Credit unions have now joined the list of financial institutions being targeted by what an industry association calls a "patent troll." And it's apparently no phishing trip. They're real live lawsuits and they're reportedly being settled for real money in some cases.
The Credit Union Information Security Professionals Association (CUISPA) said a company called Wolf Run Hollow LLC is now including credit unions in the series of complaints it's filed in several states, charging infringement on its patent for a widely used piece of modern banking technology - message alerts.
The IT security trade group put out the following alert of its own this week:
"CUISPA has reported that several credit unions have recently received notices from patent licensing group, Wolf Run Hollow, LLC, claiming to own the rights to U.S. Patent No. 6,115,817 issued Sept. 5, 2000, for Methods and Systems for Facilitating Transmission of Secure Messages Across Insecure Networks. According to the complaints, financial institutions are infringing the patent by using secure messaging systems to communicate with members and vendors, including via their web sites.
Over the past year, Wolf Run Hollow has filed approximately 40 patent infringement suits against financial institutions in Texas, Mississippi, California, and Alabama in what appears to be a typical patent troll action. While most of the financial institutions that have been sued have been banks, CUISPA is reporting that several credit unions have recently received notices as well. Wolf Run Hollow appears to be seeking compensatory damages in the form of a lump sum license fee in an attempt to settle out of court. While some institutions have settled, others are disputing the claims. The suits appear vague in their explanation of the infringement raising questions over how and if the FI is actually infringing."
CUISPA Executive Director Kelly Dowell said the legal threats are not to be taken lightly, although he said if it was his credit union that received such a notice, the first thing he would want to do is challenge the company to show what exactly is being infringed and how.
He said that he's talked to a couple of credit unions that agreed with Dowell that the complaints were imprecise and that they would respond by asking for specifics. But he also said the cost of having lawyers engage in a courtroom fight, or just preparing for one, could easily exceed the $20,000 to $40,000 "at most" he said he has heard has been the price of a license fee to settle the issue.
We found what appeared to be the holder of the patent through an Internet search and left voice and e-mail messages asking about the patent, its history and the specific services that use the protected technologies, but have not heard back.
Meanwhile, an East Coast lawyer told us that none of his list of credit union clients have been contacted but noted that contracts with vendors of online services-or about any other service like that-should almost certainly contain indemnity clauses intended to protect the vendors' customers in such cases.
But that may not necessarily be enough, pointed out a veteran staffer of a consultancy that specializes in vendor selection, among other things. She noted that increasingly tough compliance rules compelling credit unions to exercise due diligence on their vendors could muddy the waters.
Dowell said he agreed with both those points-noting that an online banking company he also works with (Jwaala LLC) provides such indemnification but that Wolf Run Hollow LLC appears to be choosing states, at least his own, where the courts tend to favor patent holders.
He said the CUISPA would like to hear from credit unions that have been contacted. He said one "very large credit union" he declined to identify has received the notice and told him they would be happy to have their legal department talk to others that also have been hit with the "patent troll."
"We just want everyone to be aware of this and we want credit union people to put their heads together about this and talk about it and formulate a quick response, if we can," Dowell said. He's at firstname.lastname@example.org or (512) 465-9711.