Empowered Expertise

Post USAA, financial institutions must guard against finTech IP suits

by Fabian Eccles-Williams, Enterprise Risk on

More than two decades ago, the software house Mitek Systems collaborated with the financial services giant USAA to develop mobile banking technologies. The relationship unfortunately broke down over time, and the companies pursued development independently. Both entities filed for separate patents in respect of the technology, and released separate products: Mitek in 2008 with a digital cheque-depositing tool, and USAA followed with Deposit@mobile in 2009.

In what would be the start of decades of litigation, USAA sued Mitek in 2012 claiming the developer ‘had misappropriated its proprietary and confidential information while working under contract for USAA’. Mitek countersued, claiming USAA had violated its patents and breached licensing agreements. They settled in 2014, keeping their respective patents. The case appeared to be closed.

However, as is often the case with IP disputes, the story did not end there. In 2017 USAA accused 100 financial institutions of infringing its patents by using the Mitek system, focusing on Wells Fargo as the first to pursue officially through the courts. Late last year the financial institution was found to have been ‘knowingly using [USAA’s] patented technologies and subsequently profiting from doing so’, and ordered to pay US$200 million. Then, earlier this year in a separate IP infringement case between the same companies, over the same mobile deposit technology, Wells Fargo was ordered by a federal jury to pay USAA another $102.8 million.

A wider risk for financial institutions

Roughly 6,500 financial institutions rely on similar technology, for use by their 87 million customers. It remains to be seen if these financial institutions  will be sued by USAA, which has stated that it will be working on licence agreements, and that its goal is ‘to be reasonably compensated’. If the Wells Fargo decisions are upheld, USAA may feel ‘reasonably compensated’. Equally, though, it may well opt to pursue other financial institutions, using the favourable court decisions as ammunition. The ultimate cost of that course is not clear. Like licence fees, fines levied in individual cases depend on usage and the extent to which the defending company’s profits rely on the product underpinned by the relevant IP. Even smaller financial institutions may rely on mobile payment technology for millions of transactions, suggesting costs will be steep in any case.

USAA v Wells Fargo could ignite widespread patent litigation between financial institutions over the technologies they depend upon. USAA is not the only significant patent holder. The top patent holders in the finance sector (Visa, IBM, Mastercard and Bank of America) hold nearly 20,000 active patents. The existence of so many FinTech patents, alongside the decision in USAA vs Wells Fargo, further fuels the risk that other entities in the finance sectors will face court challenges over IP infringement.

Furthermore, it may not be solely in respect of in-house developed technology that a financial institution could face a challenge. There is an ever-growing exposure regarding technology supplied by vendors, as is the case for Wells Fargo. In many cases, the vendors being significantly less financially robust than the financial institution they are contracted to supply to.

Risk management considerations

  1. Financial Institutions may instruct their legal representatives to conduct analyses to identify IP which may present an infringement risk. This process can be costly and it is not always possible to identify every IP right that could potentially overlap with your product. Even when completed successfully, an opinion that finds no overlapping IP does not prevent a third-party patent-holder from pursuing a case from a strategic perspective.
  1. Before technology is purchased or licensed, robust indemnification provisions should be negotiated, seeking to ensure liability lies solely with third-party vendors. While this does not provide a catch all, as vendors may ultimately refuse liability, or be bankrupted by litigation which makes indemnifications worthless, it is the first line of defence. Historically, indemnification clauses have been less of a focus when negotiating contracts for financial institutions.
  1. Acquire affordable insurance. A handful of global insurers provide IP insurance products designed specifically to protect against the substantial financial risks involved with IP-related disputes. TMK has developed insurance solutions to cover the bespoke needs of financial intuitions and their vendors. To learn more, visit our website, contact your broker, or email the TMK team.

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