Legal

Could A Bank-On-Bank Patent War Be Looming?

A recently filed federal lawsuit over remote deposit capture technology (RDC) could signal the start of a wider patent-infringement struggle among banks, according to experts.

USAA, the insurance company and bank that services current and former military members and their families, filed the suit against Wells Fargo, which allegedly infringed on four USAA patents involving RDC. The lawsuit seeks unspecified damages.

USAA operates only four branches, using scanner- and smartphone-based RDC to serve a global base of customers. Before filing the lawsuit, USAA asked other financial institutions to license the RDC technology. Wells Fargo reportedly had become one of the largest users of the RDC technology involved in the lawsuit.

Some 80 million consumers used some form of RDC in 2016, up from a little more than 10 million in 2012, according to Celent.

While suits involving patent rights and infringement are familiar in the technology, financial services and eCommerce worlds, the USAA lawsuit apparently stands as “the first time that a bank has sued another bank for patent infringement,” Mark Kesslen, partner at Lowenstein Sandler LLP, told American Banker.

Even so, the suit could be the first of others, according to that same article. “I think we may see more bank-on-bank patent suits,” said Megan La Belle, a professor at the Catholic University of America’s Columbus School of Law who studies banks and the patent system.

In the USAA case, that financial institution no doubt hopes to motivate other users of its RDC technology to pay licensing fees. But the bank’s decision to sue Wells Fargo — which is still dealing with the aftermath of its account creation scandal — represents another part of that strategic choice, according to Nir Kossovsky, CEO of Steel City Re, which analyzes and insures companies against losses related to reputational attack.

“The singling out of Wells Fargo by USAA as a target for patent infringement litigation is a reflection of Wells Fargo’s recent loss of reputational value as a result of other well-reported activities,” Kossovsky said. “All other things being equal, Wells Fargo is relatively more vulnerable than its peers, its defenses more likely to be questioned and discounted, because its ‘soft power” – the reputation institutions build through credible communications and authentic trustworthy actions over time – has been significantly eroded.”

Remote deposit capture stands as only one payment technology that can leave financial institutions vulnerable to patent infringement lawsuits. A federal jury in Minnesota recently ruled that U.S. Bancorp must pay $3.3 million in damages for infringing on a patent for check-processing technology owned by Solutran, according to reports.

“Solutran’s U.S. Patent No. 8,311,945 covers a method for processing paper checks, whereby data regarding a transaction captured at a merchant’s point of purchase is later matched against a scanned image of a check at a remote location,” according to a report from the VedderPrice law firm. “The jury rejected U.S. Bancorp’s argument that the patent was obvious based on prior art, and found that almost 100 million of the bank’s transactions had infringed on Solutran’s patent.”

That ruling should give financial institutions and service providers a sense of caution, VedderPrice said.

“Service providers and banks who process paper checks should confirm they are not infringing on Solutran’s patented method to avoid potentially significant liability,” the firm said. “Banks that rely on third parties for check processing should review their contracts with service providers to ensure that proper indemnification language is included in the governing agreements.”

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