It's OK to Look

Posted by Mark Brousseau

Companies pursue patents for a wide variety of reasons -- competitive advantage, company valuation, tax credits and others -- but in chasing patent claims, did you know that it actually benefits companies to look at patent applications filed by competitors, too?

That’s what one patent expert, attorney Roger Maxwell, believes. In his experience, searching competitors’ published patent applications and existing patents has actually helped his clients maximize their commercial advantages and follow the law.

“We can take a lesson from Hollywood,” he said. “Every aspiring screenwriter’s lament is that no producer will ever accept an unsolicited manuscript. There’s a reason for that. In copyright law, just as it almost always is in patent law, lack of intent is not a defense. In other words, if an agent or a producer even opens an unsolicited script, and 5 years later produces a film with elements from that script entirely by accident, they could be sued for copyright infringement. To prevent that, they simply don’t accept unsolicited material unless it comes from a licensed agent they trust.”

Maxwell says that the same principle can be applied for companies seeking patents, only in reverse. Whereas access in the copyright arena can lead to inadvertent copying and infringement, access in the patent area can lead to a better understanding of the state-of-the-art, better product design and better patents.

“It is very possible -- and even likely in some cases -- that one company’s patent may well duplicate elements from someone else’s application or existing patent,” Maxwell says.

“Because intent is not normally an issue, that company could actually be held liable for patent infringement, even if it didn’t know what the other company’s patents said. In the case of patents, it’s important to refrain from having your patent infringe on anyone else’s, even if it’s by accident,” he explains.

So they don’t waste time and money proving they are violating the law and/or setting themselves up to pay damages, it is critical for companies that are preparing patent applications to search published patent applications as well as existing patents, according to Maxwell.

“In examining other applications, a company can ensure that no elements of their applications cross over with something already on the books, even if it’s in an application filed by someone else,” he adds. “If you know what your competitors are working on with regard to their patents, as the public records afford you the capability to do, then you can work to not use any of their claimable technology in the pursuit of your own patent. That adds more weight to your claim and helps maintain the integrity of the system."

"The whole reason for patents is to recognize the proprietary ownership of a company’s intellectual property and to ensure unique ideas and executions of concepts can be protected. If a company finds a patent that it feels may arguably cover its products, it can further investigate the issue. If the investigation leads them to believe that their design does not infringe or the patent is not valid, an opinion from counsel may shield the company from enhanced damages that could triple the actual damages," Maxwell explains. "If the investigation reveals that the patent is valid and infringed the company can either redesign their product or negotiate either a license or a purchase of the patent."

"In my view, the best way to get a great patent is to check all available sources to make sure your application is verifiably unique and free from infringement of anyone else’s ideas already in the patent system,” Maxwell concludes.

What do you think?

PNC Settles with DataTreasury

By Mark Brousseau

DataTreasury announced this week that it had settled a patent infringement lawsuit brought against The PNC Financial Services Group, Inc. and PNC Bank, two of 55 defendants in active litigation in the United States District Court for the Eastern District of Texas.

DataTreasury had accused PNC of infringing U.S. Patent Nos. 5,910,988 and 6,032,137, which were issued to the Plano, Texas company in 1999 and 2000 for image capture, centralized processing and electronic storage of document and check information. DataTreasury also had accused PNC of infringing U.S. Patent Nos. 5,265,007 and 5,717,868, which were issued in 1993 and 1996 for a central check clearing system.

The litigation had been stayed while the U.S. Patent & Trademark Office reexamined the validity of DataTreasury’s ‘988 and ‘137 patents, and has recently resumed after the Patent Office confirmed the validity of the claims of those patents and granted DataTreasury additional claims. None of the defendants in this litigation have ever proved that any of the claims of these DataTreasury patents are invalid or unenforceable, DataTreasury notes.

PNC concluded that this settlement was in the best interest of its business.

Part of the settlement is documented in the form of a Consent Judgment filed in the Marshall division of the U.S. District Court for the Eastern District of Texas. “It is comforting to my client that the banks are doing the right thing by licensing this patented technology,” said DataTreasury’s patent and licensing counsel, Rod Cooper of Texas-based Nix, Patterson & Roach, LLP.DataTreasury has granted PNC a worldwide license for its patents.

