JPM Settles in Check 21 Patent Battle
American Banker (7.07.05)

By Will Wade

A small item processing company won an important victory in its legal battle to assert its patent rights for digital imaging technology that it claims is critical to check image exchange systems. DataTreasury Corp. of Melville, N.Y., has been pursuing patent infringement lawsuits against several large banking and technology companies since 2002. Last month it reached a licensing agreement with Zions Bancorp.'s technology unit, NetDeposit Inc., and in a settlement announced Wednesday, JPMorgan Chase & Co. agreed to make payments for use of DataTreasury's two patents.

The settlement appears to give DataTreasury further ammunition for its stated goal of extracting licensing fees from other companies developing image exchange capabilities; last week it filed lawsuits accusing Bank of America Corp., Wachovia Corp., Wells Fargo & Co., and Citigroup Inc. of infringing on the imaging patents it received in 1999 and 2000.

Rod Cooper, a lawyer with the Cooper Law Firm of Dallas and DataTreasury's patent counsel, said the JPMorgan Chase settlement sets a precedent that other banking companies should consider.
"This is very important to us. It means that someone spent a lot of money trying to invalidate the patents, and couldn't," he said. "If I were a patent counsel for the other banks, I would take a serious look at this judgment."

In a consent judgment filed Friday, JPMorgan Chase admitted that it had infringed on DataTreasury's technology, and agreed that the patents are both "valid" and "enforceable."
Judy Miller, a spokeswoman for the New York banking company, said, "We made the decision to settle this case because that was in the best interest of our company."

Though the terms of the settlement are confidential, she confirmed that JPMorgan Chase will pay DataTreasury a fee to license the technology.

Mr. Cooper said the fee was "significant."
Besides pursuing lawsuits, DataTreasury offers check processing services, and has just one customer, Signature Bank, a New York unit of Bank Hapoalim BM of Israel.

DataTreasury says in court filings that its patents cover "an invention in remote image capture with centralized processing and storage," and that the technology is a necessary component of the image exchange systems that banks and technology vendors have been developing for years. These networks let banks convert checks into images they can transmit to each other electronically instead of hauling paper checks around the country.

Though only a small portion of the industry's check volume is settled through image networks today, their use has been growing since the Check Clearing for the 21st Century Act took effect in October. Image exchange is widely considered to be the future of item processing, and the DataTreasury litigation appears to be an attempt to assert ownership over a critical part of the process.

"They could potentially own Check 21 and check imaging," said Avivah Litan, a vice president and research director at Gartner Inc. of Stamford, Conn. "Banks will probably want to settle in order to prevent that."

In the suits filed last week, DataTreasury demanded damages from the four banking companies and requested an injunction barring them from using the technology.

A spokeswoman for Bank of America said the Charlotte company had not been served with the suit and could not comment on it. A spokesman for Wachovia said he could not comment on pending litigation. Spokespeople for Citi and Wells Fargo did not respond to inquiries.

DataTreasury also has cases pending against the SVPCO unit of Clearing House Payments Co. LLC of New York and First Data Corp. of Denver.

A case against Viewpointe Archive Services LLC, a Charlotte company that operates a large check archive and exchange system, was dropped as DataTreasury pursued a case against JPMorgan Chase, one of Viewpointe's co-owners. Mr. Cooper said the JPMorgan settlement covers Viewpointe only as far as its imaging activities for JPMorgan Chase are concerned.

Because Viewpointe continues to offers imaging services for its other bank owners and customers, Mr. Cooper said DataTreasury has refiled its infringement suit against it.
Jennifer Lucas, a spokeswoman for Viewpointe, said she was not surprised by the new filing. "They have been going at this for years, and we have been fighting it, as an industry, for years."

Viewpointe will "aggressively defend itself," against the suit, Ms. Lucas said.
Though she disputed the notion that the JPMorgan Chase settlement adds credence to DataTreasury's claims, she said it "obviously gave them a lot of confidence, because they have filed against some much bigger fish."

Alenka Grealish, the manager of the banking practice for the Boston market research firm Celent Communications LLC, said that JPMorgan Chase may have settled because it was easier than fighting a protracted court battle.
And because the settlement may help DataTreasury in its other actions, the banking company may have gotten favorable terms, she said. In general, whoever is the first to settle a case like this "might be able to get a better deal."
DataTreasury "has a clever strategy," Ms. Grealish said. "They are getting the big names to settle first, to admit that they are infringing, and then they can move on to the next big banks. This will up the ante for the next ones."

However, she said that she doubted whether the patents control as much of the imaging process as DataTreasury claims. Optical character recognition technology - the ability to electronically read documents and convert them into digital files - "has been around for a long, long time, and it's the heart and soul of check imaging."
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