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Fifth Circuit Affirms DataTreasury’s $69M Refund to JPMorgan

May 23, 2016 Mark Curriden

© 2015 The Texas Lawbook.

By Natalie Posgate

(May 23) – JPMorgan Chase is entitled to a $69 million refund from DataTreasury Corp. for licensing agreements JPMorgan essentially overpaid to DataTreasury in a lump-sum payment more than 10 years ago, the U.S. Court of Appeals for the Fifth Circuit ruled Thursday.

It is the first time for the Fifth Circuit to rule on the application of a most favored nations (MFN) clause in which the original license and the later, more favorable license both included lump sum payments, the 23-page majority ruling written by Circuit Judge W. Eugene Davis said.

“An MFN clause would mean virtually nothing if it did not allow the earlier licensee to obtain a lower license cost, which in turn means nothing if the earlier licensee cannot receive a refund in the amount of the overpayment,” Judge Davis wrote.

Noelle Reed
Noelle Reed

Noelle Reed, a partner in Skadden Arps Slate Meagher & Flom’s Houston office, handled the appeal for JPMorgan. She declined to comment on the case.

Karl Rupp of the Kendall Law Group in Dallas handled DataTreasury’s appeal. He did not respond to requests for comment.

Long Litigation History

The 2-1 ruling is the latest installment (and maybe the end) of a 14-year legal battle between JPMorgan and Plano-based DataTreasury.

It all began in the late 1990s, when DataTreasury approached JPMorgan and a handful of other banks about using its patented check-imaging technology. The banks declined, and instead developed their own check-processing systems, court documents say.

DataTreasury sued JPMorgan and the group of banks, alleging willful patent infringement. Facing potentially a nine-figure penalty fee, which could have been trebled if a jury found for willful infringement, JPMorgan settled its case in 2005 for $70 million, becoming the first bank to reach a settlement agreement with DataTreasury, according to court documents. The settlement allowed JPMorgan’s unlimited use of DataTreasury’s patented technology.

The contract the two parties signed included a “Most Favored Nations” clause, which allows JPMorgan to incorporate more favorable terms of the contract if DataTreasury does so with a competitor.

Shortly after JPMorgan paid its last installment of the $70 million in 2012, DataTreasury signed an identical licensing agreement with Cathay General Bancorp, except the lump sum payment was much smaller than JPMorgan’s: $250,000. JPMorgan promptly sued DataTreasury after it found out.

Last June, on the morning the case was set to go to trial, the two parties settled the case for $69 million. A couple hours later, U.S. District Judge Michael Schneider of the Eastern District of Texas signed the settlement into a final judgment.

Judge Schneider had issued multiple summary judgment rulings that were widely in favor of JPMorgan before it approached trial. Schneider’s final summary judgment ruling, issued last February, dismissed all of DataTreasury’s counterclaims, therefore the only issue to resolve at trial was the actual damages amount DataTreasury owed to JPMorgan.

DataTreasury filed its appeal of the $69 million judgment in October 2015 on several grounds in an attempt to have the Fifth Circuit side with arguments that Judge Schneider rejected and reduce the amount it owed JPMorgan. Main arguments included DataTreasury’s contention that an MFN clause cannot be applied retroactively, i.e. to obtain a refund of amounts previously paid. It also contended the district court erred by not considering the different levels of usage of the licensing agreements between JPMorgan and Cathay.

A majority of the three-judge Fifth Circuit panel, which also included Judges Jerry E. Smith and Stephen A. Higginson, rejected all of DataTreasury’s arguments and affirmed JPMorgan’s $69 million refund.

“The later agreement is indeed more favorable, and JPMC therefore is entitled to a refund from [DataTreasury] for the difference between the amount it paid for its license and the lesser amount bargained for the later license agreement,” Judge Davis wrote in the majority opinion.

Judge Higginson, in a seven-page dissent, argued that JPMorgan “is not entitled to recoup sums paid before [DataTreasury] granted any lower-priced license.

“We have addressed a similarly worded clause before and reached a conclusion opposite to that which the majority reaches today – indeed, at oral argument, JPMC conceded that the reasoning behind the only Fifth Circuit authority in this area was ‘troubling’ for its position,” Judge Higginson wrote.

Houston partner Charles Schwartz, who retired in December, led the Skadden trial team that represented JPMorgan, which also included Houston associate Daniel Mayerfeld and New York attorneys Daniel DeVito (who retired this spring), P. Anthony Sammi and Andrew Gish.

© 2014 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.

If you see any inaccuracy in any article in The Texas Lawbook, please contact us. Our goal is content that is 100% true and accurate. Thank you.

Mark Curriden

Mark Curriden is a lawyer/journalist and founder of The Texas Lawbook. In addition, he is a contributing legal correspondent for The Dallas Morning News.

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©2025 The Texas Lawbook.

Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.

If you see any inaccuracy in any article in The Texas Lawbook, please contact us. Our goal is content that is 100% true and accurate. Thank you.

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