By Ray Birch
WASHINGTON—Credit unions could face another wave of lawsuits following USAA’s $200-million judgement against Wells Fargo.
As CUToday.info reported, a U.S. District Court jury has awarded USAA $200 million in a patent infringement lawsuit against Wells Fargo involving remote deposit capture (RDC).
USAA filed suit in June 2018 against Wells Fargo alleging that the bank infringed on certain USAA RDC patents, specifically patents related to mobile check capture.
As CUToday.info has also reported, analysts late last year warned credit unions could be targeted in patent infringement suits based on the RDC solution they use and their agreement with their RDC vendor. At that time, analysts said the degree to which credit unions were at risk would largely depend on the outcome of the Wells Fargo case.
Now that jury’s decision has gone against the San Francisco-based bank, legal analysts expect the company will become aggressive in suing financial institutions and will cast a wide net in the process.
“USAA has sent out demand letters in the past on this, so obviously I would think with this decision that they will feel emboldened to do that again,” said Lance Noggle, CUNA senior director of advocacy and senior counsel for payments and cybersecurity. “And with the judgment from a jury trial standing behind them, they may try to litigate with credit unions—and they have already litigated and won.”
Appeal May Be In Works
Noggle said USAA might delay any action against other financial institutions as it waits to see if Wells Fargo appeals the decision.
“You can’t say what their exact strategy will be, but I think credit unions could be at risk, for sure,” Noggle said.
USAA foreshadowed steps in might take following the recent judgement.
“Nearly every U.S. bank and credit union uses this [RDC] technology, benefiting some 87 million U.S. consumers. USAA continues to seek opportunities to create reasonable and mutually beneficial licensing agreements with banks and credit unions for use of USAA’s mobile remote deposit capture process,” USAA stated in a release.
A Wide Net
Noggle noted USAA’s press statement was very “broad” in its focus, stating it could take action against anyone who uses solutions that rely on a photographic image of a check.
Carrie Hunt
“I don't know how broad their patent is, but I expect USAA is going to cast a pretty wide net,” Noggle said. “I don't think financial institutions want to litigate with them at this point. I think at this point you try to negotiate—you already have seen what it cost Wells Fargo to go to court.”
Noggle said some credit unions may determine their RDC vendor is the entity at risk.
“Most credit unions are accessing these tools through a vendor, so theoretically the vendors may be the ones who are responsible. They are the ones ensuring they are not violating any patents,” said Noggle, who believes that’s a risky position to take. “If I am a credit union I contact my vendor and talk to them to at least find out where things stand.”
Indemnification Clauses
Noggle said those CUs that have an indemnification clause in their vendor contract may be less at risk.
“So credit unions that have that in their contract may feel secure,” Noggle said. “However, those that don’t could be the ones who could be in trouble.”
Carrie Hunt, NAFCU’s executive vice president of government affairs and general counsel, said the effect of the decision on credit unions is still somewhat difficult to predict.
“There is an additional suit (against Wells Fargo from USAA regarding RDC),” said Hunt. “And patent litigation is extremely specific as to whether or not a patent has been violated. So, certainly we are waiting to see if Wells Fargo appeals the verdict.”
What Will USAA Do Now?
Hunt also noted many credit unions have designed their own proprietary RDC solutions.
“And other credit unions are using vendors. So, it will ultimately come down to whether or not a specific solution at a credit union is violating any sort of patent law,” Hunt told CUToday.info. “I think the bigger question is what will USAA start to do now, and certainly if you look at how they acted prior to filing suit against Wells Fargo—they sent demand letters, then they were applying pressure to get credit unions and others to enter into a licensing agreement with USAA. A lot remains to be seen, but I do expect we will see an uptick in demand letters to credit unions from USAA, but we will need a little bit of time before all this shakes out.”
USAA has filed a separate suit for additional patents related to RDC against Wells Fargo in the U.S. District Court for the Eastern Division of Texas with a scheduled for January 2020.