ERG fails to disarm OctopusEmail Print Normal font Large font...

ERG fails to disarm Octopus
Email Print Normal font Large font Ian Porter
July 12, 2006

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AdvertisementSMARTCARD and fare collection company ERG has given up the fight to protect its core software, having agreed to drop its action against Octopus Cards in Hong Kong for infringement of its technology.

Although investors actually boosted ERG's share price almost a whole cent to 8.6¢ yesterday, it looks like the deal will result in ERG having to compete against its own technology around the world.

During the day, ERG shares reached a 52-week low of 7.6¢ before rebounding.

In a note to the stock exchange yesterday, ERG directors said they now acknowledged that the Octopus clearing house system — the core of any fare collection and cash allocation system — did not infringe ERG's intellectual property rights.

With the concession, Octopus will be free to tender the clearing house system in any fare collection contract tender it enters around the world. It will also make it harder for ERG to claim its systems are any better than the competition's when it tenders for new contracts.

The problem arose in 1997 when ERG won a contract to jointly design and install an advanced fare collection system in Hong Kong. It was a particularly challenging deal in that it had to bring together numerous public transport operators, including bus companies, ferry companies and rail operators.

Since that time, Octopus has claimed to hold rights over the clearing house system, which is now at the core of perhaps the world's most successful contactless smartcard system.

The Octopus installation in Hong Kong is a model system, with the cards able to handle not only public transport, but parking meters, convenience stores, service stations and even building access. Users recharge the cash value of the cards from add-value machines at street level or over the counter in shops.

Octopus recently teamed up with the the giant French group Thales to jointly bid for fare collection contracts, and has won a deal to install a system in the Netherlands.

In contrast, ERG has found large contracts impossible to win in recent years. In Melbourne, one of its flagship sites, it lost the main contract and was awarded only the maintenance contract.

Despite a change in management several years ago, ERG is still unable to deliver major systems on time and on budget. In February it reported that delays on its Sydney and San Francisco contracts would result in an extra $18 million of costs in the December half.

Last June 30, directors announced that further delays in Sydney, Stockholm and Seattle would add a further $19 million to costs for the financial year and push the company's losses to as much as $38 million for the full year.