The Federal Circuit has wiped out nearly $223M in damages awarded to the United Services Automobile Association (USAA) in two verdicts against PNC Bank. On June 12, the court issued two opinions—one precedential—holding that the mobile check deposit patents tried in both cases were invalid as ineligible under Alice, and that Eastern District of Texas Judge Rodney Gilstrap had been wrong to hold otherwise. However, the appellate court also handed a win to USAA in a third opinion, also precedential, that affirmed Judge Gilstrap's dismissal of a declaratory judgment action by Mitek Systems, which had sought a judgment of noninfringement for its mobile deposit products, for lack of jurisdiction.
The PNC Litigation Below: Alice Losses, IPR Wins, and Final Judgment Uncertainties
USAA filed its first case against PNC in September 2020 in the Eastern District (2:20-cv-00319), originally asserting two patents (10,482,432; 10,621,559). That December, USAA sought leave to amend its complaint to add two more patents (8,977,571; and 8,699,779); two days later, the same day that the court granted that request, PNC filed a declaratory judgment action in the Western District of Pennsylvania (2:20-cv-01886) over the same two patents. (The following June, the Pennsylvania court held that the East Texas action was the first filed with respect to those patents, but stayed the case rather than dismiss or transfer it to East Texas.) In March 2021, the plaintiff filed a second action against PNC in the same venue over a further two patents (10,013,605; 10,013,681) that was later consolidated with the -319 case.
USAA then filed a third suit against PNC in July 2021, also in East Texas (2:21-cv-00246), in which it asserted a further three patents (9,224,136; 10,402,638; 10,769,598). In August 2021, USAA filed an additional East Texas case (2:21-cv-00311) against BBVA USA, the former US banking subsidiary of Spanish financial group Banco Bilbao Vizcaya Argentaria (BBVA), which PNC had acquired along with its corporate parent BBVA USA Bancshares two months earlier. (That case has been stayed pending the outcome of the suits against PNC itself.)
– The -319 Case
In January 2022, PNC filed a motion for summary judgment of patent ineligibility in the consolidated -319 case, arguing that arguing that the '432, '559, and '681 patents—among those referred to by USAA as the "mobile remote deposit capture" (MRDC) patents—were ineligibly directed to the abstract idea of "depositing checks using a mobile device to obtain the check image"; and the '571 and '779 patents, the so-called "autocapture" patents, to the abstract idea of "checking the quality of a check image before submitting it for deposit".
However, in May 2022, six days before trial in the -319 case, Magistrate Judge Roy S. Payne instead recommended that the court grant USAA's countervailing motion for summary judgment of eligibility. Judge Payne ruled that the MRDC patents are directed to eligible subject matter, holding that the claimed invention "improve[s] specialized check processing machines by enabling the function of those machines to be performed without specialized equipment", quoting his recommendation to deny an Alice challenge in a related USAA case "Wells Fargo II" (2:18-cv-00366), against Wells Fargo (which saw no appeal after the parties reached a settlement). Judge Payne also concluded that as Judge Gilstrap had decided in a second Wells Fargo case ("Wells Fargo I", 2:18-cv-00245), the '571 patent is also directed to eligible subject matter, as it presents a technical solution to the problem of "capturing images of sufficient quality to allow for subsequent detection and extraction of the information"; and for similar reasons held that the '779 patent, though not at issue in that earlier case, "recites a technological solution to the problem of capturing images of sufficient quality to allow for subsequent detection and extraction of the information".
Judge Gilstrap then summarily adopted that recommendation six days later, on the first day of trial. The fifth day of that trial culminated in a verdict in which the jury—asked to determine whether PNC "infringed ANY of the asserted claims" from the tried '571, '605, '681, and '432 patents—answered "yes" to that question (thus not making per-patent findings) and awarded $218.5M in damages, also finding that infringement had been willful and declining to find any claims invalid. As a result of that verdict, PNC's counterclaims (alleging USAA's infringement of certain PNC patents) were subsequently severed into a new proceeding (2:22-cv-00193) that was then consolidated with the third-filed USAA case (the -246 action).
