A growing number of banks across the country are receiving notices from Automated Transactions LLC claiming patent infringement relating to their processing of transactions through their automated teller machines or similar devices. ATL holds an exclusive license for the patents. It claims infringement from the processing of ATM transactions through the Internet. Other claims relate to wireless, satellite and financial networks. Banks are receiving notices that a lawsuit will be filed if they don't settle and acquire a sublicense. 

What are the patent claims? Back in 1996, ATL made a provisional application to the U.S. Patent and Trademark Office for the original patent to conduct ATM transactions by means of an Internet interface. This patent was ultimately issued in 2005. Since filing in 1996, it also obtained 12 other patents, which are "continuations" of the original patent by applying it in a variety of contexts. All patents expire May 10, 2016. In 2006 the patent and trademark office re-examined the original patent claims and rejected some of them based on the determination they were obvious in light of "prior art." The decision was appealed by ATL.

ATL contends that it holds an exclusive license for the use of an Internet interface to conduct transactions from ATMs, including cash withdrawals, account inquiries and balance transfers. It asserts that subsequent to the issuance of the patents, banks have been using Internet access to process ATM transactions in violation of the patents. ATL argues that the patents apply to banks if they are directly connected to the Internet through virtual private networks (VPNs) or indirectly connected by T-1s or dial-ups to third-party service providers that ultimately use the Internet to make transactions through VPNs.  ATL also claims infringement from the use of internal and external financial, wireless and satellite networks to conduct ATM transactions. 

Have lawsuits been filed and what are the outcomes? ATL has brought suits to enforce its patent claims. The most significant case was brought in 2006 against IYG Holdings Co., the majority shareholder of 7-Eleven (Automated Transactions LLC v. IYG Holdings Co. et al. No. 06-cv-043) on the basis of the original and three continuation patents. The court held the patents were not infringed since the use of the ATMs was by means of a VPN. The case was appealed.  

Earlier this year the Federal Circuit Court of Appeals upheld the decisions in the IYG case and the trademark office appeal. Under its logic, it is reasonable to conclude no infringement is occurring from the use of ATMs connected to VPNs, T-1s or other private networks. ATL must petition the U.S. Supreme Court for a review of the case no later than September 2012 to be final. Despite this setback, ATL has continued to make claims on banks and has recently focused its attention of the patents that do not rely on access to the Internet.

What about indemnity claims against the manufacturers and service providers?  A number of banks have had discussions with the manufacturers and third-party service companies to seek to recover their costs under indemnification provisions in their contracts. In general these companies contend there is no infringement based on the case law.

What options are available for banks?  At this time, based on the evolving case law, there is a growing likelihood ATL will not prevail on its infringement claims based on the Internet.  However, if a bank receives the notice, it can choose to do nothing and wait to be sued or it can enter into negotiations with ATL to resolve the claims. Until all cases involving the patent infringement claims have been definitively resolved against ATL, the company will likely continue to assert claims against institutions.

Currently, ATL is offering to settle all past infringement claims and grant a sublicense to the patents for a small royalty per each noncustomer transaction for which a bank receives a fee, payable quarterly until the patents expire. Alternatively, ATL will also consider settling for an up-front, lump-sum payment based on the number of ATMs in use.

When faced with the prospect of a suit, a bank must decide whether it wants to settle or fight the claims. A bank should make a cost/benefit analysis and choose what course of action makes sense in light of the continuing developments in the case law. Institutions fighting the claims are banking on the fact that as cases work their way through the courts, ATL will continue to suffer adverse rulings. Some institutions are joining together to negotiate sublicense agreements or to defend cases and are hoping that, by pooling their resources, they will get better results at a lower cost. Forcing litigation may make sense for larger institutions which could pay substantial royalty fees that rival litigation expense. In any event, it is best not to ignore the claims, but rather take proactive action to determine what course is best suited for the financial institution. These claims are unlikely to go away soon.

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.