Frivolous Legal Claims

Position

  • ICBA urges Congress to provide immediate relief for community banks from “demand letters” sent by plaintiffs’ law firms alleging violations of federal statutes including the Americans with Disabilities Act (ADA) as well as traditional patent assertion entities (PAEs) or patent trolls that focus on alleging flimsy patent infringement claims.
  • ICBA urges the Department of Justice to provide community banks and other small businesses a safe harbor from ADA accessibility standards until industry standards are codified in final rules.
  • ICBA is committed to further raising community bank awareness and to providing resources to assist community banks in responding to these demand letters.
  • ICBA urges Congress to amend current law to ensure that vendors that sell products or services to community banks provide the appropriate warranties and indemnification to protect the end users from infringement claims.
  • ICBA supports the Covered Business Method (CBM) program, a transitional proceeding at the Patent and Trademark Office to re-examine the validity of questionable business method patents. ICBA is encouraged by industry efforts to use the CBM program to overturn questionable patents and supports legislation to make the program permanent.

Background

Managing aggressive and frivolous demand letter claims has become an expensive distraction for a steadily-increasing number of community banks that often lack the financial and legal resources to properly dispute these claims. These claims sap valuable monetary, time and legal resources from community banks, and exhaust resources that would otherwise be directed toward serving the financial needs of their customers. Law firms often use the settlements to build war chests to assert more claims against other legitimate small businesses, including community banks.

Demand Letters. Community banks across the country are experiencing a dramatic increase in the number of demand letters from plaintiffs’ law firms alleging violations of various federal statutes including the Americans with Disabilities Act (ADA). These demand letters are different from the typical demand letters received by community banks stating that that a violation of a patent or a suite of patents held by a PAE. Whether the sender is a plaintiffs’ law firm or a more traditional PAE, compliance with the demand letter strengthens its incentive to target additional community banks to extract exorbitant and fraudulent fees. ICBA offers guidelines to assist community banks in responding to these demand letters. Before responding, community banks should reach out to the ICBA and/or their affiliated state association for guidance.

End-User Indemnification/Warranty. Community banks often white-label products that are purchased from vendors to serve their customers. As “end-users” of these products and services, community banks should not be on the hook for the infringement claims of PAEs.

Community banks are especially vulnerable to the threat of legal action because they lack the resources and market power to fairly negotiate the protections they need when contracting with large sophisticated technology vendors. The vendors that provide these products and services to community banks often do not stand behind them. As a result, when a community bank is accused of infringement, the vendor, often is better situated to refute the claim, sits on the sidelines and refuses to defend their customers. Congress should enact new laws to ensure that vendors that sell products or services to community banks provide the appropriate warranties and indemnification to protect end-users from infringement claims.

Staff Contacts: Aaron Stetter, Cary Whaley, Rhonda Thomas-Whitley