In January 2020, we wrote a Law360 guest article that highlighted some of the risks that followed Wells Fargo Bank NA's strategy in its patent dispute with the United Services Automobile Association over remote deposit check imaging technology. Nearly a year later, the heated litigation continues despite two large jury verdicts having been rendered in favor of USAA.

There are signs that this patent dispute is growing in the banking industry, as USAA has filed a new lawsuit against PNC Bank.

In this article, we look at the major developments since our last article and address what strategic options remain available to financial institutions in this broadening litigation.

Jury Verdicts

USAA filed two lawsuits in close succession against Wells Fargo in 2018 in the U.S. District Court for the Eastern District of Texas, a venue that is known to move patent cases to trial quickly.

The first lawsuit reached a jury verdict on Nov. 6, 2019, where a jury found that Wells Fargo willfully infringed two of USAA's patents and awarded $200 million in damages. In the Nov. 12, 2019, final judgment, the court entered the judgment that Wells Fargo had willfully infringed and awarded compensatory damages from Wells Fargo in the sum of $200 million.

Chief U.S. District Judge Rodney Gilstrap granted Wells Fargo's motion to stay execution of the judgment on Sept. 22, 2020, prior to the exhaustion of all appeals without posting a bond. At present, the $200 million judgment is stayed pending Wells Fargo's appeal, and damages have not been increased aside from the court's approval of the addition of interest.

The second lawsuit reached a jury verdict on Jan. 13, 2020, where once more, a jury found that Wells Fargo willfully infringed two additional USAA patents and awarded another $102.8 million in damages. Wells Fargo additionally filed a motion to stay execution of the judgment in this lawsuit pending appeal without posting of a bond. This motion has not yet been granted; however, seeing as the argument is synonymous to the argument for a stay in the first case, it is likely that the court will grant this motion. The damages total has not been increased presently.

Despite being hit with two large jury verdicts, Wells Fargo has vowed to continue fighting and is expected to challenge the verdicts through appeals to the U.S. Court of Appeals for the Federal Circuit.

Parallel Fights Before the Patent Office

While only four of USAA's patents were actually presented across the two jury trials, the two lawsuits originally began with a much larger set of patents, making Wells Fargo's defense all the more difficult and costly.

In addition to defending the lawsuits, Wells Fargo filed a number of petitions before the Patent Trial and Appeal Board, seeking to have this administrative body within the U.S. Patent and Trademark Office invalidate USAA's patents. These petitions have thus far not succeeded.

From the first lawsuit, Wells Fargo lost three of its PTAB challenges seeking to invalidate USAA's U.S. Patent Nos. 8,977,571; 8,699,779; and 9,818,090. Wells Fargo initially tried to challenge all these patents under the covered business method review, arguing that the patents were invalid for claiming the abstract concept of taking a photograph. The PTAB dismissed the CBM petitions on the basis that USAA's patents provided a technical solution for capturing images of a check remote deposit and thus fell into the "technological invention" exclusion for CBM review.

Wells Fargo followed these dismissals with petitions for inter partes review, arguing that the all three patents claim inventions that are obvious to a person having ordinary skill in the art based on inventions that were described in other patents that predated USAA's patents. The PTAB also found this argument unpersuasive and terminated the IPR petitions.

Among the patents brought in the first lawsuit, the most recently terminated is the Wells Fargo IPR petition challenging U.S. Patent No. 9,336,517, which USAA dropped from the first lawsuit as they proceeded to trial. The PTAB terminated this IPR petition on Jan. 11, 2021, in a written decision ruling that a combination of prior art inventions would not have been obvious to a person of ordinary skill in the art, thus, Wells Fargo's attempt to invalidate the '517 patent was denied.

From the second lawsuit, Wells Fargo filed three more CBM petitions, seeking to challenge USAA's U.S. Patent Nos. 10,013,681; 10,013,605; and 9,224,136. All three CBM petitions were once again rejected by the PTAB on the basis that these patents provided a technological solution in the form of remote check deposit technology and not just the abstract concept of taking a photograph and sending it. Wells Fargo did not file IPRs on these three patents. At the second trial, USAA elected to proceed with only two of these three patents and dropped the '136 patent.