Terms of the agreement are confidential, but they include protections for PNC’s customers, giving the bank a competitive edge in check processing, DataTreasury claims. “It is clear that PNC understands the importance of DataTreasury’s patents, which help the bank realize the benefits afforded by the underlying technology,” continued Cooper. “PNC has shown respect for our patents, and has resolved a costly court battle,” said Claudio Ballard, founder and Chairman of DataTreasury and the inventor of the company’s patented technology.

Keith DeLucia, DataTreasury’s CEO added: “PNC is the second financial institution from the Financial Services Roundtable to license our patents despite the association’s efforts to lobby the Congress for infringement immunity from our patents."

"We are now preparing to take the remaining defendants to trial,” said DataTreasury’s lead trial counsel, Nelson Roach of Nix, Patterson & Roach, LLP.

Immunity Deal's Global Implications

By Mark Brousseau

The proposal in the U.S. Senate to grant immunity to U.S. banks in the DataTreasury patent infringement lawsuit (see previous post) has drawn a lot of strong comments for many corners of the industry. Among those raising questions about the implications of granting immunity to the banks, is John V. Ashley, CEO of Cheq Information Technology, Inc. (jvashley@gmail.com).

Ashley is concerned about the international implications of the U.S. Congress and the President signing off on this legislation, as well as the implications as it would relate to the World Intellectual Property Organisation (WIPO) in Geneva.

“We live in a global economy and can no longer think just about the United States when it comes to this kind of legislation,” Ashley told me. “Canada and India also are moving into a Check 21-type environment. The U.S. legislation would negate any potential revenues [for DataTreasury] from these countries. Are we thinking too parochially here?”

What do you think? Post your comments here.

Immunity for Banks in DataTreasury Suit?

Posted by Mark Brousseau

An extremely interesting article in today's Washington Post:


Lawmakers Move to Grant Banks Immunity Against Patent Lawsuit

By Jeffrey H. BirnbaumWashington Post Staff WriterThursday, February 14, 2008; A22

Sen. Jeff Sessions (R-Ala.) has sponsored an unusual provision at the urging of the nation's banks granting them immunity against an active patent lawsuit, potentially saving them billions of dollars.

Adopted with little fanfare, the amendment would prevent a small Texas company called DataTreasury from collecting damages from banks for infringing on its patented method for digitally scanning, sending and archiving checks. The patents were upheld last summer by the U.S. Patent and Trademark Office after they were challenged.

The provision, passed without dissent by the Senate Judiciary Committee in July and inserted into legislation scheduled for a vote by the full Senate this month, is a rare attempt by Congress to intervene in ongoing litigation, congressional experts say.

Although the amendment would not invalidate DataTreasury's patents, it would spare the banks from paying for infringing them should courts decide that's warranted. If DataTreasury collected a royalty of just a couple pennies per check, the cost would run into billions of dollars.

The federal government would have to pay $1 billion to DataTreasury over 10 years as compensation for taking its property under the amendment, according to estimates by the Congressional Budget Office.

Banks process more than 40 billion checks each year. At one time, those checks had to be delivered physically to be drawn upon. But five years ago -- in the wake of the grounding of aircraft laden with billions of dollars in checks after the Sept. 11, 2001, attacks -- federal law was changed to allow electronic transfers as well.

Some major financial institutions, notably Merrill Lynch and J.P. Morgan Chase, have licensed DataTreasury's technology for the purpose. Lawsuits alleging infringement are pending against others, including Bank of America, Wells Fargo, Wachovia and Citigroup.

When the Judiciary Committee began to draft landmark legislation overhauling the country's patent laws last year, lobbyists for these banks jumped into action.

The Financial Services Roundtable, a lobby group that represents the nation's largest financial institutions, and the banks approached Sessions about sponsoring an amendment to protect them. They said they chose to work with Sessions because of his long-standing antipathy toward plaintiff's attorneys and his previous interest in the electronic check system.

