By Ray Birch
WASHINGTON—Credit unions may face yet another wave of lawsuits, and this time whether the cases are considered frivolous or not will likely be determined by a case pending against Wells Fargo.
At issue: USAA claims to have developed the technology–on which it holds approximately 50 patents–that many credit unions and banks are using for remote deposit capture. In May of 2017, USAA announced it was “inviting” banks and credit unions to license the patent rights to its RDC technology.
“Most credit unions use vendors for RDC services and products, and it appears that USAA is asserting patent infringement claims against credit unions and banks directly instead of the vendors that are using for RDC,” CUNA’s Lance Noggle, senior director of advocacy for payments and cybersecurity and senior counsel, told CUToday.info.
Wells Fargo is the first financial institution to face a USAA RDC lawsuit in court.
Credit unions offering, or planning to offer, RDC services to members should be aware of USAA's claims, the impact of litigation against other financial institutions that offer RDC and possible steps that can be taken by credit unions to invalidate patents, noted Noggle.
Noggle confirmed many credit unions have received demand letters from USAA’s law firm, which CUNA declined to name.
San Antonio-based USAA has filed the Wells Fargo lawsuit in U.S. District Court for the Eastern District of Texas. USAA claims it created the technology for internal use in 2005, before rolling it out in 2006.
“We are not sure of the exact number of credit unions that have received demand letters, but we know it is a sizeable number,” said Noggle.
What to Do Now
Noggle said USAA’s claims against use of remote deposit capture technology covers multiple vendors.
“The best thing credit unions can do now if they have received a demand letter is to contact their remote deposit capture vendors and let them know they have received a letter,” said Noggle. “Hopefully, the vendor providing the technology the credit union is using will step forward to help the credit union deal with USAA.”
Noggle said that he hopes vendors would ultimately indemnify credit unions if that were ever needed.
“But that might not be the case with all vendors, as these decisions could be based on the contracts that were signed by the credit union,” said Noggle.
The impact of the lawsuits, and their potential reach across the financial services industry, will likely be determined by the outcome of USAA’s lawsuit against Wells Fargo, said Noggle.
Close Attention Paid
“We are watching the Wells Fargo case closely,” said Noggle, about the proceedings that are only in their early stages. “We want to see the impact this litigation will have on Wells Fargo to see how credit unions might proceed moving forward. The decisions from this case will certainly help credit unions make decisions. Perhaps the Wells Fargo case would invalidate USAA’s claims and then nothing will happen to credit unions or to other financial institutions.”
Or, worst case scenario, Wells Fargo could be found in violation of infringing on one of the four patents USAA is alleging the bank violated in using the technology.
“There is a wide range of potential implications from this case,” said Noggle, who expects the suit against Wells Fargo to continue for some time.
Noggle noted that the strategy of suing the user instead of the vendor is common in patent litigation. Noggle said that it is possible that if USSA wins in the Wells Fargo case that would influence other court decisions and ultimately lead to USAA receiving a license fee from credit unions and banks that use the RDC patents that are at the center of lawsuits.
“This would be another revenue stream for USAA,” Noggle said.
Webinar Scheduled
Noggle advised credit unions that offer remote deposit capture to contact their RDC vendor to discuss a strategy they can employ if they do receive a demand letter from USAA’s law firm.
“They need to be proactive in knowing their rights so they can continue using their remote deposit capture product if they are hit with a demand letter,” he explained. “Get some level of comfort here. Credit unions should not ignore this, even though some may think the suits are frivolous. This still could impact you, you should at least look into this issue.”
CUNA will conduct a webinar Oct. 30 on the topic. Registration is open for the webinar, which is scheduled for 3 to 5 p.m. ET on Oct. 30.