Banks are tired of getting sued for using technology on which other companies hold patents, and they’re starting to push back.
Patent aggression is when companies sue other companies for alleged patent infringement. It’s been on the rise: At least 125 suits were filed in the financial services industry in 2021, according to Anthony Blum, a partner at Thompson Coburn. In recent months the Delaware company Auth Token LLC has filed at least 35 patent infringement lawsuits against banks and card companies, including M&T Bank, PNC Bank, Regions Bank, TD Bank Group, Truist Financial and U.S. Bancorp. Other heavy filers of patent lawsuits in the industry include Caselas LLC, which has filed 42 different patent lawsuits against those in the industry since 2020, mCom IP LLC, which filed 33 lawsuits in 2021 and 2022, and Ward Participations.
"The number of patent lawsuits filed against banks and financial institutions definitely trended up in 2021—one could even say the number of lawsuits exploded in 2021," Blum said.
A small but growing countermovement is afoot. Last week, Truist became a member of the Open Invention Network, which says its aim is to “build patent non-aggression” by encouraging the use of shared software licensing and open source software, by having participants agree to not sue each other, and by working to have patents owned by patent trolls (companies that exist only to find patents and sue other companies for infringement) found to be invalid with the United States Patent & Trademark Office. TD Bank Group and Block, the payments technology company formerly called Square, joined last year.
Truist’s chief IP counsel, Michael Springs, said the bank has been adopting more open source software, computer code that is shared publicly and owned by no one, as part of its efforts to improve customer experience and to innovate.
“We’re proud to join the Open Invention Network and support its role in protecting open source software from patent risk,” he said.
At TD Bank Group, Josh Death, intellectual property and patentable innovations lead, similarly said his bank uses open source software in its efforts to seek best-of-breed technology.
“As the patent space encroaches on open source solutions, patent freedom to operate issues become more challenging,” Death said. The Open Invention Network is helping to reduce this risk among thousands of companies, he said.
“We wanted to support and be part of that community,” he said.
What OIN does
“This is a social movement,” says Keith Bergelt, CEO of the Open Invention Network, of a shift from the use of patented technology to open and free software. “It's changing the way that we invent and trade value in the new economy.”
In the 1970s, if someone from IBM walked into a New York coffee shop and saw someone from Hewlett Packard, “they would immediately turn around and walk out, because of concerns over collaboration, inappropriate contact,” Bergelt said. “Concerns over any two competitors getting together completely created the appearance of impropriety and was something to avoid.”
Now thousands of companies are collaborating on technical development in the interest of innovation, he said.
OIN acquires and develops patents and patent applications for technologies that members can use without paying royalties or license fees.
“The basic concept is that where we collaborate on core Linux and open source [programs], we shouldn't be suing each other,” Bergelt said. Members sign an agreement to that effect.
Today, the group cannot protect companies against patent litigation for non-open-source technology like mobile deposit capture or authentication technology.
But the recent lawsuits from companies like USAA, Auth Token and Ward Participations have rung alarm bells for banks and are driving interest in OIN, Bergelt said.
“Those suits have been very instrumental in raising awareness of the fact that the old, collaborative model among banks that existed has probably run its course,” he said.
Now banks are realizing that many of the technologies they use for the simplest functions, like check deposit, have patents and are out of their control.
Patent wars still continue
Patent cases against banks show little sign of slowing down, and they’re supported by patent-friendly courts in Marshall and Waco, Texas.
Last May, Mirror Imaging, a document archiving technology provider, sued PNC for its use of document retrieval and storage software that the company claimed infringed on four of its patents. PNC moved to dismiss the claim, pointing out that the Patent Trial and Appeal Board had found that Mirror Imaging’s patents were “unpatentable because they were directed to ineligible subject matter.” In January, U.S. District Judge Alan Albright, who oversees the Waco court, rejected PNC’s motion. (PNC did not respond to a request for an interview.)
In his decision, Judge Albright wrote that companies that try to fight a patent lawsuit “face an uphill scrabble. It is now well established that patents are presumed valid.”
About 200 miles away, Judge Rodney Gilstrap presides over a court in Marshall, Texas, that has also tried an outsized number of patent cases. In September, The
More than 75% of patent lawsuits against banks were filed in Texas in 2020 and 2021, Blum noted.
"Patent holders have become very comfortable filing in Texas, particularly against banks and institutions that have physical presences there," Blum said. "Many of the patents applicable against this industry are susceptible to being found invalid for claiming ineligible subject matter. While some districts find patents ineligible at high rates at very early stages in litigation, this is not true for Texas."
Critics would like to see these Texas courts reined in. In a November
“The concentration of patent litigation is no accident,” the letter stated. “We understand that a single judge in this district has openly solicited cases at lawyers’ meetings and other venues and urged patent plaintiffs to file their infringement actions in his court.”
The senators said the extreme concentration of patent litigation in one district and the “unseemly and inappropriate conduct that has accompanied this phenomenon” are the result of a lack of rules around assigning patent cases. They asked the Supreme Court to conduct a study of the “actual and potential abuses” the Waco court has enabled, and to consider and implement appropriate reforms and legislative recommendations. This report is due May 1.
So reform may be coming. But some believe the patent wars will continue. Banks themselves pursue patents and see them as validation of their ability to invent new technology. Bank of America was granted 512 patents in 2021, up from 444 in 2020.
“Our company does continue to innovate,” a spokeswoman said. In the first quarter of 2022 it had 148 patents granted, giving it an overall portfolio of 5,372.
The Justia website lists 20 patents assigned to Truist. Protecting innovations with patents “demonstrates our focus on continuous improvement,” Springs said.
TD has filed more than 1,500 patent applications across the U.S. and Canada.
“As patents become more widely held in the financial industry, we expect there will be an increase in patent litigation over the coming decades,” Death said. “Just as with any industry that has technical innovation, patent litigation will become part of business as usual, whether it’s driven by the desire to monetize patent portfolios, maintain market exclusivity for new inventions or both.”
