Compliance Blog

In late 2017/early 2018, NAFCU began hearing from multiple credit unions that had received letters from a firm called Epicenter Law which alleged the credit union’s remote deposit capture (RDC) technology infringed on patents owned by USAA. Through these letters, USAA sought voluntary licensing fees from other financial institutions. Rather than making specific demands, these letters invited credit unions to call the firm to discuss licensing USAA patents.

USAA’s efforts to recoup money it spent developing RDC technology also included filing two lawsuits against Wells Fargo last year. USAA, during litigation, went into great detail explaining how Wells Fargo used USAA's technologies. For example, a few of the patents at issue describe methods and systems for image and criterion monitoring during the RDC process. USAA asserted that these patents solve discrete, technological problems associated with computer systems when capturing images. Ultimately, the district court agreed with USAA’s analysis pertaining to some, but not all, of the patents at issue.

On November 6, 2019, in one of these two lawsuits, a jury in a Texas federal court found that Wells Fargo did infringe on USAA’s patents and awarded USAA $200 million. Wells Fargo stated it “strongly disagrees with this jury verdict and does not believe it has infringed on USAA’s patent rights,” but has yet to publicly state whether it will appeal. So what does this potentially mean for credit unions?

As background, USAA started developing RDC technology in 2005 and holds numerous patents in this area. As part of its efforts, at one point USAA worked with a company called Mitek, and ultimately the two litigated and settled a dispute relating to one another’s RDC patents. The settlement apparently left both parties with their patents but also left legal questions presented in the case unresolved.

Why does this matter? Mitek provides mobile deposit technology to many financial institutions. This includes providing RDC technology to Wells Fargo, according to Mitek’s public filings with the Securities and Exchange Commission (SEC). In other words, USAA’s lawsuit against Wells Fargo still links back to its prior dispute with Mitek. While Mitek is not directly involved in the USAA and Wells Fargo litigation, given the “continued use of [Mitek’s] products by its customers,” on November 1, 2019, Mitek filed a complaint against USAA in a California federal court. Mitek is asking the court to issue a declaratory judgment that its patents do not infringe on USAA’s patents.

Meanwhile, the second lawsuit USAA filed against Wells Fargo has jury selection scheduled for January 6, 2020, and Wells Fargo could decide to appeal the case decided this month. Overall, there are still unresolved legal questions relative to RDC patents. As patent infringement claims are highly complex and technical in nature, it is difficult to predict the outcome of any given claim. Due to the nature of patent infringement litigation, the possibility that Wells Fargo appeals this case, and the fact that other related cases are still ongoing, the impact of USAA’s recent win on the credit union industry remains unclear.

Given this recent win, USAA may be emboldened to increase its efforts to secure licensing fees from financial institutions that the bank believes are improperly using its patented technology, including credit unions. If USAA continues to seek compensation, the use of RDC technology will increasingly be an area of litigation risk for credit unions. Credit unions that offer RDC to members generally do so through a vendor or a third-party’s software. We continue to encourage credit unions to review these contracts to determine how indemnity is addressed and to what extent the agreement makes warranties or guarantees that the software does not infringe on any patents. If a credit union receives a letter from USAA or another party, keep in mind that vendor agreements may also contain requirements to provide notice to the vendor of potential patent disputes. In some cases, not meeting contractual notice requirements could negatively impact issues like indemnification rights. Also, while insurance policies often exclude coverage of patent infringement claims, it is important to be aware of notification requirements to insurers of potential litigation.

NAFCU will keep credit unions updated as these issues continue to develop. If your credit union receives one of these requests, please feel free to share this information with NAFCU.