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Check imaging at heart of patent suit Testimony resumes today in federal court

By Robin Y. Richardson
March 16, 2010 at 12:22 p.m.

The joint patent infringement trial of Data Treasury versus U.S. Bank, ViewPointe Archive Services, the Clearing House Payments Company and SVPCo (Small Value Payments Co.) began here Monday in the U.S. District Court, Eastern District of Texas, with Judge David J. Folsom presiding.

The trial drew a roomful of observers, filling the courtroom to its capacity, causing officials to bring in extra chairs.

DataTreasury, a small Plano-based company, has alleged that U.S. Bank, the fifth largest commercial bank in the nation, and other defendants in the suit for infringing its '988 and '137 patents. The patents cover its system for capturing and exchanging digital images of checks. DataTreasury received patents for the check imaging technology in 1999 and 2000.

During the trial, Derek Gilliland, DataTreasury's attorney, showed the jury the deposition of Jerry Allen Grundhofer, former CEO and president of U.S. Bancorp, the parent company of U.S. Bank.

Grundhofer, who served as CEO from 2001 to 2006, testified that, as a member of the bank's capital expenditure committee, his concept of U.S. Bank's long-term check imaging strategy when the proposal was presented in 2002 was to keep up with other banks in the industry.

"Other banks were ahead of us. We had to catch up and spend a lot of money to go to electronic imaging," Grundhofer said.

The total projected size of the project was $88 million. Grundhofer said he did not believe U.S. Bank would be buying into "old technology."

In explaining the banks' relationship with Clearing House, a defendant named in the suit, Grundhofer noted the bank is a member of the entity. When asked as a member of the Clearing House if he remembered any reports of SVPCo, which is the check image exchange business or subsidiary of The Clearing House, being sued for patent infringement, Grundhofer said he remembers seeing documents.

When asked by Gilliland what was his understanding of the relationship between U.S. Bank and Viewpointe, another defendant in the suit, Grundhofer noted the bank invested $20 million in Viewpointe, which is one of the nation's largest providers of check image exchange and electronic storage and retrieval services.

Grundhofer did not consider the patent infringement lawsuit against Clearing House alarming or a problem for the bank.

"The Clearing House doesn't get sued often," he said, adding members were told the lawsuit was going well.

In his deposition, William Lawrence Chenevich, vice chairman of technology and operations services at U.S. Bancorp, noted he's been representing the bank as a member of the board of managers for Viewpointe since 2002.

"They store images of our customers' checks," he said. "We invested $20 million to be equity owners in the business. In that investment, we got one board seat."

He said U.S. Bank decided to become an owner in Viewpointe instead of a customer because U.S. Bank was emerging as one of the top 10 banks.

"We were concerned that two major banks would control the product line for Viewpointe," Chenevich explained. "We thought it was important to be there with our input as to what the product should be."

"The concern was, as we got into image clearing discussions, the technical aspects of how you do that had to be broad enough to accommodate our needs for installation," he continued. "We wanted to influence that design and that product line."

Chenevich said when the bank joined Viewpointe, it had an operation need to get text online to its customers and a strategic view to change the check clearing paper process to image exchange.

"We wanted to leapfrog in exchanging images with multiple parties and use the archive to (share) images with other banks," he said. "We outsourced that with Viewpointe. It meant less routing for us, not relying on trucks and planes to move checks around and less image transmission. That's why they call it the reengineering of going to image (clearing) and image sharing. We settled on the concept of image sharing."

When asked by Gilliland what U.S. Bank knew about DataTreasury's technology, Chenevich said "we were aware of it.

"We relied on legal representation to inform us if we were possibly infringing," Chenevich informed.

Dr. Hugh Smith, director of the computer engineering program at California Polytechnic State University, said in his opinion, U.S. Bank did infringe claims outlined in the patents.

He was hired by DataTreasury in 2008 to work on the case by reviewing the patents and examining other banks' implementation of the system.

U.S. Bank's attorney argued that the 3897 scanning device system the bank uses for scanning and sorting its images has been available by IBM since the 1970s.

"Banks have been using the 3890 made with microfilm cameras in there going back into the 1970s," he said. "At some point, they updated from film to digital cameras. Now, they capture images digitally and store them on computers."

He further noted that images are not encrypted when U.S. Bank sends them to its scanning system as it is in DataTreasury's system.

Viewpointe's attorney argued that Viewpointe does not infringe any of the claims in the patents regarding the word "capture" because Viewpointe does not capture images.

"Because Viewpointe alone does not capture, it cannot infringe claims," the attorney stressed, naming the claims.

"You agreed with (Viewpointe's attorney) that Viewpointe does no imaging capturing," he said, addressing Dr. Smith. "That equally goes for Clearing House because Clearing House also does no capturing. Clearing House alone cannot infringe any of the claims."

The trial resumes today at 9 a.m. with testimony from Claudio Ballard, DataTreasury's founder and inventor of its system.



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