Defending patent claims against NPEs

Banks and financial services companies are sued by non-practicing entities (NPEs), also called patent trolls, more than any industry outside of the software and consumer product sectors. In fact, about 6% of NPE patent litigation is against the financial services sector, according to a recent report. And NPE cases are not limited to large companies—as many as 60% of the defendants targeted by NPEs are companies with less than $100 million in revenue. Thus, community banks must be prepared to deal with demand letters and lawsuits from NPEs.

As discussed in my earlier post on patent litigation against banks, a common strategy of NPEs is to send a demand letter seeking a sum of money that is less than what it would cost a bank to defend against patent litigation. NPEs hope to extract settlements from banks that wish to avoid the expense and hassle of litigation. While the first inclination may be to pay such a demand, there is often good reason to fight back and defend against patent litigation. For example, a bank may want to dissuade other NPEs from making similar settlement demands. And as a recent case from the Eastern District of Texas shows, a bank may be able to successfully fight NPE litigation without incurring massive legal fees.

The case involved claims by an NPE called Ruby Sands LLC, which argued that several banks’ mobile deposit applications infringed on Ruby Sands’ patent for an electronic image transfer system. Ruby Sands sued a number of banks, including some community banks with assets of less than a few hundred million dollars. In June, the court dismissed Ruby Sands’ lawsuit, finding that Ruby Sands “fails to state a claim for relief that is plausible on its face.” The court noted that Ruby Sands’ patent could only be infringed by a company that makes or sells mobile devices and concluded that “Ruby Sands makes no factual allegations that even remotely suggest that CNB, a bank, makes, uses, offers to sell, or sells mobile devices.”

In the Ruby Sands case, the banks were able to completely dispose of the lawsuit less than seven months after it was filed and before engaging in lengthy discovery or court proceedings. While this case involved unique circumstances that may not be present in every situation, it shows that there are times when it makes sense to fight patent litigation instead of paying a small settlement in response to a demand letter from an NPE.