DataTreasury’s Trial Victory Doesn’t Bring Legal Marathon to an End

The jury verdict rendered Friday in favor of a small software company that says big banks and processors are trampling on its electronic-check patents may have boosted that company's cause but it hardly brings down the curtain on what has been a costly legal marathon for the payments industry. “We're a long way from the end of this saga,” says John Leekley, chief executive of RemoteDepositCapture.com and a long-time observer of Plano, Texas-based DataTreasury Corp.'s claims against scores of major banks and check processors. Although DataTreasury has reached settlements over two business-method patents it holds that cover the storage and transmission of electronic check images, the decision last week marked the first time its claims had been tested in a jury trial. The verdict, reached in the federal court for the Eastern District of Texas, came against U.S. Bancorp, The Clearing House Payments Co. LLC, and Viewpointe Archive Services LLC and found them liable for $27 million in damages. “This is the first time a jury found these patents to be valid.” says a spokesman for DataTreasury. “It's nearly impossible now to make the argument that these patents aren't valid. The patents are bulletproof.” But plenty of litigation remains. Jury selection in a second trial, this one involving Wells Fargo & Co., BancorpSouth, and Wachovia Bank (which was acquired by Wells Fargo last year) as defendants, is set to start Aug. 1. And yet a third, against defendants Bank of America Corp., SunTrust Bancorp, KeyBank, and LaSalle Bank (acquired by Bank of America after DataTreasury filed its original suit), is scheduled to start Oct. 5. Both cases will be heard in the same federal court that held the U.S. Bancorp trial. Moreover, further action by the defendants in the first trial may yet be forthcoming. Neither The Clearing House nor Viewpointe will comment on last week's result or on what their plans may be. U.S. Bancorp issued a statement hinting at a possible appeal: “We are disappointed with the jury's verdict, but remain confident that U. S. Bank did not infringe the patents at issue and that the patents will ultimately be held invalid. U.S. Bank intends to pursue all avenues to protect its rights in further proceedings…and on appeal if necessary.” DataTreasury has pressed its claims against a number of banks, processors, and software companies involved in check image exchange over the years, and several have settled. The biggest to do was JPMorgan Chase & Co., which reached a licensing agreement in 2005 on undisclosed terms. In 2007, the U.S. Patent and Trademark Office upheld both DataTreasury patents after a re-examination. Now, experts argue last week's jury verdict might convince at least some remaining defendants that settlement might be less costly than continued litigation, particularly now that a jury has set a price on using DataTreasury's technology. “The question is, is it really worth fighting this, because now they have a concrete number,” says Leekley. “Is it maybe better to license?” According to check-volume data in a court document filed in January, the $27 million in damages awarded last week works out to about two-tenths of a cent per transaction. Leekley also questions whether U.S. Bancorp will ultimately pursue an appeal. “They'll be eating up hundreds of millions of dollars more,” he notes. “They'll just double the cost they've incurred to date. At $27 million, they may just decide to move on.” Meanwhile, other small companies and entrepreneurs armed with payments or financial-services patents are closely watching the DataTreasury cases, Leekley says, and could press their own claims more aggressively now. “There have been many folks who have contacted us to say, 'I have a few patents, and I'm waiting to see what happens with DataTreasury,'” he says.