March 22, 2019
By Michael T. Zoppo
A patent is a competitive weapon because it gives its owner a right to exclude others from doing something, such as providing a product or service. In the tech industry, patent litigation between competitors is commonplace and driven by a desire to capture market share through an injunction, or a revenue stream through a royalty.
In the financial services industry, companies assert patents against competitors differently than tech companies. While anything short of vigilant enforcement of patent rights is considered irresponsible in the tech industry, as someone who has represented financial services entities for over a decade, my experience is that it takes some sort of stressor before patents enter the discussion.
This reluctance to assert patents seems unsustainable, leads to non-optimal decision making, and may be on the precipice of changing.
The industry is already armed to the teeth with patents. Bank of America has over 2,000. USAA has about 900. Goldman Sachs is inching toward 300. Entities this sophisticated don’t—or at least shouldn’t—spend the amount of money needed, both in R&D and in legal fees, to obtain that many patents without having a strategic plan.
This amount of investment suggests that a pivot toward patent assertion more akin to the tech industry is inevitable. In fact, it already has begun.
In 2006, two of the largest options exchanges faced off in a patent litigation that would last over 10 years. In that case, the International Securities Exchange (ISE) sued the Chicago Board Options Exchange (Cboe) for infringement of a patent directed to an automated exchange.
ISE sought over a billion dollars. Just a month before ISE filed the patent case, Cboe and ISE became engaged in litigation over Cboe’s exclusive right to list options on the S&P 500 index (SPX), an extremely lucrative listing. Uncanny timing plus public reports suggest that ISE filed the patent case as leverage in the fight to list SPX options.
ISE’s patent case fared poorly, with a judgment of non-infringement and an award of approximately $6 million in attorneys’ fees in Cboe’s favor. ISE admitted non-infringement literally seconds before trial was to begin, a clear signal of the objective strength of the case.
In March 2012, USAA and Mitek Systems of California ended up in litigation over five Mitek patents concerning mobile deposit technology, which allows consumers to deposit a check by photographing it with a cell phone.
Mitek is a fintech vendor offering a variety of document processing software. USAA, the first bank to offer mobile deposit, developed its own mobile deposit platform and licensed certain Mitek software.
The unsealed complaint tells the interesting tale that led to the lawsuit. Mitek, a publicly-traded small-cap, sought to renegotiate license terms with USAA, on the theory that USAA was exceeding the terms of its license. After USAA refused the new terms, a Mitek sales executive responded that USAA was in violation of its patents on mobile deposit technology.
The timing of Mitek’s hard sell—late March—closely aligned with a quarter end. The reader can speculate, but the sales executive’s patent threat led to 30 months of litigation and a nine-figure damages model. The case settled after USAA obtained summary judgment of non-infringement for all patents.
In late 2017 and early 2018, a massive, well-known stock exchange and its subsidiaries filed two patent cases against small, technologically disruptive exchanges. In both cases the large exchange has already dropped one of its asserted patents. Meanwhile, some of the allegations were dismissed in one case, and the other case was put on hold because the Patent Office found that it is more likely than not that all of the patents are invalid.
This large exchange has a history of acquiring smaller competitors and some of the patents asserted in these cases are the product of such acquisitions. While these cases are still in their early stages and the outcome is uncertain, these litigations may well be leverage for acquisitions, as opposed to pure patent plays.
While these examples are just that—examples—bear in mind that the patentees are sophisticated entities represented by top-tier counsel. At the very least, these examples provide good reasons for the financial industry to reevaluate its patent policy.
In June 2018, USAA filed its first of two lawsuits against Wells Fargo concerning mobile deposit technology. These cases appear to be the product of a licensing campaign beginning in 2017, and amount to seeking remuneration from a competitor USAA believes is using its patented technology.
A pure patent play is so unusual in this space that press coverage is desperate to explain why USAA has done it. Of course, no one wonders when tech giants target each other. The industry should watch USAA’s cases closely because what seems like an aberration today is likely to be the new normal tomorrow.
Michael T. Zoppo is a litigation principal in Fish & Richardson’s New York office where he represents financial services entities in patent and trade secret matters. Of the matters discussed in this article, Zoppo represented Cboe against ISE, USAA against Mitek, and one of the mentioned small, disruptive exchanges in the Patent Office proceedings.
The opinions expressed are those of the author and do not necessarily reflect the views of Fish & Richardson, any other of its lawyers, its clients, or any of its or their respective affiliates. This article is for general information purposes only and is not intended to be and should not be taken as legal advice.