In a different suit, DataTreasury, a Plano, Texas-based patent holding company, has sued some 49 defendants including four Texas credit unions. The firm alleged infringement of its Ballard patent, which DataTreasury claimed in court documents is “foundational to modern day, image-based check processing, enabling technological improvements that save the banking industry billions of dollars annually.”

How can credit unions defense against such suits?

A growing number of patent suits are filed by so-called non-practicing entities—patent trolls, to use the derogatory phrase—whose business is owning patents and pursuing associated infringement litigation. They do not actually make anything, but they stay busy mailing out demand letters.

Many of these firms already have filed suits against large financial institutions and they naturally work their way down a list, said Jonathan Spivey, a partner in the Bracewell & Giuliani law firm in Houston.

Ken Otsuka, CUNA Mutual Group senior risk consultant, said he thinks patent trolls will probably increase their efforts against small institutions. Credit unions are introducing new ecommerce services that involve patents. This sets the stage for more patent lawsuits, he said.

Spivey agreed, saying “The natural evolution is that over time smaller institutions will be targeted,”

It gets worse, according to Robin Cook, an assistant general counsel at CUNA's Washington office.

“Smaller entities are especially vulnerable to the tactics of patent trolls because they do not have the resources to defend themselves, and may see settlement as an easy option,” he said. “In this way, trolls see targeting small institutions as a way to a quick payday. “

Settlement is the norm.

Putting an end to the threat of litigation can be had for a price, but it puts credit unions in a classic dilemma. They can pay a license fee—thus ending any litigation—or they can proceed to court.

“Fewer than 15% of threatened cases ever go to trial,” said patent lawyer Michael Cesarano of Feldman Gale in Miami, Fla., who estimated that the cost of taking a typical case through trial would cost in the range of $400,000 to $500,000.

Patent lawyer David Newman in Arnstein and Lehr's Chicago office puts the average tab for a case that goes to trial higher still, around $1 million.

He added that patent trolls are acutely aware of the cost of litigation and accordingly, they customarily will offer to settle for a figure that represents a discount off trial costs.

“I see many instances where they are asking $250,000 to $650,000 for a license,” Newman said.

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The experts also said patent holders understand that credit unions are smaller than many banks, and license fees accordingly may be substantially lower.

“It's a business decision. Some credit unions will pay $5,000 for a license just to make the matter go away quickly,” said Brian O. Dolan, a patent lawyer with Kaufman & Canoles in Newport News, Va.

What's the alternative to paying out a sizable license fee?

Step one, said Douglas Bridges, an attorney with the Washington-based Capital Legal Group, is to make sure that the credit union is, in fact, infringing upon a particular patent.

“Often patents in the financial area are written by people with banking knowledge, but not credit union knowledge,” he said. See if the patent rests on assumptions about how large banks operate, but not how credit unions operate.”

That is, just because a demand letter said there is an infringement doesn't necessarily make it so.

Credit unions can also seek to pass the burden on to the vendor that supplied the technology to the credit union, Otsuka said.

“Very few credit unions create their own technology internally,” he said. “Most buy it; therefore, the legal burden may be on the vendor.”

Otsuka further urged credit unions, even before they receive a demand letter, to check technology contracts to ensure the vendor has agreed to indemnify the institution in the event of legal action.

“The number one risk mitigation tool is for credit unions to review the contracts they have with third party vendors to make sure there is an indemnity provision in favor of the credit union,” he said. “In that event, if the credit union is sued, the vendor will be obligated to hold that credit union harmless.”

Experts insisted that not all contracts contain the desired indemnification clause and at least some vendors will resist inserting such language. However, they said if credit unions push for it, most vendors will agree to the terms.

“Negotiate with your vendors to get a representation that they are not infringing,” Dolan said. “If they refuse, what are they worried about?”

If a credit union follows experts' advice, can it dodge costs associated with patent claims?

Kirk Drake, CEO of the Hagerstown, Md.-based CUSO Ongoing Operations, said, patent suits just are a sign an organization has achieved a certain size.

“The bigger you are, the more time you spend on patent matters,” said Drake, who indicated he has received demand letters and his CUSO itself also owns patents. “It really is just part of the game today.”