To date, over 200 banks have received infringement claims from Automated Transactions LLC alleging their ATM operations violate patents held by the company.

As I wrote in a previous BankThink article, many more banks are likely to receive claims from the company in the future.

Claims from ATL began to be asserted many years ago, and yet to this day banks have been unable to develop a common defense plan. Banks have been forced to respond individually or in hastily assembled groups to address the threat.

Many choose to procure a license, which is priced on the number of ATMs they operate or their size. Others resist and fight the company in court. Collectively, the banks are spending a great deal of money either getting licensed or litigating the ATL claims.

And this is not the only patent infringement claim threatening the banking industry. Many more are likely to be asserted in the future by other claimants. A claim against one bank must be regarded as a claim against all banks – the issues are likely to be the same.

There has to be a better way to respond. Bankers’ associations should move to pool together resources. An association could set up a panel comprised of experienced patent lawyers and technology experts, charged with the responsibility of reviewing every claim made against a bank member and determining whether it had merit or was specious.

The panel could also determine whether any indemnity claims could be asserted against third parties. It could then propose a strategy for addressing a specious claim and retaining a team of lawyers and experts to defend the bank and the industry as a whole. If other banks were sued, they would benefit from a collective defense. The cost of the defense would be funded by a relatively modest fee spread across all of the member banks. It could be built into the annual dues structure.

On the other hand, if a claim had merit, and litigation was determined to be unwise, then the panel could try to develop a solution with the claimant that the membership could voluntarily embrace. It would not have authority to bind any individual bank, but could offer a solution that would be less costly than litigation. If a bank did want to contest the claim, it could still do so, but would have to mount its own defense or join with other similarly-minded banks.

Another area that the panel could be charged to address would be to develop model language for indemnity clauses in contracts with third parties. In the ATL claim, indemnity clauses were found to be complicated and restrictive and provided little relief for the banks. Small banks in particular have found themselves at a disadvantage in negotiating indemnity language because they don’t individually have market power.

However, if an association recommended language for use by its members, the collective strength of the industry could cause third parties to adopt language that was more favorable to banks.

The banking industry has to be smart in dealing with this looming threat. The collective strength of the banks is a powerful tool that should be harnessed. By concentrating their resources on one panel which is representing all of their interests, they would benefit from a cost-effective strategy developed by experienced lawyers and experts to deal with a claim. No one bank (except for the very largest) could afford to do that on its own; yet by joining together with other members, a clear signal would be sent to an opponent that it will face a tough and well-funded fight if it wishes to proceed.

W. John Funk is an attorney/shareholder of Gallagher, Callahan & Gartrell PC, a law firm in Concord, N.H. He has represented banks in addressing the patent infringement claims of Automated Transactions LLC.