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First patent win for bank puts financials on their toes


A $200-million payment for USAA shows that financial companies are vulnerable to competitor patent claims and might need to build up their defensive portfolios, according to in-house counsel

With the first fintech patent suit launched by a bank ending in a $200 million damages order, financial services companies say they’re more keenly aware of the dangers and potential opportunities of patent litigation, although they are keeping an eye out for a potential appeal.

The United States Automobile Association (USAA), which offers financial services to US armed forces members, won its infringement claim centred on patents directed to mobile deposit capture technology against San Francisco-based bank Wells Fargo in November.

The landmark ruling by the Eastern District of Texas was the first instance of a traditional financial services company successfully suing another for patent infringement, and has made in-house counsel fearful that it could be a catalyst for a shift in fintech litigation dynamics.

Financial services companies have traditionally been averse to suing their own kind because most work together in some capacity. But the USAA ruling demonstrates that financials can successfully monetise patents for large sums through litigation, and counsel believe that might be enough to start a spate of infringement cases from firms keen to reap an ROI from their portfolios.

“The verdict demonstrates that financial institutions are not immune from patent claims by competitors,” says the senior IP counsel at a consumer financial services company in the US.

“Although somewhat rare in the financial services industry, patent claims by competitors must be taken seriously and institutions should consider appropriate measures to mitigate the risk of infringement.”

Elizabeth Lester, assistant general counsel at credit-analytics firm Equifax in Atlanta, adds that at a lower level, USAA’s win will make mobile deposit capture technology implementers think twice when the bank approaches them for a licence.

“USAA now have this significant win against Wells Fargo, and so that will be an important consideration for financial in the future, especially smaller companies that are not the size of Wells,” she says. “They have gone with the strategy of going after a big dog first to make a statement.”

The head of IP at a London-based bank says that at a higher level, for those businesses that do not use the mobile deposit capture technology in question, the Texas ruling has introduced a real possibility that the fintech patent dynamics in the US could be destabilised.

He adds that his business, like most, will defend its IP from being infringed and will look strategically at the technology to consider how to maximise its value.

“There is no patent owner who actively does not want to enforce patents,” he says. “There may be times when a business does not want to sue because they will end up shooting themselves in the foot by sullying its relationship with an important partner, but you look at that on a case-by-case basis.

The technology at issue is used by 6,500 other institutions and was developed by software firm Mitek. Mitek  has launched its own legal battle against USAA, seeking a declaratory judgment that its automatic-check image capture product does not infringe on certain patents owned by the bank.

USAA sued Mitek in 2012 on the basis that the software business misappropriated USAA’s proprietary and confidential information while working under contract for USAA, and then took numerous steps to claim it as its own.

That matter was settled in 2014, but USAA sent letters to 100 banks in 2017 telling them they were in violation of their mobile deposit patents. It sued Wells Fargo on that basis in 2018.

USAA has also filed a second lawsuit against Wells Fargo, involving other mobile deposit patents. The case is due to come to trial this month.

Financing patents

In-house counsel predict financials that are investing more in fintech may begin to file more patents to mitigate the risk of litigation.

Josh Death, associate vice president of legal at TD Bank in Toronto, points out that having a strong portfolio is the gold standard for deterring litigators from targeting a business, and investing in more patents would be an easy and logical extension of many financials’ growing focus on R&D and portfolio development.

“The number one way to stop yourself from being sued by operating companies is your ability to counter sue,” he says. “It’s a matter of creating a scenario of mutually assured destruction.”

An industry source at a Wall Street bank agrees, adding that many banks have chosen not to patent as much as they possibly could in the past because the threat of litigation only came from non-practising entities, which cannot have business operations frustrated by counter litigation.

Should USAA or other financials become more litigious in the future, however, that development would provide the incentive for banks to build up their defensive capabilities, he says.

Sources say they are keeping an eye on what becomes of the financial litigation landscape over the next few years, and will start buttressing their portfolio defences when the need arises.

Breaking the banks?

Whether that need emerges will depend on whether the USAA litigation proves to be the exception or the rule, and while many sources say they’re in wait-and-see mode, some are sceptical that this development is anything other than an unpleasant anomaly.

“This is a real departure from past practice and I’m not sure whether it will be the start of a broader shift,” says the Wall Street industry source. “USAA is also a bit different from the larger banks – they are a large financial services company, but they are not a ‘peer’ as such.”

Death at TD Bank argues that litigation is unlikely to become common in the financial industry because it is not a sustainable model for patent monetisation, and it likely to cost banks more in lost revenues from frustrated partnerships than it could hope to gain in the long run.

Lester at Equifax agrees with this point, and adds that most financial services firms are also unlikely to want to spend significant resources on matters that diverge from their primary business goal of providing competitive financial services to their clients.

But the London bank head of IP points out that it might only take one or two opportunistic companies following the financial incentive left by USAA v Wells Fargo to spark a flurry of court cases.

“Financials are investing all this money in patents, but the question once you have them becomes: what do you do with it? Companies are generally money driven and if someone higher up asks what the company can get for its patents, attorneys can realistically say they might be worth $250 million,” he says.

“It is too early to tell whether it will destabilise the market, and financials have a historic motivation not sue one another because of the partnerships in play.

“But then again, similar partnerships exist in the telecoms space, and that never stopped them.”

USAA v Wells Fargo has put banks on their toes for now, but they may not need to stand on them for very long. There is every chance that this divergence could prove to be an anomaly if the historic resistance to suing other financials proves to be stronger than a desire by some to monetise new and potentially lucrative portfolios.

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