Crucial USAA Patent Case About to Go to Trial

November 1, 2019 at 9:28 am Leave a comment

A trial starts Monday between USAA and Wells Fargo deciding who owns the right to profit off Remote Deposit Capture technology (RDC), and more importantly, who should be paid for the right to use it. Since many credit unions were the lucky recipients of letters from USAA suggesting that they enter into licensing agreements with the bank, this case clearly has important implications for the bottom line of all credit unions, particularly since RDC has quickly become one of those technologies that consumers expect their financial institution to provide.

I haven’t talked about this case in quite a while, but earlier this week, the Texas judge overseeing the litigation denied Wells Fargo’s attempt to dismiss the lawsuit, paving the way for a trial to begin on Monday. At issue is USAA’s claim that it invented mobile RDC technology and holds a valid patent. Any patent attorney reading the following description will groan, but the technology at issue generally refers to the ability of consumers to take digital photos of checks on mobile deposit apps with enough clarity so that the check can be “read” by the depository institution’s own computers.

In its last ditch effort to dismiss the lawsuit, Wells Fargo argued that USAA’s claims were too abstract to be patentable; after all, just about anyone can take a picture using a cell phone. However, as the court made clear, “they are directed to a machine-implemented process for detecting and capturing an image of sufficient quality to detect and extract relevant information from the image by a machine.”

This upcoming litigation is essentially a bellwether trial. USAA only sued Wells Fargo after it refused to pay for the right to use the RDC technology. If Wells Fargo loses this case, you can bet that many of you will be receiving additional letters from USAA requesting you enter licensing agreements, only next time; these letters won’t be so friendly.

The patent issue is important enough, but the dispute also underscores an important compliance issue for your credit union to keep in mind as it starts offering RDC apps. In 2004, when Congress passed the Check 21 Act, it envisioned a system in which banks would be responsible for converting the checks they receive to electronic images and then sending those images down the line for collection. RDC allows the consumer to make that truncation on behalf of the depository bank. As a result, you have a lot riding on the clarity of that image being provided by your member. According to some credit unions, the need for precision has frustrated some of their members, but keep in mind why you have to make sure that members are using the technology properly.

On that note, enjoy your weekend. I’m thinking of starting a support group for Giants fans who feel compelled to watch one of the worst teams in football, even though they know there are much better ways to spend a Sunday afternoon. Let me know if you’re interested. I’m going to pitch my CEO about making it a benefit of Association membership.


Entry filed under: Compliance, Legal Watch, technology. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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