Mitek v. USAA, decided June 12, 2025

Case Overview

Mitek Systems, Inc. (Mitek) appealed the District Court for the Eastern District of Texas's dismissal of its declaratory judgment action. This marks the second time this case has been before the Federal Circuit. In Mitek I (2022), the court vacated the initial dismissal and remanded for further proceedings. On remand, the district court again dismissed the action, finding a lack of subject-matter jurisdiction and, alternatively, exercising its discretion to decline jurisdiction. The Federal Circuit ultimately affirmed the district court's dismissal.

Key Themes and Important Facts

The core of this case revolves around two primary issues:

1. Subject-matter jurisdiction: Did an "actual controversy" exist between Mitek and USAA to warrant a declaratory judgment action? This was assessed based on Mitek's potential liability for infringement (direct, induced, and contributory) and potential indemnification liability.

2. Discretionary dismissal: Even if jurisdiction existed, did the district court abuse its discretion in declining to exercise it?
   

I. Subject-Matter Jurisdiction (Lack Thereof)

The Federal Circuit reviewed the district court's determination of subject-matter jurisdiction de novo (for legal conclusions) and its underlying factual findings for clear error. The court reiterated that the "actual controversy" requirement of the Declaratory Judgment Act aligns with Article III's "Cases" and "Controversies" requirement. A "case or controversy must remain present throughout the course of the suit."

A. Reasonable Potential for Infringement Claims:

The district court, affirmed by the Federal Circuit, found that Mitek did not establish a reasonable apprehension of suit for any type of infringement.

• Direct Infringement:

• No Complete Accusation: It was undisputed that USAA never accused Mitek's MiSnap software of satisfying every limitation of any patent claim. Mitek itself acknowledged that "MiSnap alone performs all the asserted limitations of the patents-in-suit" was not alleged.

• Partial Performance: During the Wells Fargo Case trial (a prior lawsuit by USAA against a Mitek customer), USAA "alleged that two of the three limitations of claim 1 of the ’571 [p]atent and four out of seven limitations of claim 1 of the ’090 [p]atent were allegedly performed by MiSnap."

• MiSnap's Nature and Customization: MiSnap is a Software Development Kit (SDK) licensed to financial institutions. The district court emphasized that "the ‘unadulterated MiSnap software implemented by third party banks’ does not meet certain elements of the asserted claims" because it requires integration with end-user systems. For example, "three out of the four patents require 'provid[ing] the image of the check from the camera to a depository,' or a substantively similar limitation. . . . This step depends on the end-user’s internal system and is unrelated to MiSnap."

• Hardware Limitations: The court noted that MiSnap, as software, cannot satisfy hardware elements required by some claims, such as "an image capture device," "a presentation device," and "a processor" in the ’090 patent.

• No Apprehension from Mitek's Testing: Mitek's argument that its own testing could lead to direct infringement claims was rejected because it was not alleged in the complaint, and USAA was unaware of such testing until remand, taking no affirmative action related to it.

• Induced Infringement:

• Reliance on DataTern: The court heavily relied on Microsoft Corp. v. DataTern, Inc. (Fed. Cir. 2014), stating that "the facts of DataTern are on point with this case." In DataTern, jurisdiction for induced infringement was found only when claim charts cited "Microsoft-provided online documentation for each limitation."

• Lack of Mitek Documentation Citation for All Limitations: Like in DataTern, "USAA has never alleged that MiSnap meets every element of every asserted claim and has never cited to Mitek documentation in its claim charts as evidence of infringement of every element of every asserted claim." USAA's reliance on Mitek documentation during the Wells Fargo trial was only for certain limitations, not all.

• "Material Component" Argument Rejected: Mitek's argument that its product being a "material component" for direct infringement should establish induced infringement was rejected, as this concept applies to contributory infringement, not induced infringement.

• Contributory Infringement:

• Suitable for Substantial Non-Infringing Uses: A key requirement for contributory infringement is that the accused product is not "suitable for a substantial non-infringing use." The district court found "there has never been a suggestion, in claim charts or otherwise, that MiSnap is not suitable for substantial non-infringing uses," and in fact, "USAA has expressly said the opposite—i.e., that MiSnap has several substantial non-infringing uses."

• Customization as Non-Infringing Use: The court noted that "end-users can customize and use Mitek’s software libraries in many ways, including non-infringing ways," such as using manual capture instead of auto-capture.

