of 1983. Amazingly, this original one-legged Visa dove hologram still appears on some newly issued credit cards today, although it is on the back of the card rather than the front.

Success

Very soon after releasing the Master Card, which contained the hologram in 1984, the effectiveness of the hologram became apparent. As Master Card reported to the American Banknote Comp[any, “our reported counterfeit losses for 1984 were 8% below 1984, and the trend for the first five months of 1986 indicates a 58% decrease over the same period for 1985 (6). By July 1986, Master Card invalidated all of their cards that did not have a hologram (7).

After an initial investment of 3.5 million dollar needed to develop hologram production processes, ABNH (EII) finally began to make a profit on them in 1983. By 1985, ABNH’s annual revenue from Visa and Master Card had risen to 6 million dollars (8), and by 1997 it was over 16 million dollars (9). It remained a significant fraction of their sales for many years.

A Failed Attempt by United States Bank Note (USBN)

In 1981 USBN had decided to attempt to use holography for their security products. For that purpose, they enlisted the services of Light Impresion, Inc. and its president Stephen McGrew, to supply hologram masters. In a letter from McGrew to USBN in May of 1981, a recognition of the validity of the Holosonics/Holotron patents (the original and dominant patents of Leith and Upatnieks) is demonstrated (10). McGrew states, “The hologram I was asked to make originally for you would have been a Benton hologram, a three-dimensional image that is of the type definitely covered by the Holotron patents.” So he recommended to USBN that they use his “Sunrise” technique which he falsely claimed would avoid infringement of the Holotron patents since his process used only fiat two-dimensional objects in their construction. Another quote from this letter is, “I would recommend that the “Sunrise” technique be used…..”, explaining that “any two-dimensional pattern can be used, including a photograph. The U.S. Banknote eagle, for example, could be done with the “Sunrise” technique as a two-dimensional photograph.” Such an arrangement could have been very lucrative for McGrew since he might have collected royalties from USBN on his Sunrise patent (11).

In a later letter of December 7, 1982, McGrew describes to USBN several devious ways to try to avoid the Holosonics/Holotron patents (12).

So USBN attempted to make a credit card product for Visa using these inferior 2-dimensional “sunrise” images. When this proposed product was shown to Visa, it was rejected by them. However, USBN’s actions caused the trustee in bankruptcy of Holotron, on behalf of ABNH, to seek a court-ordered preliminary injunction against USBN and Light Impressions, based upon their patent infringement of the Holotsonics/Holotron patents.

However, United States Banknote Corporation had already settled the lawsuit in early 1987 by acknowledging the validity of the patents and by withdrawing from the holography business (13). This left light Impressions on its own. The court ordered a preliminary injunction imposed against Light Impressions and Steve McGrew on January 31, 1989 (14,15). These orders were clarified and reaffirmed in January of 1990 “enjoining Defendants from infringing” the Holosonics/Holotron patents. (16).

References

1. License Agreement, between American Banknote Company and Holosonics/Holotron, July 7, 1981.

2. Field of Use Definitions In Certain Licenses of the Holosonics/Holotron Patents, January 22, 1981.

3. Letter from International Banknote Company to Eidetic Images, Inc., of intent to purchase, October 14, 1981.

4. Employment Agreement of International Banknote Company, Inc., to employ Kenneth Haines, December 1981.

5. Management’s Discussion and Analysis of Financial Conditions and Results of Operations, ABNH, July 20, 1988, Annual Report 04, p.7.

6. Letter from CFO David Bender of Master Card International Inc., to Edward Weitzen, President of International Banknote Company Inc., June 12, 1986.

7. Master Card announcement 0f July 1, 1986.

8. Hologram Sales – 1983, 1984, 1985 & YTD86, ABNH Confidential, December 30, 1986.

9. American Bank Note Holographics: Holograms and Illusions, Columbia Business School, p.13, August 9, 2003.

10. Letter from Steve McGrew of Light Impressions to Gary Hennig of U.S. Banknote Corporation, May 30, 1981.

11. Steve McGrew patent, “Diffractive Color and Graphic Effects for the Graphics Arts,” European Patent Specification, number 0 064 067, B1, Filing Date, 27/10/1981.

12. Letter from Steve McGrew of Light Impressions to Gil Colgate of U.S. Banknote Corporation, December 7, 1982.

13. Press Release, American Bank Note Holographics, March 5, 1990.

14. Order Granting Preliminary Injunction And Partial Summary Judgment, United States District Court, Northern District of California, No. C 87-20736 RPA, January 31, 1989.

15. Preliminary Injunction, United States District Court, Northern District of California, No. C 87-20736 RPA, February 10, 1989.

16. Order, United States District Court, Northern District of California, No. C 87-20736 RPA, January 25, 1990.

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