In August 2022, the court issued an order rejecting PNC's equitable defenses of prosecution history estoppel and unclean hands as to USAA, declining to grant a new trial or throw out the verdict on that basis. However, that same day, Judge Gilstrap issued a final judgment in which he declined to award enhanced damages despite the jury's willfulness finding, citing his consideration of the totality of the circumstances and the fact that he had heard the "same evidence and heard the same arguments" as the jury. The court noted that enhanced damages are "generally reserved for 'egregious cases of culpable behavior'" under the Supreme Court's Halo Electronics v. Pulse Electronics decision and found that enhancement was not warranted here under that standard.
Though the court had rejected PNC's Alice motion, the defendant fared better in two of its inter partes reviews (IPRs) against USAA: In January 2023, the Patent Trial and Appeal Board (PTAB) invalidated all asserted claims from the tried '571 patent (IPR2021-01073) as well as all challenged claims from the '799 patent, which was not tried (IPR2021-01070). (A Federal Circuit panel affirmed those decisions in February 2025, and the full court (minus Circuit Judge Pauline Newman) denied USAA's petition for en banc and panel rehearing in early May (23-2124).) Later in January 2023, PNC moved for a new trial, arguing that the invalidation of the asserted '571 patent claims undercut the entire $218.5M verdict because of the wording of the verdict form (which, as noted above, asked the jury if PNC "infringed any of the asserted claims"). That same March, Judge Gilstrap denied the motion, declining its request to grant new trial on damages and its request for remittitur.
PNC's brief in the resulting appeal (23-1778) raised "many issues" but asserted that the Federal Circuit "need only address one", that of patent eligibility—contending that the tried claims are ineligibly directed to the abstract idea of "depositing a check or verifying a check image's quality to permit deposit", reciting only "conventional computer and networking devices performing their usual functions to carry out those traditional business practices". PNC also argued that it should be granted a new trial due to the aforementioned issue with the verdict form's combination of all patents into a single infringement question; due to alleged prejudice resulting from an improper reference to a Wells Fargo verdict at trial; and because that no reasonable jury could have found infringement. It also sought reversal or remand as to the damages verdict, arguing that a Wells Fargo license cited by USAA is not comparable; that the lower court erred in allowing USAA to argue to the jury that a redesigned feature infringed and that unasserted patents should be considered for damages; and that various issues undercut the testimony of USAA's damages expert, including with respect to the underlying theory and apportionment.
– The -246 Case
In the -246 case, PNC filed a motion for summary judgment of patent ineligibility in June 2022, arguing that the asserted '136, '638, and '598 patents are "directed to business practices or generic information collection and analysis related to depositing or processing a check that pre-date the Computer Age and are therefore abstract ideas". Here, PNC acknowledged a decision in Wells Fargo II that had previously rejected Alice challenges against the '136 patent but asserted that discovery in this case had "resulted in a different factual record which includes more evidence about the use of OCR in check processing". USAA argued in response that the court should follow the reasoning of the court in Wells Fargo II and that of the summary judgment decision in the -319 case against PNC in finding the patents not ineligible.
Judge Gilstrap denied PNC's motion and granted USAA's, this time without a report and recommendation from Judge Payne: The court issued that ruling from the bench at the pretrial conference in August 2022, without detailing the reasoning behind its decision.
The -246 case then went to trial in September 2022. On the fifth day of trial, a jury returned an infringement verdict for USAA, awarding $4.3M in damages (here specified to be a one-time lump sum, in contrast to the $218.5M award in the -319 case, which did not specify as such). The verdict form again presented a single infringement question, asking if PNC infringed "ANY" of the asserted claims (claims 1, 3, 5, 10, and 13 of the '598 patent and claim 20 of the '638 patent), to which the jury answered "yes". The court also found that PNC's infringement had not been willful, that it had not shown any claims to be invalid, and that USAA had not infringed certain claims asserted by PNC in its severed counterclaims (those from the -193 case).
That verdict was also trimmed by the PTAB after trial: In May 2023, the Board invalidated claims 1 and 8-20 from the '598 patent—i.e., a subset of those PNC had been found to infringe (leaving claims 3 and 5)—in another PNC IPR (IPR2022-00076). However, in January 2025, the Federal Circuit affirmed the invalidation of claims 1 and 8-20 but also overturned the PTAB's decision not to invalidate challenged claims 2-7, thus invalidating all of the tried claims. Additionally, in June 2023, the PTAB invalidated all 18 claims from the '136 patent, which was asserted in the -246 case but not tried, in one more PNC IPR (IPR2022-00075); the Federal Circuit affirmed that decision in March 2025 (23-2244).
