Shares in San Diego’s Mitek Systems plunged to their lowest point in two years on Monday after the company’s chief technology officer abruptly left the firm and reports circulated about a major setback in a patent lawsuit.
In a single-sentence filing with the Securities and Exchange Commission on Friday, the company announced that CTO Michael Strange had left the company, effective that day, “to pursue other opportunities.”
On the same day, The San Antonio Express-News reported that a federal judge in Texas had dismissed four patent infringement claims against one of its former clients, the USAA insurance company in a jury trial slated to begin Sept. 8.
The Express-News story was not totally negative. It also reported that Mitek (Nasdaq: MITK) had succeeded on a motion for the judge to rule on some of USAA's claims from the bench rather than in front of a jury.
Mitek CEO James DeBello said another ruling by the judge, rendered at roughly the same time as the patent dismissals, gave even better news for his company, allowing it to pursue its defamation claims against USAA for their "inappropriate statements and untruths."
But the news of the patent dismissals was repeated by several business news services.
Combined with Strange's departure, which DeBello says had no connection with the USAA lawsuit, the bad news helped push Mitek's stock value down 18 percent Monday, dropping from a starting price of $3.03 to $2.50 — its lowest price since mid-2012 — after USAA filed suit against the company.
In comparison, shares in Mitek, which produces software for capturing images of checks and other financial documents using smartphones and other portable devices, were briefly selling for more than $7 in January.
The Texas lawsuit began in May 2012, with USAA charging that Mitek had stolen some of its technology. Mitek responded with a countersuit two weeks later, alleging that USAA had infringed on its patents and then defamed the company with “false and misleading statements."
"We were flabbergasted when they filed suit," DeBello said. "We'd had them as a customer for six years. They used our technology for check processing. But the claims they filed against us were reckless, untrue and groundless."
In its central complaint, USAA charged that Mitek had derived some key technology from USAA employees. But more recently, it charged that Mitek had taken the technology from software developers in Russia, without crediting their work when it filed for a patent, theoretically rendering the patents invalid.
In a July 29 ruling, which apparently was the basis of the Express-News story, Judge Harry Lee Hudspeth ruled that allowing the jury to hear the "bad acts" that USAA was now describing could create "prejudice and confusion" among the jurors, which could muddy their decisions on the other issues in the lawsuit.
"The risk of confusion is particularly high in this case because the issues for jury determination are already complex," he wrote, adding that holding a separate trial on the issue would "allow the jury to focus on evidence related to its charge without being distracted by issues that do not bear on the claims before it."
In the meantime, Mitek has picked an interim vice president for engineering, Fritz Hesse, to assume some of Strange's duties. Hesse is currently vice president of its research and development department and a former vice president for Intuit and PeopleSoft.
DeBello said Hesse will ensure that "the continuity in our engineering and innovation will continue."
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May 19, 2015 -- Executive Editor George Chamberlin speaks with James DeBello, president and CEO of Mitek Systems Inc., about developing mobile deposit technology and being a semifinalist for the 2015 EY Entrepreneur of the Year award.
June 30, 2011 -- Executive Editor George Chamberlin speaks with Jim DeBello, CEO of Mitek Systems (OBB: MITK), about Miteks' mobile deposit technology and plans for growth.
Sept. 3, 2009 -- Reporter Rebecca Go speaks with Jim Debello, president and CEO of Mitek Systems, about some of the new smartphone apps the company is launching.