This fall, a jury ordered Wells Fargo to pay USAA $200 million for infringing on patents relating to mobile image capture technology. Judging by even more recent “Wells Fargo must pay a fine” news, their patent issues may be the least of their concerns, but it will not likely be the end of the story here. 

In one sense, this is a very typical patent case. A company owns IP, and another company is infringing it. The owner wants compensation.

What makes this case unique is how ubiquitous the technology involved is. And that means the case has enormous financial and business ramifications for any companies currently using it. 

Revolutionizing Mobile Bank Deposits

Mobile image capture technology was developed a while ago and was the leading edge in terms of where the developers of that technology thought commercial aspects of it could go. And they were right. It was basic image recognition technology that was able to take a picture of something, in this case, a check, and translate that into data to electronically deposit that check. 

Today, virtually every smartphone banking app uses this technology. You never have to go to a bank. It’s brilliant. Each of my kids uses it, so it must be cool.

This technology quickly went from obscurity to an absolute necessity for a bank to even compete for customers. But the rush to get on board with this technology may have caused others to bypass even nominal due diligence. No one seemed to investigate to see whether the technology was patented, and if what they were doing with it, was proper. It is a common phenomenon with a lot of upstart, fast-growing technology companies.

Collaboration, Trade Secrets and Lawsuits

Another interesting aspect of this case is that USAA had collaboratively developed that technology with another company called Mitek over twenty years ago. During the course of that relationship, USAA alleged trade secret misappropriation against Mitek and Mitek originally counter sued USAA based on the use of the Mitek technology. While that caused its own back and forth in the courts, the parties eventually settled, and USAA ended up with the patent rights. 

Related: Pitfalls to Avoid When Collaborating on Intellectual Property

As soon as USAA established ownership, they began to litigate. After all, they are a banking company, and that technology is crucial to that industry.

The Risk for Banks and Banking Companies

Fast forward a few years, and this presents a considerable risk for patent damages because, one, every bank is using it. Every single bank. That risk is exacerbated because damages are usually calculated on a transactional basis for this type of technology. Every time someone uses it, it’s another act that counts toward a damages calculation. 

There are millions of these transactions every day. Even if the value of using that technology is only pennies per transaction, it adds up. $200 million was a jury verdict awarded to USAA. That’s one bank. So how many banks are there in this country or around the world using this technology? The implications are enormous. 

The good news for these banks is that USAA doesn’t seem to be trying to corner the market and be the only bank that can use this functionality. Instead, they want other companies to license it from them. Behind the scenes, they’ve been engaged in what they describe as reasonable licensing negotiations with other banks so that they can get some royalties from the use of the technology while not outright prohibiting others from utilizing it.

USAA did send cease-and-desist letters to Wells Fargo and other banks offering to license the technology, but when those were ignored, they decided to sue Wells Fargo. This is likely because it is a big bank with many damages attached due to the volume of the transactions they do. 

Litigation is expensive, and often these cases are settled before they ever get to court. But Wells Fargo didn’t back down, and USAA took it to a jury trial. And that jury awarded USAA $200 million. It’s difficult to know for sure why Wells Fargo chose to fight. They may have believed in good faith that they had not infringed on USAA’s patents. Since it is one of the bigger banks, unwinding the technology would have been complicated. 

On the other hand, a non-infringement finding would have changed the landscape for everyone. And in that case, if all the other banks used the same technology that Wells Fargo uses, there’s a good argument to say that no one else would be infringing either. 

Instead, it blew up for everybody. It would be interesting to see if there was any behind the scenes collaboration between Wells Fargo and other big banks that received cease and desists, to come up with a joint defense. It would have benefitted everybody if that technology was found invalid, or it was found not to cover the products they were using.

Related: Software Patents: “That’s Where All the Action Is” 

The Case for Negotiation

There is strong evidence to show that USAA was not in it to truly exclude others, although that’s one of the rights they have with an issued patent.

If you’ve got a patent that legitimately covers such critical core technology to an industry, there’s probably a result valuable to you that doesn’t also offend everybody. So you might be able to request a nominal, reasonable royalty. This might have been the test case for everyone involved, including USAA. 

They may have decided they needed to prove the patent was valid and was infringed upon. 

I believe we can now expect everybody else to fall in line and avoid litigating this again. They are all using the same product. It might also be possible to design around it, and this is something some users may be attempting. But this may even drag out for a while with the other potential infringers, and that is a risky move given the size of the settlement against Wells Fargo. 

If my client were bank number two on USAA’s list, I’d mitigate the risk and encourage them to negotiate.  

Leaving the result to a jury isn’t always worth the financial or business risk, as Wells Fargo discovered.