– Final Judgments Rejected by Federal Circuit
The day before hearings scheduled in the respectively consolidated appeals of the -319 and -246 actions, the Federal Circuit directed the parties to address at oral argument whether there had been final judgments for all claims and counterclaims with respect to patents dropped before trial (the '136 and '559 patents). At oral argument for the -246 case appeal, Circuit Judge Timothy Dyk explained that the record was confusing as to how those claims and counterclaims were decided in both consolidated cases (-246 and -319)—remarking that counsel for both sides were "at fault" and "should be embarrassed that the court is being put in this position". The court then issued a limited remand directing the parties to request amended final judgments, which they did in both cases.
The Federal Circuit's Alice Decisions
The Federal Circuit issued opinions in both PNC appeals on June 12.
– The -246 Case Appeal
In its precedential decision on the appeal from the -246 case (23-1639)—which addressed just the '638 patent, since the Federal Circuit had already affirmed the PTAB's invalidation of the '598 and '136 patents—the court held that Judge Gilstrap erred at step one of the Alice test by determining that the claimed improvement to "check depositing technology by allowing checks to be deposited quickly and remotely without requiring specialized equipment" was a technological solution to a technological problem sufficient to render the claims eligible. Rather, the Federal Circuit ruled that this amounted to "routine processes implemented by a general-purpose device (e.g., a handheld mobile device) in a conventional way". The court observed that it has repeatedly determined that claims implementing an abstract idea using a computer, without adding more, are not patent eligible under Alice.
To that end, the Federal Circuit found that the sole asserted claim from the '638 patent "recites routine data collection and analysis steps that have been traditionally performed by banks and people depositing checks—namely reviewing checks, recognizing relevant data, checking for errors, and storing the resultant data". Implementing those "routine steps" using a mobile device does not render the claims non-abstract, the court held—noting that while USAA pointed to certain "extremely non-obvious algorithms" used by the patented invention, that algorithm was not found in the claims, which merely state what the claimed system is configured to do without stating how it is configured. The court contrasted this claim with the one found eligible in McRO v. Bandai, which "incorporated specific features of defined rules as claim limitations". The Federal Circuit further noted that improvements to the user experience during the use of a computer application, rather than improvements to the technology itself, is also not enough to render a claim non-abstract. As a result, the Federal Circuit concluded that claim 20 of the '638 patent is directed to the abstract idea of "depositing a check".
Turning then to step two, the Federal Circuit held that the challenged claim lacks an inventive concept that would support eligibility—rejecting USAA's contention that it contains an "inventive concept because it solves the technological problem of accurate detection and extraction of information from digital images of checks using general purpose mobile devices". Rather, the court found that the "claim recites nothing more than routine image capture, OCR, and data processing steps—all of which were well-known and routine" (citing its 2014 decision in Content Extraction & Transmission v. Wells Fargo Bank). Nor did the court find anything inventive about implementing the claimed steps on a customer's mobile device rather than a specialized check scanner, as highlighted by USAA. Finally, the Federal Circuit was unconvinced by USAA's argument that factual disputes as to the conventionality of claim elements like "OCR, remote deposit applications, and cameras" precluded dismissal at the summary judgment stage. No genuine dispute of material fact existed, the court found, citing "ample evidence in the record and in our caselaw that OCR was known . . . and used in commercial check depositing systems".
Having thus reversed the lower court on patent eligibility, invalidating the asserted claim under Alice, the Federal Circuit declined to "reach USAA's cross-appeal concerning the alleged admission of improper expert testimony on damages because there are no longer any valid patents to support the jury verdict".
– The -319 Case Appeal
The Federal Circuit's decision addressing the -319 case (23-1778), this one nonprecedential, also addressed a narrower set of patents—'605, '681, and '432—given its recent rulings affirming the invalidation of the '571 and '779 patents.