Lobbyists for the Roundtable and the banks, including prominent free-lance lobbying firms Smith-Free Group, Bryan Cave Strategies and Quadripoint Strategies, conducted rush visits with Judiciary Committee members and their aides to advocate the measure. Sessions’ staff produced a three-page description of the amendment and its background with the help of the Roundtable and distributed it to the committee.

Commercial banks are considered a potent force on Capitol Hill, in part because of their heavy contributions to lawmakers. They are the 10th-largest donor to federal candidates among the industry groups followed by the Center for Responsive Politics. They also spend millions of dollars a year on lobbying.

Political action committees of financial institutions were the largest single category of industry donors to Sessions, with $52,300 in the current election cycle, the center said. That represented nearly a quarter of PAC contributions he received as of midyear 2007.

Sessions said the banks' support for him was not a factor in his decision to sponsor the amendment. Stephen Boyd, a spokesman for Sessions, said the provision “is designed to protect banking institutions complying with post-9/11 security requirements from the abusive practices of patent trolling trial lawyers seeking personal enrichment, which ultimately will be paid for by checking account customers across America.”

In addition, bank lobbyists say they are working with senators to alter the amendment so that it would not cost the government money.

The provision introduced by Sessions did not name DataTreasury but was carefully tailored to apply to that company and its “check collection” system.

The amendment was approved by the committee in minutes and without opposition. The measure received little news media attention outside the banking trade press.

Even Claudio Ballard, the founder of DataTreasury, which holds the patents, said he did not hear of the amendment until days afterward. He said he had been unaware that the Judiciary Committee was considering it and engaged lobbyists to help him only after it had passed.

Ballard did not know whom to turn to for help, so he relied on his law firm, Nix, Patterson & Roach, which recommended two prominent Washington lobbyists: John D. Raffaelli and Ben Barnes.

“I've always put my full faith in the courts and the patent office; that's all I thought I needed to do,” Ballard said. “But we were blindsided” by the Senate committee. “We had no notice, no opportunity to respond, to give our side of the case, nothing,” he said.

The banks allege that DataTreasury bought up patents for the system that underlies electronic transfers and is trying to shake down companies for licensing fees. But DataTreasury asserts that Ballard is the inventor of the system and built a company to sell it before being squashed by banks that stole his idea. Court battles have raged between the two sides for six years.

The banks are emphatic about the need for the protection. “This is a glaring example of the abuse of the system,” said former congressman Steve Bartlett (R-Tex.), president of the Financial Services Roundtable. “It's an example of what's wrong with patent law.”

He called the Sessions amendment a priority for the banking industry.

The Commerce Department has objected to the amendment, including in a letter last week to Sen. Patrick J. Leahy (D-Vt.), the Judiciary Committee chairman. “Limiting patent holders’ rights and remedies in this instance could reduce innovation in this technology area,” wrote Assistant Secretary Nathaniel F. Wienecke. “The Administration does not support exceptions to patent protection based on a particular technology.”

DataTreasury's patents were upheld by the patent office after a challenge by First Data, a provider of merchant processing services. The patent office concluded Ballard's patents were not predated by other patents and documents, as First Data had alleged.

Ballard asserts that he developed the basic architecture for the system in the mid-1990s, and applied for patents in 1997 and ‘98. He said he realized at the time that paper would one day be obsolete for financial transactions but that paper and electronic images would have to coexist for a while. His system helped make that possible, he said.

Ballard has a long history of working with databases. He was an early reseller of Oracle database products in the 1980s and later developed a method of adapting Oracle's software to complex computer applications for government and large corporations.

He said he talked to some bank officials at an early stage of the check system's development and, despite having signed nondisclosure agreements with them, soon lost control over his invention.

“We've struggled mightily,” Ballard said. “We almost went bankrupt at the end of 2001.” He said he brought in investors to remain afloat and, as a result, now owns 2 percent of the firm he founded. The company, located in the technology corridor near Plano, TX, once had 100 employees, he said. It now has two.