USAA's Litigation Expands

The war between USAA and other financial institutions is growing, with new cases revolving around the same technology as in the USAA v. Wells Fargo cases.

The newer battle between PNC Bank and USAA is a prime example of USAA's growing conflict with financial institutions. USAA filed suit against PNC Bank on Sept. 30, 2020, alleging that the PNC Mobile app, including its mobile check deposit feature and related technology, infringe U.S. Patent Nos. 10,482,432 and 10,621,559. Neither of these patents were asserted in the Wells Fargo cases, although the technology they cover encompass the same general check depositing technology and camera stabilization features.

On Dec. 2, 2020, USAA sought leave to amend its complaint against PNC Bank to add additional allegations that the PNC Mobile app, including its mobile check deposit feature and related technology, also directly infringe the '779 and '571 patents and that PNC Bank, through its mobile deposit feature and technology, induced infringement of and contributorily infringed the '779 and '571 patents.

PNC Bank consented to USAA filing the amended complaint. However, despite receiving consent to file its amended complaint, USAA has not done so. As a result of this delay, PNC Bank filed a complaint on Dec. 4, 2020, against USAA for declaratory judgment of noninfringement in the U.S. District Court for the Western District of Pennsylvania as to the '779 and '571 patents.

Mitek Systems Inc. filed a declaratory judgment suit against USAA as well on Nov. 1, 2019, in the U.S. District Court for the Northern District of California. USAA responded by filing a motion to transfer the matter to the Eastern District of Texas, which was granted on April 21, 2020. This case is still open and it involves the same '779, '517 and '090 patents as in the Wells Fargo case.

Strategic Options for Banks to Consider

If a bank believes a lawsuit from USAA is imminent, filing an IPR petition with the PTAB before the lawsuit is filed may still be an attractive option. Although Wells Fargo thus far has not succeeded, a bank likely is not estopped from filing its own IPR petition unless it is in privity with Wells Fargo, per Title 35 of the U.S. Code, Section 315(b).

A bank can increase the likelihood that the PTAB would consider its IPR petition separate from Wells Fargo if the bank relies on a different prior art combination and theory than the arguments Wells Fargo used in its petitions.

Filing an IPR petition early increases the chances that a district court stay any subsequent infringement lawsuit in favor of letting the PTAB decide the validity challenge first. While the PTAB has discretion to decide whether to accept an IPR petition and institute a proceeding to investigate the validity of a patent, under the PTAB's own NHK-Fintiv rule, an early filing of the IPR petition increases the chances the PTAB will institute the IPR proceeding.

While PNC Bank has pursued the option of filing a declaratory judgment suit to try and secure a different venue than Texas, the venue battle may favor USAA because a court may elect to transfer any declaratory judgment case to the Eastern District of Texas for efficiency purposes. USAA has argued that the Eastern District of Texas is most familiar with the patented technology from presiding over the Wells Fargo cases. In fact, the Mitek declaratory judgment suit was transferred under such a rationale.

The potential expansion of USAA's litigation campaign further highlights the importance of having some patents at your disposal for defensive purposes. Being able to assert a counterclaim for patent infringement changes the dynamic of a case and often leads to a more reasonably priced cross-license. Traditionally, financial institutions have not prioritized the filing and acquisition of patents, but this series of litigation demonstrates how expensive such a strategy can be.

In the past, defensive patent alliances in the fintech and finance services industry have been marred by starts and stops. Efforts such as the Blockchain Defensive Patent License encouraged all patent holders to share their patents with each other under a mutual defensive license. Other models include defensive patent alliances where all members of the alliance license their patents to each other, and if a member is sued for patent infringement, that member could take a patent from another alliance member to assert in a defensive counterclaim.

Perhaps defensive licenses and patent alliances will become more attractive in the financial services industry as an attempt to fend off expanding patent litigation in the space.

Lastly, there will undoubtedly be renewed focus by banks on their vendor agreements, especially at times of renewal, to ensure that the vendor provides a robust indemnity provision along with ironclad warranties of no intellectual property liability. Conversely, such warranties and robust indemnity protection will likely come at a more expensive price, but that may still pale in comparison to expensive litigation that results in nine-digit damage awards and attorney fees in the millions.