Consumers everywhere use mobile check deposit — the ubiquitous technology that lets someone take a picture of a check with their smartphone and have it automatically deposited in their checking or savings account. But this seemingly generic utility has been at the center of more than a decade of lawsuits through which USAA has sued Wells Fargo and PNC and won hundreds of millions of dollars in three trials held in a patent-plaintiff-friendly court in Marshall, Texas.
But recently, in a patent review requested by PNC, the U.S. Patent Office's Patent Trial and Appeal Board has decided three of USAA's patents on mobile check deposit technology are invalid.
"We are pleased that the Patent Trial and Appeal Board at the United States Patent and Trademark Office handed PNC a complete victory as to USAA's '571 patent — in addition to separate PNC victories with respect to the '559 and '779 patents," a PNC spokeswoman said, referring to specific mobile-check-deposit-related patents held by USAA. "The PTAB confirmed that the U.S. Patent Office would not have granted any of these patents had it been aware of all the facts."
USAA is not backing down.
"We disagree with this decision and intend to appeal," a USAA spokesman said. "This patent has been challenged on two previous occasions and was validated by the Patent Trial and Appeals Board." USAA and PNC both declined requests for interviews.
The Patent Office decision could be used to overturn the Texas court's latest verdict, in which it awarded USAA
The outcome of this case could have a profound impact on the rest of the industry. If USAA wins on appeal, it could be emboldened to keep suing every bank that offers mobile check deposit — almost every bank in the U.S. If PNC prevails, USAA might rethink or put a halt to such lawsuits.
"Whether or not PNC is able to use the PTAB verdict against USAA in this matter, it seems like everybody else following it has a great argument, one that's been tried and found valid," said Lewis Popovski, partner at Patterson Belknap. "Then, depending upon what's done in the federal circuit, others can learn from that and, if needed, perfect their arguments going forward and thereby weaken the strength of USAA's patent portfolio. It's kind of like a chink in USAA's armor every time somebody throws a rock at them. PNC has thrown a big rock and it landed hard."
A decade-old patent war
In the early 2000s, USAA, a San Antonio-based financial services provider to military servicepeople, and Mitek Systems, a San Diego developer of check image capture technology, were business partners that developed mobile check deposit technology together. They had a contract dispute and parted ways. Both companies applied for and received patents from the U.S. Patent Office on mobile deposit capture technology. The two companies later sued each other for patent infringement and settled out of court. (Mitek declined a request for an interview.)
In 2017, USAA sent letters to more than 100 banks that use Mitek's mobile check deposit technology, telling them they needed to start paying USAA a licensing fee for it.
In June 2018, USAA sued Wells Fargo for patent infringement. In two trials in Marshall, Texas,
The U.S. District Court for the Eastern District of Texas, Marshall Division, led by Judge Rodney Gilstrap, is
"They are more plaintiff friendly, there's no doubt about it," Sean Reilly, senior vice president and associate general counsel at The Clearing House, said of the Marshall court.
"My general sense is that both Judge Albright" — who oversees the Waco court — "and Judge Gilstrap very much believe in the trial system," said Eugene Mar, partner at Farella Braun + Martel. "They believe patent cases are no different than any other type of case that our American jury system is well equipped to decide. So they've created a system in their courts that is friendly to getting to trial because they think that's the appropriate forum for these disputes to be decided."
The judges have invited companies to bring patent trials to their courts and they appear to rush patent cases through without waiting for patent reviews from the patent office, Mar said. According to Mar, they're not constitutionally required to wait for the patent review process, though most U.S. judges defer to the expertise of the patent office.
PNC's next steps
According to PNC, when the Patent Trial and Appeal Board invalidated three of USAA's patents, it also nullified USAA's patent claims against PNC "and as a result, the jury's $218.5 million verdict last spring cannot stand," the PNC spokeswoman said. "We will need a new trial to address claims of infringement, the question of willful infringement, and damages on remaining patent claims that USAA asserted at trial, whether the new trial occurs before or after any appeal of the PTAB or the district court ruling. And we remain confident we will prevail as to all of the patents that USAA has asserted."
PNC does have some procedural hurdles to clear, according to Mar.
"PNC has gone back to the Marshall court and asked it to put a hold on all post-trial rulings, because the bank thinks they're going to be mooted," Mar said.
But there is a race going on now, he said.
The jury verdict and all the judge's decisions around the USAA-PNC trial will be brought before the federal circuit court of appeals.
On the other side, USAA has said it intends to pursue the patent office's decision that some of its patents are invalid. That appeal will also go to the federal circuit court of appeals.
"They're essentially racing each other to see who can get theirs heard first, and see if they can get a positive decision from the federal circuit in their favor," Mar said.
Another challenge for PNC is that the Marshall court verdict was based on several patents, and it's hard to say how much of the Marshall jury's decision related to the patents that have been declared invalid, versus patents that the patent office has not finished reviewing, Mar said.
"One of the big challenges, though, for all of these banks, whether it's Wells or PNC, has just been the sheer number of these patents," Mar said. "It's a strategy from USAA to just overwhelm you with all these patents, so you have to challenge every single one of them. And so even if you prevail on half of them, as a defendant, you haven't won the case. Whereas USAA can win the case on the basis of one patent."
Challenges of patent challenges
Why do so many patents get approved that, upon review, later get invalidated?
Patent examiners "have limited time, and it's a single individual looking for written material, whether it's a patent application, a patent, or another document that provides evidence that somebody else invented it earlier," said Reilly, who is a former patent examiner.
The Clearing House started a patent quality initiative in 2014. One thing it does is run examiner training sessions at the U.S. Patent Trademark Office, Reilly said.
"We're really focused on that examiner education piece, because it ultimately drives to higher-quality patents in the market," he said.
His team is also attacking low-quality patents by challenging them through the U.S. Patent Trademark Office's inter partes review process. By "low quality," Reilly means patents that should have never been issued, perhaps because they are too broad or because prior art exists that the examiner was unable to find in time by searching for keyword or classifications of inventions.
Through the inter partes process, patents get a second look.
"It's preferable to have that second look outside of a district court case," Reilly said. "When you're in a district court case, you've got millions in litigation. The IPR process is the alternative to that."
TCH has not challenged any USAA patents, but Wells Fargo, PNC and others have used the inter partes process to do so.
Less litigious future?
Rather than see patent strategy as a zero-sum game, members of the
Tap-and-pay technology on a phone is "an example of key IP holders, key innovators in the space, large banks, card networks and tech companies all working together to get a really great experience," said Reilly.
"As a general matter, the industry sees more money to be made through that collaboration," Reilly said. "It's not the norm in this industry to sit in one room and try and settle a lawsuit and sit in another room and jointly create a new standard."
But he also sees more banks like PNC going on the offensive against patent trolls.
"It's a long process and a very expensive one," Reilly said. "And usually it just takes one institution to step up and fight back on it. Then if those patents ultimately get invalidated, then the entire industry benefits."
Many industries have found benefits to cooperating on patents, Popovski said.
"If you are a member of this industry and you decide you're going to sue your competitors, they're liable to come back at you with other patents," he said. "Potentially each party can get an injunction on the other, and that serves no purpose. The whole idea of an industry is to work together, play nice in the sandbox, if you will. And if you have a very aggressive, rogue member, they tend to become pariahs. These industries learned over a long period of time that that really doesn't benefit anybody."
