Financial Services

Banks and Credit Unions Should Take ATM Patent Infringement Claims Seriously

A Primer on Automated Transactions LLC's Claim of Patent Infringement by ATMs

Updated: June 29, 2012

A growing number of banks and credit unions are receiving notices claiming patent infringement relating to their processing of transactions through their Automated Teller Machines (ATMs). The plaintiff, Automated Transactions, LLC (Automated Transactions) claims it holds an exclusive license for the patents from the patent holder, Transactions Holdings Ltd. LLC. Central to each patent claim is the concept of an integrated banking and transaction machine that provides for a retail transaction to the customer through an Internet interface to the ATM.

Initially, financial institutions were informed by Automated Transactions that a lawsuit had been filed in federal court and were given the opportunity to settle prior to receiving service. More recently, they have been advised that a lawsuit will be filed if they don’t settle and acquire a sublicense within a short time frame. Thus far, most of the financial institutions have been located in the Northeast, but now Automated Transactions is moving to other regions.

Automated Transactions has sought to enforce 13 patents, 12 of which are “continuations” of the original patent 6,945,457 (the '457 Patent) — continuation patents apply the original patent in a variety of contexts. The inventor applied for the original patent to the U.S. Patent and Trademark Office (PTO) in 1996, and it was granted in 2005. The patents expire on May 10, 2016.

Essentially, Automated Transactions contends that it holds an exclusive license for the use of an internet interface to conduct transactions of the type that are commonly conducted from ATM machines — dispensing cash, account inquiries, balance transfers and the like. It asserts that subsequent to the grant of the patent, financial institutions (and retailers which offer ATM services) and their service providers have been using an Internet interface to process ATM transactions and have been infringing the patents. Automated Transactions declares that the patents apply to financial institutions if they are directly connected to the internet through virtual private networks or are indirectly connected by T-1s or dial ups to third party service providers that ultimately use the Internet to effect transactions through VPNs.

Automated Transactions has brought suits to enforce its patent claims. The first case appears to have been brought in 2006 against IYG Holdings Co., the majority shareholder of 7 Eleven, (Automated Transactions LLC v. IYG Holdings Co. et al. No. 06-cv-043 (DeD) on the basis of four patents, and the defendants prevailed at the trial court level on claims similar to those advanced against the financial institutions. In particular, the court held that the patents were not infringed since the use of the ATMs was by means of a VPN and not through an Internet interface, as claimed in the patents. Automated Transactions appealed that ruling to the Federal Circuit Court of Appeals. A companion case between the same parties filed in 2010 has been stayed pending resolution of the appeal. Since then a number of financial institutions have been sued on the more extensive list of patents discussed above.

Also, based on a request filed in 2006 by an individual on behalf of the NCR Corporation, a patent examiner rejected certain claims of the ‘457 Patent and several continuation patents based primarily on the determination that they were obvious in light of “prior art” following an ex parte reexamination. The remaining claims of the continuations of the ‘457 Patent were not subject to the reexamination. Transactions Holdings Ltd. LLC appealed the patent examiner’s decision, which was upheld by the Board of Patent Appeals and Interferences in January 2011. That decision was also appealed to the Federal Circuit Court of Appeals.

On April 23, 2012, the Federal Circuit Court of Appeals ruled on both the IYG case and the PTO appeal and upheld both decisions. In particular, it affirmed the lower court ruling that ATMs that connect to private networks do not infringe the patents. This latest development is a setback to Automated Transactions. A number of the continuation patents were not covered by the decision; however, under its logic, it is reasonable to conclude that no infringement is occurring from the use of ATMs connected to private networks. Automated Transactions has petitioned the court for a reconsideration of its decision. It has stated that if it loses it intends to take an appeal to the United States Supreme Court. Despite this setback, Automated Transactions has continued to make claims on financial institutions.

A number of financial institutions have had discussion with the manufacturers of the ATMs and their third-party servicers to inquire about indemnification under their contracts. These discussions have not been successful.

At this time, there is a growing likelihood that Automated Transactions will not prevail on its theories. However, if a financial institution receives the notice or is sued, it does not have the luxury of doing nothing. If a defense is not asserted in a suit, then a default judgment will follow and the financial institution will be liable to pay royalties to Automated Transactions.

Currently, Automated Transactions is offering to settle all past infringement claims and grant a non-exclusive license to the patents for a small royalty per each foreign transaction for which a financial institution receives a fee, payable quarterly until the patents expires. Automated Transactions will also consider settling for an upfront lump sum payment based on the number of ATMs in use. Until all cases involving the patent infringement claims have been definitively resolved against Automated Transactions, we expect that it will continue to offer these options.

When faced with the prospect of a suit, financial institutions must decide whether it is in their best interest to settle or fight the claim. In our experience to date, when faced with the reality of an actual or threatened lawsuit, a financial institution will have to make a cost/benefit analysis and choose what course of action makes sense in light of these new developments. We have assisted a substantial number of financial institutions in making these difficult choices and are ready to help others. We have found that by joining financial institutions in a group, we have had the most success in negotiating the terms of the licenses and keeping legal costs to a minimum, in many cases less than $3000. In this manner, the claims can be quickly resolved and all financial institutions are assured that they are treated in a uniform manner.

For more information, please contact John Funk.

* John Funk is admitted in New Hampshire, Massachusetts and Vermont. R. Matthew Cairns is admitted in New Hampshire.

Matt Cairns on Google+

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