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Monday, March 06, 2006
(RemoteDepositCapture.com)
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On February 24th 2006, DataTreasury, a small firm claiming it has a patent which covers image-based check clearing (and therefore Remote Deposit Capture), filed suit against over 50 banks, service and technology providers. This most recent filing is the largest effort DataTreasury has taken to defend its patent claims. Previously, DataTreasury would only target one, two, or a small handful of defendants.
Based upon our conversations with many in the banking industry, many feel that DataTreasury’s claims are unfounded, that there is plenty of prior use and prior art dating back to as early as 1987 which can overturn these patent claims. DataTreasury, however, cites settlements with JPMorgan Chase, RDM, NetDeposit, Ingenico and others in which those defendants acknowledged the validity of DataTreasury’s patents.
Indeed, the settlement with JPMorgan Chase (in which the terms were kept confidential) took the industry by surprise. Much has been written about the strategy for smaller firms to settle these types of lawsuits to avoid lengthy and costly legal battles. The JPMC settlement sent a shockwave through the industry. How could a company with such deep pockets and legal expertise settle a suit like this? One theory holds that DataTreasury’s patents really would be upheld should an attempt be made to overturn them.
Another interesting theory puts forth the idea that the settlement was a brilliant strategic move by JPMC. As the first major bank to settle with DataTreasury, a nice deal could be struck which works in both parties favors. JPMC could demand that, in exchange for a confidential settlement, JPMC would not pay anything to DataTreasury, and possibly even be granted a percentage ownership in DataTreasury. JPMC is then able to freely operate an image-based clearing network, and can walk into any corporation and boast they are the only RDC provider legally authorized to provide a Remote Deposit Capture service and clear checks as images.
This type of settlement would (theoretically) enable JPMC to corner the market. If licenses were granted to other banks and service providers, JPMC would still have a cost advantage. –And if the patents were to eventually be overturned, the time and costs spent in courts by the other defendants, and the perceived risk in the marketplace all work in JPMC’s competitive favor. –This, of course, is just a theory. Given the confidentiality of the settlement, only DataTreasury and JPMC know the details.
For DataTreasury, the benefit of a settlement with JPMC is the ability to reference the fact that one of the top Financial Institutions in the world settled with them. This argument tends to hold a lot of weight in settlement negotiations with defendants.
Now that DataTreasury is casting an ever-wider net, they are clearly one to keep on almost everybody’s radar screen. The impacts to the industry will likely be:
- A lengthening of the adoption curve as providers and users are more careful entering the market,
- Increased costs as time and effort is spent either defending against DataTreasury lawsuits or direct licensing payments are made to DataTreasury,
- Reduced applicability of image-based check clearing (as industry costs rise, a profitable business case applies to fewer opportunities)
- Increased risk that a court order will prevent a current provider from continuing operation.
On the other hand, these patent lawsuits seem to conflict with the goal and purpose of the Check 21 legislation. If these patent lawsuits stymie the industry’s efforts to adhere to the goals and objectives of Check 21, could DataTreasury’s fate lie not in the hands of the courts, but in the hands of Congress? Already, there are new laws in development which hope to, at least in part, address the confusion around these types of patent lawsuits by settling patent disputes faster and within the patent office itself (instead of going through the courts).
The opportunities, risks, options and issues surrounding the DataTreasury lawsuits present a legal and business strategy quagmire for the banking industry, and American business. Checks have long been the lifeblood of the American Economy and are still the single largest form of payment received by corporations. Let’s hope that however things are decided, the progress the payments system in the USA has achieved over the past few years is not erased.
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