USAA wins patent agreement with Discover, vows to keep going after banks

Think what you will about USAA’s decade-long patent war on the rest of the financial industry, you can’t deny the company has perseverance.

This week, Discover Financial Services signed a licensing agreement with USAA that lets the card network use more than 130 USAA patents for remote deposit capture technology. Terms of the agreement were not disclosed. Discover declined a request for an interview or comment.

USAA signaled that it’s going to keep going after banks that allow customers to deposit checks by taking pictures of them with their phones. It has already filed lawsuits against Wells Fargo, PNC Financial Services Group and Truist Financial.

“We look forward to working with more banks to create reasonable licensing agreements that benefit their customers,” Nathan McKinley, USAA vice president and head of corporate development, said in a statement. 

Some banks are likely to keep fighting right back.

“The United States Patent and Trademark Office has already found that several of USAA’s patents — including patents asserted against PNC — are invalid, confirming our position that USAA did not invent mobile remote check deposit,” a PNC spokeswoman said. “PNC plans to continue our appeals and has asked the [U.S. Court of Appeals for the Federal Circuit] to find USAA’s entire set of asserted patents related to this technology invalid.”

A dispute with a long history

USAA has been trying for more than a decade to get all large U.S. banks that offer mobile deposit capture (the ability to deposit a check by taking a photo of it in a banking app) to pay licensing fees for the technology, which USAA claims it invented.

The dispute has its roots in the late 2000s, when USAA and the image-processing technology company Mitek were business partners. USAA used Mitek’s software to digitize checks received by mail. The companies worked together to develop mobile deposit capture technology. 

They had a falling out. Some said it was over the fees Mitek was charging for its technology services. 

In an interview at the time, Mitek CEO Jim DeBello described a business relationship gone awry.

“We have had an existing contract, a license agreement that lets them use our recognition platform, which is not optimally designed for mobile deposit, since 2006,” he said. “They contacted us and alerted us that they had exceeded the limitations in that contract, which caused us to have a negotiation that’s been going on for several months to provide them a renewed license with our mobile deposit platform.”

In February 2008, Mitek began offering remote deposit capture technology to bank clients. By 2013 it had signed up 708 banks and credit unions. Over time, almost every U.S. bank bought this technology from Mitek. In August 2009, USAA began offering its own version of the technology to its customers. 

In March 2012, USAA sued Mitek in the U.S. District Court in San Antonio. In its complaint, USAA said it invented remote deposit capture technology “to meet the needs of our highly mobile military membership, enabling them to deposit checks with a scanner or smartphone wherever they may be stationed.” The company said “Mitek misappropriated USAA’s proprietary and confidential information while working under contract for USAA, and then took numerous steps to claim it as its own.”

A month later, Mitek filed a countersuit in the U.S. District Court in Wilmington, Delaware, that alleged that “USAA infringes on five Mitek patents relating to image capture on mobile devices, that USAA breached the parties’ license agreement by using Mitek products beyond the scope of the agreed-upon license terms and that USAA breached the parties’ license agreement by disclosing confidential pricing and other confidential information for a Mitek legacy product installation in a lawsuit filed in Texas.”

In 2014, the companies settled out of court. The terms of those agreements were never made public. The dispute appeared to be settled.

Then three years later, USAA sent letters to 100 banks telling them they were in violation of USAA’s mobile deposit patents. 

In 2018, USAA began suing its big-bank rivals over their use of mobile deposit capture, starting with Wells Fargo, then continuing with PNC and Truist. USAA filed all these suits in the small Marshall, Texas, division of the U.S. District Court for the Eastern District of Texas, which has a reputation as partial to patent trolls. 

In USAA’s two lawsuits against Wells Fargo, juries at the Marshall, Texas, court found Wells Fargo liable to pay a total of $300 million. The companies reached a settlement; the terms were not disclosed.

USAA also prevailed against PNC. A Marshall jury found PNC liable for $218 million for violating USAA’s patent rights.

However, PNC requested a review of the patents at issue in the trial. In February of this year, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board ruled that three of USAA’s patents on mobile check deposit technology are invalid.  

The decision could be used to overturn the verdict on the earlier USAA v. PNC case. The U.S. Court of Appeals for the Federal Circuit will now have to decide whether to uphold the Marshall court’s verdict or the Patent Trial and Appeal Board’s decision. (In the latest development in the USAA v. Truist case, Truist tried to have the trial moved to the Western District of North Carolina, but in April a judge in Marshall, Texas, denied the motion.)

Going forward

The fact that the Patent Trial and Appeal Board invalidated some of USAA’s patents makes it somewhat surprising that Discover caved in to USAA’s demands to buy licenses to its patents.

For a company like Discover, this becomes a business decision, according to Eugene Mar, partner at Farella, Braun and Martel.

“You’re looking at the cost-benefit analysis of doing a pretty engaged litigation campaign,” Mar said. “If you defend and if you look at what, for example, PNC and Wells Fargo have gone through, you can just tell by the volume of that litigation it’s expensive and it’s still ongoing. Then you balance that versus what is most likely a fairly expensive license, but you would then be done with that cost.”

USAA and Discover declined to answer questions about the nature and cost of the licensing agreement. 

Mar wonders which companies USAA will go after next. It can keep bringing these cases before the patent-friendly East Texas court as long as the defendants are national companies with offices in Texas, he noted. 

If it tries to go after a smaller regional bank that does not have a presence in Texas, that bank may be able to shift the trial to a court in its market, where a jury may be less sympathetic to USAA’s complaints.