Mitek Prepares To Duke It out in Court with USAA over Disputed Patents

It looks like mobile-deposit software developer Mitek Systems Inc. and its former ally USAA Federal Savings Bank will be going to the mat in their their patent dispute. Despite a near tripling in revenues to $3.22 million, Mitek on Tuesday reported a $2.39 million loss for fiscal 2013’s second quarter ended March 31 mainly because of higher litigation expenses, added hiring, and a sales and marketing push.

At no time during their afternoon conference call with analysts did San Diego-based Mitek’s top executives mention the word “settlement” in reference to the patent dispute that began in March 2012. Mitek is involved in at least one other patent dispute, but chief financial officer Russell C. Clark said the USAA litigation was the main driver of the company’s $700,000 in litigation expenses in the last quarter. The bills are about to get higher.

“We expect these expenses to increase in the third and fourth fiscal quarters given the level of activity in the USAA case associated with fact discovery … and expert testimony, which is scheduled to be completed in November,” said Clark.

Mitek recently was awarded its 14th patent and has 25 pending, according to chief executive James B. DeBello. It holds in a number of key patents for software that takes the image of a check shot by a smart phone’s camera for uploading via an online-banking program for deposit. Many banks and processors have licensed Mitek’s software as the backbone of their mobile-deposit services.

San Antonio, Texas-based USAA, a pioneering financial institution in developing remote deposit capture using common printer-scanners and then mobile devices, and Mitek began working together in 2006. The companies had a falling out, however, that led to USAA going to court seeking a declaration that it does not infringe on the Mitek patents. Shortly afterward, Mitek sued USAA, accusing the bank of using a number of its patents without authorization. The suits have been consolidated and are pending in U.S. District Court in San Antonio; no trial date has been set.

A USAA spokesperson could not be reached for comment late Tuesday.

The costly court battle was the only major blot on Mitek’s quarterly report. Some 889 financial institutions have signed on as users of the company’s core Mobile Deposit product, with 445 live as of March 31. Transactions increased by more than 25% for the fourth consecutive quarter.

Mitek also is developing related imaging products such as its Mobile Photo Bill Pay software that enables consumers to pay bills by snapping pictures of them and sending the images through online-banking sites. Minneapolis-based U.S. Bancorp is Mitek’s first major bank customer for that product. Some insurance companies are now Mitek customers too, according to DeBello, who says the firm also is working on a product that will enable consumers to snap photos of credit card statements and transfer balances to issuers with better terms. “We expect to have upcoming announcements about commercial deployments of these other use cases this year,” DeBello said.

Mitek’s software revenues ballooned to $2.17 million in the second quarter from just $505,448 a year earlier. Maintenance and professional-services revenues hit $1.05 million, up 53% from $686,289 in 2012’s second quarter.

Mitek now has just over 50 employees and plans to add new staff members, most of whom will work in research and development, Clark said.

n

n