• "Primarily Developed" Argument Rejected: Mitek's argument that MiSnap was "primarily developed" for "touch-free auto-capture" (potentially infringing) was dismissed, as a product's primary purpose does not negate the existence of substantial non-infringing uses.
  

B. Post-Complaint Events and Evidence:

• Patent Invalidations: During the appeal, claims 1–6, 9–10, and 12–13 of the ’571 patent and claims 1–2, 7–10, and 15–17 of the ’779 patent were determined to be unpatentable by the PTAB, and this was affirmed by the Federal Circuit on February 3, 2025. This development "extinguished" any case or controversy regarding the enforcement of those claims.

• Settlement of Customer Lawsuits: The Wells Fargo litigation, the only lawsuit against a Mitek customer at the time Mitek filed its complaint, settled in early 2021. Subsequent lawsuits against PNC Bank and Truist Bank involved fewer of the patents-in-suit and "use of evidence related to MiSnap has decreased." All these subsequent lawsuits have also settled.

• USAA's Strategy: The court noted that these lawsuits "evince[] USAA’s own stated strategy of suing competitor banks rather than the supplier."
  

C. Reasonable Potential for Indemnification Liability:

• Two-Part Test: Mitek needed to show (1) a case or controversy between USAA and Mitek’s customers, and (2) a reasonable potential for Mitek’s indemnification liability.

• Lack of Reasonable Potential for Indemnification: The district court, affirmed by the Federal Circuit, found that the indemnification agreements Mitek produced "do not create a ‘reasonable potential’ for Mitek’s indemnification liability," primarily due to "applicable carve-outs that precluded a reasonable potential for indemnification liability."

• Broken Chain of Indemnification: Many agreements involved "third-party financial services provider[s], who in turn [have] separate indemnification agreements with end-user banks." Mitek failed to establish a case or controversy between these third-party providers (the indemnitees) and USAA, thus breaking the chain of indemnification.
  

II. Discretionary Dismissal (No Abuse of Discretion)

Even if the district court had subject-matter jurisdiction, the Federal Circuit found no abuse of discretion in its decision to decline to exercise it. The Declaratory Judgment Act grants broad discretion to district courts.

• Intervention as a Better Alternative: The district court determined that the "best" way for Mitek to defend its software would be "to intervene, either as of right or permissively, in the next litigation, if any, brought by USAA against a Mitek customer which asserts the [patents-in-suit]." The Federal Circuit agreed that "district courts may refuse declaratory relief where an alternative remedy is better or more effective."

• Mitek had conceded it "could have permissibly asked to intervene" in the Wells Fargo action but did not.

• The court explicitly found that "[i]ntervention would provide an avenue for Mitek to obtain the determination it seeks: whether its unadulterated MiSnap software, without any customization by the end-user bank, infringes any element of any asserted claim."

• Practical Concerns and Third-Party Involvement: The district court noted practical concerns, stating it "s[aw] no path by which Mitek c[ould] litigate this case without extensive involvement by end-user banks, either through third-party discovery or through joining additional parties." Mitek licenses MiSnap to over 6,400 end-users.

• Indirect infringement claims (induced and contributory) would necessitate "investigation . . . as to whether the end-user banks or third-party financial services providers are direct infringers" and what Mitek knew about each customer's activity.

• Limited Applicability/Estoppel Effect: The district court was concerned whether "any findings made as to Mitek alone would have any applicability or estoppel effect upon the end-users." Since "banks can, and indeed do, customize MiSnap to fit their own needs," a determination of infringement for Mitek's "as-is" software "will have no bearing and no estoppel effect on whether a modified version of the same component is infringing." The court reiterated that declaratory relief can be declined if it "would not afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding."
  

Conclusion

The Federal Circuit affirmed the district court's dismissal, concluding that Mitek failed to establish subject-matter jurisdiction for its declaratory judgment action based on potential infringement claims (direct, induced, or contributory) or indemnification liability. Furthermore, even if jurisdiction existed, the district court did not abuse its "unique and substantial discretion" in declining to exercise it, given that intervention in future customer lawsuits was a "better or more effective" alternative, and the declaratory judgment action would involve extensive third-party discovery and potentially offer limited preclusive effect for Mitek's many customers.