How DataTreasury Could Become a Toll Collector in Check Imaging

Little noticed until now, a small, privately held technology company on Long Island this week scored a major victory in a patent-infringement case that is sending shock waves throughout the electronic payments business, observers say. One direct result, they say, could be sharply higher costs for banks and third-party processors that are building image-exchange networks to swap digital images of checks, including images captured at remote locations, such as retail stores. These organizations, for example, could be forced to pay fees to license technology for these processes, a cost the smaller companies may not be able to bear. “It creates a tollbooth on the superhighway” of check imaging and exchange, says John Leekley, a former banker and now a consultant and partner in a new Web site, RemoteDepositCapture.com, Parsippany, N.J. “It will definitely thin out the crowd.” The potential beneficiary will be DataTreasury Corp., a Melville, N.Y., company few heard of until yesterday, when it brought one of the world's largest banks to its knees in one patent case and then filed suit against four other large financial institutions (Digital Transactions News, July 6). The company, which holds two patents seen as key to document imaging, storage, and transmission, reached a settlement with J.P. Morgan Chase & Co. in which the bank admitted the patents are valid and enforceable. As part of the agreement, J.P. Morgan will license DataTreasury's technology at an undisclosed price for worldwide use. DataTreasury, which has filed a series of infringement cases over the past three years, last month reached a similar agreement with another defendant, NetDeposit Inc., and is pursuing litigation with 11 other banks and vendors, including Bank of America Corp., Citigroup Inc., Wachovia Corp., and Wells Fargo & Co., which it sued yesterday. But now even major banks, processors, and image-exchange networks will have to take the little company, and its claims, seriously. “Yesterday was a wakeup call with the J.P. Morgan settlement,” says Leekley. The settlement comes at a time when banks are forming image exchanges to get rising check-processing costs under control by replacing paper with digital images. They're also eyeing major cost-savings?and, possibly, big fee revenues?in a business made possible by image exchange: so-called remote capture, in which commercial businesses image checks and send them to central locations to be processed. In this way, chain stores, for instance, can consolidate checks electronically at a single vendor for all locations, rather than deposit locally with scores of different banks. How much DataTreasury could ultimately extract in licensing deals, should its remaining claims be upheld, is anyone's guess. Even the company's lawyers say they don't know. “We've never set a dollar value on the technology,” says Rod Cooper, a Dallas-based patent attorney representing DataTreasury. RemoteDepositCapture.com's Leekley figures that, although the number could be as little as a penny or fractions of a penny per item, it would still be significant for the check-processing industry. As an example, if the fee applied to 8 billion items–half the transit checks handled each year–at a penny each it would generate $80 million annually. Numbers like that send shivers up the spines of industry players, especially since many feel DataTreasury's claims, which are based on business-method patents, cover processes long in use. “I'm surprised it's gotten this far with DataTreasury,” says Leekley. “There's clearly prior art.” That may have to be determined when one of the remaining cases actually goes to trial. In the meantime, DataTreasury's representatives puts little stock in arguments resting on prior art. “J.P. Morgan responded to that for us,” says Cooper.