Two of the largest U.S. banks – Bank of America (“BofA”) and Wells Fargo – were sued for patent infringement by Wapp Tech Limited Partnership and Wapp Tech Corp. in the Eastern District of Texas in July 2018. The lawsuits allege infringement of three patents relating to mobile device application development and testing systems that simulate network characteristics indicative of mobile app performance. Just two weeks before the lawsuits against BofA and Wells Fargo, Wapp Tech sued both Micro Focus and Hewlett Packard Enterprise (“HPE”) on the same three patents. HPE and Micro Focus completed a spin-off and merger of HPE’s software business on September 1, 2017, valued at $8.8 billion. Wapp Tech now asserts that BofA and Wells Fargo infringe its patents by using testing systems of Micro Focus (formerly offered by HPE), including the Micro Focus LoadRunner load testing software and Micro Focus Performance Center. Wapp Tech accuses both Micro Focus and HPE of infringement for selling those products as well as the StormRunner Load cloud-based load and performance testing solution and Mobile Center mobile testing solution.
As mobile banking applications continue to increase in usage and importance in the financial services industry, the surface area exposed to patent lawsuits has also increased. Mobile app performance and access to data in the cloud are of paramount importance to user experience. As smartphone adoption has dramatically increased over the last several years, so too has the usage of mobile banking apps. In fact, according to a Mobile Banking Report from the Federal Reserve, in 2017 roughly half of U.S. adults with bank accounts had used a mobile phone to access a bank account.
In its Complaints, Wapp Tech devotes several pages to the “App Economy” including statistics highlighting the importance of mobile app performance and availability and the resulting impact on customer satisfaction. For example, 67% of Millennials now use mobile banking as their primary engagement with their bank compared to only 18% for consumers aged 60 and over. And Wapp Tech cites to a forecast that over 50% of the U.S. workforce is projected to be made up of “App First Millennials” by 2020 as the basis for Micro Focus entering into the spin-out merger with HPE to move into the “Mobile-First” product model. Wapp Tech also asserts that the vast majority of Micro Focus’ downstream clients (including defendants BofA and Wells Fargo) have “initiated a ‘Mobile-First’ strategy to ‘mobilize’ their customer base to engage in a new era of app users and as a result, have relied on the mobile testing products offered by Micro Focus.” (Complaint against Well Fargo, ¶ 49).
To support its royalty demand, Wapp Tech cites to the explosion in the number of mobile active users (purportedly more than 22M for Wells Fargo and more than 25M for BofA), and the critical need for mobile app performance and virtual user and stress testing that is executed by the defendants in alleged violation of Wapp Tech’s patents. While Wapp Tech vaguely asserts that the patent royalties owed by Wells Fargo and BofA are “significant,” it claims that HPE owes in excess of $400 million USD. Given that the actions against Wells Fargo and BofA are customer focused lawsuits, it would not be surprising if both banks make an indemnification claim on Micro Focus and HPE.
Over the last several years, patent lawsuits against financial services companies have decreased significantly, due in large part to the Supreme Court’s Alice decision as well as the America Invents Act Covered Business Method review program which can be used to challenge patents directed to financial, non-technological business methods. However, that downward trend may change direction as Alice is applied more predictably and consistently by the USPTO and the courts. Couple that course correction with the expanding mobile-centric, cloud-centric trend in banking, and more cloud-based financial technology focused lawsuits are likely to follow. Wells Fargo has been sued for patent infringement in four cases in 2018 alone (the most it has faced since 2015) including USAA’s lawsuit on cloud-based check depositing. It will be interesting to see if the general rise in cloud-computing patent lawsuits does in fact translate to more patent assertions against the financial services industry going forward.