Vendor Files Check Image Patent Suits Against Banks
American Banker (12.15.04)

By Steve Bills

In a series of lawsuits against several banks and vendors, a small New York payment processor is asserting broad patent rights over the process of creating and storing digital check images.

The claims appear to apply not only to image exchange, which the newly implemented Check Clearing for the 21st Century Act encourages, but even such older practices as printing check images on monthly account statements.

DataTreasury Corp. of Melville, N.Y., which calls itself "a pioneer and specialist in secure remote image capture with transaction processing and centralized storage facilities," is pinning its claims on two U.S. patents. The patents, issued in 1999 and 2000, describe a system for "remote image capture with centralized processing and storage."

The cases are now wending through the court system. A favorable decision for DataTreasury could help it obtain licensing fees as banks begin to implement image settlement systems.

The defendants in a series of suits the company filed in federal courts in Texas include Bank One Corp. of Chicago (which J.P. Morgan Chase & Co. bought in July) and Zions Bancorp. of Salt Lake City as well as vendors including First Data Corp. of Greenwood Village, Colo.; Electronic Data Systems Corp. of Plano, Tex.; and Viewpointe Archive Services LLC of Charlotte.

The lawsuits were reported Tuesday in The Wall Street Journal. How much their success could bring the plaintiff is hard to estimate but could be substantial. In its suit against JPMorgan Chase, filed in June 2002 in Texarkana, DataTreasury asked for triple damages because of the "willful infringement" of its patent rights but did not specify a dollar amount.

Executives of DataTreasury were not available Tuesday to discuss the cases, a spokeswoman said. They were in Dallas to attend a pretrial hearing on some of the technical issues, she said.

JPMorgan Chase said that the "prior art" in the field renders the company's claims invalid. In a prepared statement Tuesday, the New York banking company said: "It is well documented and publicly known that the banking industry, including JPMorgan Chase, had been developing and implementing check imaging technology since the mid 1980s. As indicated by the filings in this case, we strongly deny all of the allegations of this claim."

JPMorgan Chase would not provide an executive to discuss the case on the record. It did supply several reports to back up its claim that check imaging was a well-established practice in banking long before DataTreasury filed its patent applications in 1997 and 1998.

Nancy Etheredge, a spokeswoman for First Data, said that "as a holder of many patents ourselves, we respect valid and enforceable patent rights." She declined to comment further.

Spokespeople for Zions, EDS, and Viewpointe did not respond to requests for comment.

Avivah Litan, a vice president at the Gartner Inc. research and consulting firm in Stamford, Conn., speculated that DataTreasury might win a settlement.

She called it "a classic case of a small company with some very clever innovators that filed a patent many years ago, saw this coming, and waited for the iron to be hot."

"They don't have much to lose by alienating these big guys," Ms. Litan said.
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