Maryland Legal Alert for Financial Services
Financial Institutions Blanketed with Patent Infringement Demands
In the last two weeks, a number of our financial institution clients have received demands (which have included draft legal complaints) from the owner of several technology patents, claiming that the financial institutions are using technology that infringes those patents. One of our clients was actually sued (skipping the demand first) roughly a month ago. The patent owner wants financial institutions to enter into licensing deals and pay royalty fees. It appears to us that the patent owner first targeted the largest banks, then targeted large regional banks, and is now focused on financial institutions in the $1–$10 billion asset range.
We wanted to share high-level thoughts about the claims. The patents at issue are owned by a company called DigitalDoors, Inc., which is located in Florida. The patents are related to something called Sheltered Harbor Certified Systems which, at a high level, involve one or more methods of storing and organizing data in efficient and protected ways. The draft complaint that we have seen alleges that just about all financial institutions use technology that incorporates elements of the DigitalDoors’ patented inventions. The core allegation is basically that financial institutions use systems that take critical financial account information and extract and convert it into a Sheltered Harbor industry standard format. DigitalDoors appears to be blanketing financial institutions with notices about the alleged patent infringement so that they will sign license agreements and pay for continued use of the underlying technology. It appears that several financial institutions have settled cases and presumably entered into licensing agreements with the patent owner.
Whether or not a financial institution is using systems that use DigitalDoors’ technology is the key question. It is a difficult one to answer because the draft complaints that we have seen do not specifically say how the subject institution is infringing the patents, just that practically all financial institutions do – therefore, the threatened financial institutions must be using some technology that is infringing.
It is possible that one or more key third-party technology providers are providing whatever is ultimately at the root of the patent allegations. It is our understanding that some core processors offer a service through their broader suite of services that uses a name similar to “Sheltered Harbor” and that is intended to guard against ransomware attacks – a copy of an institution’s entire data file can be stored at a third-party location that is accessible if the original data file gets encrypted by ransomware. Financial institutions should discuss this issue with their information technology departments and third-party technology providers to determine if the financial institution is using any Sheltered Harbor Certified Systems. If so, then it is possible that financial institutions that receive a demand or that are sued by the patent owner will have indemnification recourse through the underlying technology provider that provides the technology at issue.
Key Action Items: If a demand like this is received or if a lawsuit is filed, financial institutions should provide prompt notice to their applicable insurers and engage counsel familiar with the patent owner’s demands and mode of operation.
Please reach out to Christopher R. Rahl or Andrew D. Bulgin with questions concerning this topic.
Contact Christopher R. Rahl | 410-576-4222
Contact Andrew D. Bulgin | 410-576-4280