Perhaps legal action was inevitable.
For a year USAA has been flexing its intellectual property muscles, claiming to be the inventor of key technology behind one of the most popular mobile banking features: remote deposit capture. The San Antonio company demanded that at least 200 of the thousands of financial institutions now offering it to customers had to pony up the requisite licensing fees.
But in its choice for the target of its first patent-infringement suit — the megabank Wells Fargo — USAA sent a loud message that similar lawsuits could follow if other banks do not heed the warning, experts say. The suit may also signal the start of a new era in patent fights among banks involving other technologies.
“I think we may see more bank-on-bank patent suits,” said Megan La Belle, a professor at Catholic University of America's Columbus School of Law who co-wrote a study about banks and the patent system several years ago.
Since 2015 a number of banks, including Bank of America and JPMorgan Chase, have been aggressively securing patents for banking-related technologies. At the time, it was unclear what banks wanted out of their investments — was it a defensive move against being sued by patent trolls, or a way to take a more assertive advantage of innovations they owned?
The USAA lawsuit is a sign that answer may be the latter.
“To my knowledge this is the first time that a bank has sued another bank for patent infringement,” Mark P. Kesslen, partner at Lowenstein Sandler LLP, said of the USAA suit against Wells.
Certainly in the short run USAA could sue more banks over remote deposits. When it started asking hundreds of banks to pay the company a licensing fee for using the technology, an executive said that the company preferred to settle the matter through a licensing fee rather than litigation.
Since then, USAA’s lawsuit said, Wells Fargo has not paid a licensing fee. USAA declined to comment on how many banks have paid the licensing fee or whether it would bring another bank to court over the same issue. Wells officials have not commented on the suit.
Today, there are thousands of banks across the country using remote-deposit technology, and Wells Fargo has made it available to more than 21 million mobile customers.
Bob Meara, senior analyst of the banking group at Celent, said Wells Fargo appears to offer pretty standard mobile RDC features. “If true, it invites the question, ‘Why Wells?’ and ‘Will there be others?’ he wrote in an email to American Banker. “I have no answers to either question.”
The case might motivate other banks to pay USAA the licensing fee.
“If they don't want to be in litigation, it could make the others move faster,” Kesslen said.
This is not the first remote-deposit-capture-related lawsuit USAA has been involved in. In years past, USAA and Mitek Systems were in a legal battle over patents related to mobile RDC technology. That lawsuit ended in 2014 with neither side paying the other.
But now, the policy undercurrents could be more favorable to USAA.
The America Invents Act, signed in 2011 and considered the most significant patent reform since 1836, made it easier to invalidate patents. But there is a lot of rethinking whether the legislation might have gone too far, said La Belle, who with her colleague Heidi Schooner is currently working on updated report about banks and patents.
“The timing is significant here,” she said.
Time will tell how much the pervasiveness of remote deposit technology helps or hurts USAA’s case. Its ubiquity does not necessarily undermine USAA’s argument as much as give it a pool of companies that could be infringing on its patents, La Belle said. In fact, she said that USAA has a pretty good chance to win the suit against Wells Fargo.
“I don’t think USAA has filed this suit lightly,” she said.
In the lawsuit, USAA claimed Wells Fargo had been knowingly using its patented technologies — which it says it has invested many millions of dollars and thousands of employees in developing and implementing — and has been profiting from doing so.
“USAA recognizes that the advent of mobile check deposit has revolutionized the consumer banking experience, with considerable benefits for both banks and customers. But it is improper for Wells Fargo to use, without permission, patented technologies that USAA has spent immense resources to invent, develop, implement, and perfect,” the company said in a complaint filed Thursday in U.S. District Court for the Eastern District of Texas.
USAA filed the lawsuit in Marshall, Texas, a city the American Tort Reform Association once called one of its “judicial hellholes” because of its reputation for higher win rates for plaintiffs and higher damages awards compared with other venues. However, a Supreme Court decision last year that is expected to toughen the rules for where lawsuits are heard.
USAA claims 50 patents related to digitally depositing checks, although it is only suing Wells Fargo over four of them. In the court papers, USAA said Wells has taken advantage of USAA’s pioneering efforts, including aping alignment guides and feedback indicators designed to help the customer know where to place the camera to capture the photo of the check.
Nathan McKinley, a USAA vice president and its head of corporate development, says 87 million consumers use the feature and the industry has saved billions of dollars from deploying the technology he believes is the most significant innovation within the past decade within the financial services industry.
“Our goal is to be fairly compensated,” McKinley said.
Nathan DiCamillo contributed to this article.