Many Scrutinize Outcome of Tech Licensing Case

Many Scrutinize Outcome of Tech Licensing Case

Depending on your perspective, it’s either a classic David-versus-Goliath story, or a nuisance propagated by a firm that exists primarily to sue other companies, most of them banks. Now, a series of patent infringement lawsuits brought by tiny DataTreasury Corp. against some of the country’s biggest banks are getting their days in court.

First up is giant U.S. Bancorp, whose trial began in a Marshall, Texas, federal courtroom in mid-March. The Minneapolis-based banking company, like dozens of its kin, is accused of infringing on two DataTreasury patents for the capture and exchange of digital check images. USB could be on the hook for as much as $600 million-$202 million in alleged damages that could be tripled if it is found to have knowingly violated DataTreasury’s patents.

USB, which is a codefendant with vendors Viewpointe Archive Services and Clearing House Payments Co., clearly feels confident: It didn’t bother disclosing the legal drama in its most recent proxy. USB’s attorneys argued early in the trial that the IBM scanning technology used for its imaging solution has been available since the 1970s.

Company spokesman Steve Dale said the charges are “without merit,” because its check imaging solution doesn’t use DataTreasury’s patents. “We’re confident the jury will rule in our favor.”

Win or lose, the USB suit is merely the first salvo in DataTreasury’s decade-long quest against the industry and its vendors. The firm moved its headquarters from Long Island to Plano, Texas several years ago to be closer to its Dallas-based law firm. The court in Marshall hears more patent cases than any other court in the country.

Two suits involving other banks are pending for later this year. The defendants include Bank of America Corp., which faces the biggest liability: about 55% of the alleged damages, or $869 million, according to U.S. District Judge David Folsom, who is overseeing the cases. Wells Fargo & Co. accounts for $101 million of the alleged damages. Winston-Salem, North Carolina-based BB&T Corp., SunTrust Banks of Atlanta, and Cleveland’s KeyCorp also are being sued.

A low buzz has surrounded the charges for years, and some banks and vendors-including JPMorgan Chase & Co. and NCR Corp.-have quietly settled rather than duke it out in court. “This is the first time DataTreasury has … come all the way to a jury trial,” the firm’s attorney, Anthony Bruster, told the USB jury. The settlements might be perceived as saying the case has merit, experts say, but also could be strategic moves or simply intended to dispose of a nuisance.

“My strong suspicion is that nothing was stolen here,” says Bob Meara, a senior analyst with Celent, who has followed the imaging space for a decade. He says that DataTreasury’s major contribution was coming up with a “process improvement” that’s employs technology similar to imaging any other piece of paper.

The technology DataTreasury is trying to lay claim to is central to the so-called “Check 21” law, which allows banks to process checks electronically. “To claim this is a unique process for checks seems like a real stretch. They just said, ‘Here’s a way to process checks more efficiently.’ They’ve been proven right, but many other firms have spent a lot of R&D dollars to develop products.”

Attempts to reach DataTreasury founder Claudio Ballard were unsuccessful. DataTreasury’s attorneys did not respond to interview requests.

The story began in 1994, when Ballard, a computer engineer, saw how a Long Island pizzeria kept customers’ credit-card receipts in a shoebox and decided there had to be a more secure, less paper-intensive, and cheaper way to process payments.

By 1997, Ballard had working prototypes for a check-imaging system, and filed for patents. A year later, he founded DataTreasury to market the invention. Ballard pitched his idea to the old Chase Manhattan Bank, which reviewed his patents and conducted on-site visits. “I was ecstatic,” he testified in court. “I thought we had a real breakthrough.” Ballard raised startup capital, hired a staff, and opened a state-of-the-art data center.

In 2002, the now-JP Morgan partnered with other banks and vendors to launch SVPCO, now a subsidiary of the Clearing House, and Viewpointe. DataTreasury filed several patent infringement suits, accusing JP Morgan of reengineering its technology to help launch those rivals. The New York bank settled its case in 2005.

The terms are private, but it now pays licensing fees to the firm.

Regardless of what happens in the Marshall courtroom this year, we’ll likely be hearing more about DataTreasury and its patents in the future.

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