The court began by rejecting Judge Payne's conclusion that the claims were eligibly directed at step one to a technological improvement to "specialized check processing machines by enabling the function of those machines to be performed without specialized equipment", as implemented through "features that enable the recited general purpose computer to perform the same functions as the specialized check processing machines of the prior art". Rather, the court pointed to its concurrent ruling in the -1639 appeal, holding that "[t]he claims here are no less abstract". The Federal Circuit explained that "similar to the claims in the companion case, the claim elements recite only routine and well-known steps taken when depositing checks, like authenticating the customer, capturing check images, reading the check amount and account information, and checking for errors". Moreover, it found the claims to be "silent" as to any "specific software or technical advances", lacking any explanation on "how the claimed general-purpose computers are made to act like specialized check scanners" (emphasis in original) and merely disclosing that certain steps are performed and describing them in a "results-oriented manner". Thus finding no technological solution sufficient to save the claims at step one, the court concluded that they are directed to the abstract idea of "depositing a check using a mobile device".
The court also found no inventive concept at step two, rejecting USAA's argument that the use of a mobile device was inventive—noting that it has previously held that limiting an abstract idea "to a particular technological environment" is not sufficient (citing its 2015 decision in Intellectual Ventures I v. Capital Bank (USA)).
Concluding as a result that the remaining asserted patents are ineligible under Alice, the Federal Circuit declined to reach any of PNC's post-trial motions.
The Federal Circuit's Second Mitek Decision
In November 2019, Mitek filed suit against USAA in the Northern District of California, seeking declaratory judgments of noninfringement of four of USAA's patents—basing its claims to subject matter jurisdiction, at least in part, on its provision of technology to Wells Fargo that was also purportedly implicated in the Texas litigation. District Judge Edward M. Chen then transferred from the Northern District of California to the Eastern District of Texas. In the transferee venue, USAA continued to contest subject matter jurisdiction, arguing that Wells Fargo at the time of Mitek's complaint (and to the extent relevant PNC) was responsible for its own mobile check deposit platform and that Mitek's claims related to indemnity, with either bank or with NCR (from which PNC has apparently sought indemnity and which has apparently sought indemnity from Mitek), were insufficient to ground jurisdiction.
In April 2021, Judge Gilstrap granted USAA's motion to dismiss, agreeing both that "[t]he most reasonable course of action to address Mitek's apprehension of litigation brought on by the Wells Fargo Case would have been for Mitek to intervene in that litigation", which it did not do, and that the only USAA "enforcement letter", among several allegedly sent to Mitek customers by USAA, "presented to the Court . . . fails to provide neither threatens litigation nor calls out any particular patent as being infringed". The letter, apparently sent to Mission Federal Credit Union from USAA's licensing counsel, "fails to provide claim charts, and does not indicate that any infringement analysis has occurred. Neither does it specifically call out Mitek, or identify particular products as allegedly infringing. The Mission letter accuses no particular product of direct infringement, and it contains no indication of infringement claims against Mitek's products". Given these tenuous facts, Judge Gilstrap dismissed the case for lack of jurisdiction, further ruling that even if subject matter jurisdiction were to attach, he would use the court's discretion to decline to exercise it nonetheless.
Mitek then filed an appeal with the Federal Circuit, which in May 2022 affirmed the order transferring the case from California but vacated and remanded Judge Gilstrap's dismissal order, holding that "finer parsing of the issues and more particularized determinations" were required, in part with respect to whether USAA's motion to dismiss amounted to a facial or factual challenge, the latter of which would entitle it to "a resolution of at least some factual disputes, not just to a decision on the sufficiency of the complaint when combined with undisputed facts". The Federal Circuit also determined that Judge Gilstrap abused his discretion by failing to explain why he would exercise his discretion to decline jurisdiction even if there were subject matter jurisdiction (21-1989).
After ordering a new round of briefing and holding a hearing, Judge Gilstrap issued a new decision on remand that again dismissed the case for lack of jurisdiction. The court found that Mitek had no reasonable apprehension of claims of direct infringement, based on the record as showing how Mitek's product works and was implemented, as well as the record in the Wells Fargo litigation; and that as to induced and contributory infringement, the record did not reflect USAA as having taken any actions suggesting liability on those bases—such that there was no case or controversy, particularly in light of post-complaint events. The court also found that there was no reasonable potential for indemnification liability, and gave further reasons why it would discretionarily decline to exercise jurisdiction if it existed because the proper way for Mitek to defend its own software would be to intervene in USAA customer litigation.
