Mitek Fires Another Salvo in Battle with USAA Over Mobile Capture Technology

A pitched battle between two of the earliest players in the business of mobile check capture escalated on Thursday when Mitek Systems Inc. filed a legal motion accusing USAA of defamation and unfair business practices. Mitek’s action is the latest salvo in a case in which San Antonio, Texas-based USAA has accused the software company of theft of trade secrets and Mitek has responded by charging the financial institution with patent infringement.

San Diego-based Mitek, whose software is used by more than 330 financial institutions to process check capture by consumers on mobile phones, filed its latest motion in U.S. District Court in Wilmington, Del., as an amendment to its patent suit, which it filed in April. The company says it wants to add the defamation and unfair-practices charges because USAA has not produced any evidence that Mitek stole trade secrets.

In March, USAA filed suit against Mitek in U.S. District Court in San Antonio alleging fraud, breach of contract, and unjust enrichment, besides theft of trade secrets. USAA alleges Mitek improperly rolled out a mobile capture product using technology the bank had developed and disclosed to the software company under confidentiality agreements. USAA also seeks a declaratory judgement that it has not infringed on any of five patents Mitek holds related to mobile capture.

Instead, says Mitek president and chief executive James DeBello, the USAA suit is all about hamstringing Mitek and gaining leverage over it in negotiations concerning software licensing. “We truly believe the USAA lawsuit is nothing more than a heavy-handed tactic for better business terms,” says DeBello, who calls the charge of theft of trade secrets “preposterous,” since, he says, it was Mitek that educated USAA officials about mobile capture.

“USAA is confident in the merits of our case,” the institution says in a statement issued late on Thursday. “We look forward to presenting the facts surrounding this case in a court of law.” A USAA spokesman said the company would not comment beyond the statement.

The bone of contention is a mobile remote deposit capture service USAA introduced in 2009 called Deposit@Mobile. DeBello says that service relied in part on Mitek software that recognized courtesy and legal amounts on checks (the numeric and spelled-out amounts, respectively). USAA, a single-branch institution serving mostly military families globally, had earlier adopted the technology for Deposit@Home, a scanner-based remote-capture service it introduced in 2006. With both services, USAA was considered a pioneer among financial institutions in the business of letting consumers deposit checks by imaging them at home or on the go. Some 30% of aggregate checking and savings customers were using Deposit@Mobile in February 2012, compared with 19% a year earlier, according to research by Celent LLC.

While the software worked well with flatbed scanners, it was not as well suited to smart phones, DeBello says. He says Mitek hoped USAA would ultimately adopt newer software from the company that solved problems the older recognition technology was having with the color images mobile devices created.

In January 2008, Mitek applied for its first methods and systems patent on mobile capture and, according to a timeline it has prepared, briefed USAA officials on its mobile product the following month. Deposit@Mobile, Mitek alleges, is a “knock-off” of its product. The U.S. Patent & Trademark Office issued the patent in August 2010. Four more Mitek patents related to mobile capture were granted in 2011. In its suit, USAA says it developed its mobile technology independently.

The bank's suit came as the two companies were nearing the end of the original licensing agreement, leading DeBello to suspect the suit is a negotiating tactic. “We don’t know their intent, we can only surmise,” he says.

For all the contentiousness of the case, the Mitek-USAA courtroom battle is not likely to slow down bank or consumer adoption of mobile remote capture. “I don’t see how it would have a chilling effect,” says Bob Meara, a senior analyst at Celent who follows the market. Implementation queues in the fourth quarter, the latest for which Meara has information, were “substantial,” he says, with more than 100 financial institutions lining up to adopt the service.

Still, the market punished Mitek, whose shares are traded on the NASDAQ. The company closed down 75 cents on Thursday, at $3.10 per share, and was down another 6 cents in after-hours trading as of 5:50 p.m. Eastern Time.