In Depth

Mitek And USAA Settle Mobile-Imaging Dispute

After years of chest-thumping and litigation over alleged mobile-imaging technology patent violations, Mitek Systems Inc. and USAA (United Services Automobile Association) have decided to take a more amicable route by settling their dispute, just days before their trial was to begin in Texas. Mitek also has settled a similar dispute with Top Image Systems Inc.

USAA, which provides financial services to military personnel and their families, in March 2012 filed suit against Mitek for alleged misappropriation of USAA’s proprietary information, breach of contract and fraud, and other claims.

“USAA invented remote deposit capture technology to meet the needs of our highly mobile military membership, enabling them to deposit checks with a scanner or smartphone wherever they may be stationed,” the financial institution said when announcing its lawsuit two years ago in U.S. District Court in San Antonio. “USAA has invested substantial time and money in the development and implementation of an invention which has revolutionized the banking industry.”

A month later, Mitek filed its own patent-infringement and breach-of-contract suit against USAA. And in July 2012, Mitek amended its complaint, claiming USAA’s “misrepresentations are damaging to our company and are designed to inhibit Mitek’s ability to compete in the marketplace.”

When it started

Mitek launched Mobile Deposit in January 2008, while USAA launched its competing product August 2009. “USAA first accused Mitek of wrongfully taking information from USAA to develop a product in April 2012—more than four years after first learning about Mitek’s mobile technology,” Mitek said in announcing its amended complaint.

However, in announcing their decision to settle, their language was more amenable, though short and to the point. “Over the past several days, the parties have met and conferred in good faith concerning the claims remaining for trial,” they said in their settlement announcement.

In August, a USAA lawyer reportedly disclosed that the court dismissed four Mitek patent-infringement claims against USAA, causing Mitek’s stock to drop by nearly 27 percent. News of the Sept, 3 settlement, however, caused Mitek’s stock to rise nearly 46 percent in midday trading on Sept. 4.

Agreement terms

Under the terms of the settlement, USAA will move to dismiss all of its remaining claims, including its claims for misappropriation of trade secrets, breach of contract, fraud, inequitable conduct, and invalidity of Mitek’s patents. Mitek also will move to dismiss all of its remaining claims, including its claims for trade defamation and violations of the Lanham Act.

Moreover, Mitek mutually promised not to sue USAA for patent infringement for products currently sold, marketed, or advertised by USAA, including its Deposit@Mobile application. The parties also acknowledged that distinct patent rights exist for each of them, and neither party admitted liability on any claim, nor will either have to make a payment the other.

USAA also is retaining its license to use Mitek’s Quick Strokes, Quick FX Pro and Image Score software products.

Mitek also had a patent-infringement case against Top Image Systems, which also supports mobile check-deposit services. On Sept. 9, the companies announced a similar settlement deal. In a statement, Izhak Nakar, Top Image Systems founder and executive chairman, said he believed the outcome of Mitek’s litigation with USAA caused Mitek to realize its case against his company was weak and that its patent portfolio was ineffective.

“With this litigation behind us, TIS is prepared for exponential growth of our innovative mobile imaging platform and applications in the U.S. and around the globe,” he said. Under the terms of the agreement, each party is responsible for covering its own respective legal fees. No other consideration is to be exchanged.

DeBello noted on the call that Mitek expected to set aside $1 million in the fiscal fourth quarter because of the impending Sept. 8 trial date set in the USAA case.

Growth continues

During Mitek’s July 24 conference call with analysts to discuss the company’s fiscal third-quarter earnings, Jim DeBello, Mitek CEO and president, noted that some 2,571 banks had signed up to use its MiSnap mobile check-deposit service, which enables consumers and businesses to use their smartphones to take a picture of a check to deposit it into their account. Some 2,143 of the institutions were live with the service, he said.

Mobile-imaging solutions drove third-quarter revenue to $4.7 million, which represented Mitek’s strongest quarterly revenue performance, DeBello said. According to a March 2014 comScore data report, he noted, only 41% of banking customers with a smartphone were even aware of the ability to deposit a check remotely.

“At Mitek, we estimate that only around 10% of consumers have even tried mobile deposit,” DeBello said. “In many ways, we think this is terrific news because it signals there is a lot of potential in a market where Mitek is the clear leader.”

The Check 21 Act of 2004 allowed the creation of digital versions of paper checks for processing and created rules for doing so, regardless of whether a business or at-home scanner was used. When smartphones came to market, it added another option through image-capture via the devices’ cameras.

Some banks have concerns about potential misuse or multi-depositing of checks, which is why most that embrace the service place limits of $2,500 to $3,000 on mobile check deposits.

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