Ruling on appeal in a June 12 precedential decision (23-1687), the Federal Circuit began by upholding the district court's conclusion that Mitek lacked a reasonable apprehension of suit for direct, indirect, and induced infringement. For direct infringement, the Federal Circuit noted the district court's finding that Mitek's MiSnap product undisputedly did not perform all of the asserted claim limitations on its own; the lack of threats of direct infringement from USAA; and the fact that the customizable MiSnap does not infringe in its "unadulterated" configuration, determining that the "patents-in-suit plainly support this finding". The court rejected Mitek's argument that Judge Gilstrap focused too much on MiSnap's customizability, and that its product could face liability under cases providing that functional claim language is frequently construed as not requiring "actual performance" but merely the capability of operating in an infringing manner—pointing out that those cases require that capability "without any modification or further programming", whereas "MiSnap is a software development kit that is not capable of satisfying certain computer hardware-related limitations in the asserted claims". Nor could Mitek's testing of complete mobile deposit systems have given it a reasonable apprehension of suit on this basis, the court found.
The Federal Circuit additionally held that the district court had not erred by concluding that for apprehension of suit based on induced infringement, the case fell under the Federal Circuit's holding in Microsoft v. Datatern, in which the patent owner sued Microsoft customers and provided Microsoft documentation as evidence of infringement for some claim limitations, but third-party documentation for others. The court in Datatern found that those charts "do not impliedly assert that Microsoft induced that infringement", such that there was no jurisdiction for that patent. As in that case, the Federal Circuit found here that while the patent owner had sued Mitek customers, it had only pointed to Mitek documentation (in one of the Wells Fargo trials) in support of some of the key claim limitations at issue, while no other evidence supports "establishes a reasonable potential that Mitek encourages performance of the remaining limitations".
The Federal Circuit also found no error in the district court's determination that Mitek lacked a reasonable anticipation of suit due to contributory infringement—principally because it had not shown that the MiSnap product had no other noninfringing uses, as partly required to establish liability on that basis. "In fact, 'USAA has expressly said the opposite—i.e., that MiSnap has several substantial non-infringing uses'". It did not matter, per the court, that MiSnap was primarily developed with the infringing use in mind, as this does not render other uses "unusual, far-fetched, illusory, impractical, occasional, aberrant, or experimental" (citations omitted).
Additionally, the Federal Circuit found that post-complaint events further supported Judge Gilstrap's decision—including that the Federal Circuit had affirmed the PTAB's invalidation of the '571 and '779 patent, collaterally estopping USAA from litigating them further. The court found that those invalidity rulings undercut Mitek's argument that suits against PNC and Truist Bank bolster its standing, as the '571 and '779 patents were the only ones at issue in the relevant PNC litigation, further finding that the Trust suit—involving an additional patent (9,818,090)—underscores that as the district court determined, "[i]n each subsequent lawsuit against Mitek customers, fewer of the [patents-in-suit] have been litigated and use of evidence related to MiSnap has decreased".
As for Mitek's second asserted basis for standing, the potential for indemnification liability, the Federal Circuit found that Judge Gilstrap had been correct to conclude that "Mitek could not have reasonably believed it would be subject to indemnification liability" on the record presented. In particular, it agreed that the applicable indemnification agreements produced by Mitek on remand "contained applicable carve-outs that precluded a reasonable potential for indemnification liability". The Federal Circuit further noted that most of these agreements were with third-party financial services providers that "in turn" have their own indemnification agreements with end-user banks, and determined that "Mitek has not established a case or controversy between these third-party financial service providers—the indemnitees—and USAA. Therefore, Mitek has failed to establish standing based on these agreements".
Finally, the Federal Circuit held that Judge Gilstrap had this time provided sufficiently "detailed, independent analysis" to justify his holding that even if there were subject-matter jurisdiction he would exercise discretion not to accept it. The court found no abuse of discretion underpinning that determination, including the notion that Mitek can instead intervene, for various reasons—in part, pointing out that Mitek had conceded that it "could have permissibly asked to intervene" in the Wells Fargo litigation but did not realize it was "so essential" until it was too close to trial; and citing the concerns raised by the district court with respect to the practical difficulty of litigating this declaratory judgment action without extensive involvement by third-party banks.
For more on this litigation, see "Judge Gilstrap Affirms Two USAA Verdicts—Including Smaller Damage Award Challenged by Plaintiff" (March 2023).
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