Posted by Mark Brousseau
Vijay Balakrishnan, president of StratEx, LLC (www.stratexllc.blogspot.com) passes along the following article:
It occurs to me that payment security, like beauty, may rest in the eye of the beholder. Societal norms on beauty have ranged over the years from Raphaelesque abundance to Twiggy-like minimalism. With payments transformed in ever larger numbers from pieces of paper to electronic images, the debate du jour centers on the risk of image payments. Does the transformation of checks to images and data for onward transmission through an evolving electronic infrastructure introduce additional risk? The answer perhaps depends on one's perspective.
The proponents on either side have aligned themselves into sharply defined camps. There are those who attest that technology provides the ability to check for fraud at a scale never before possible, and that business processes need to step up to avail of new avenues. There are others who turn the argument on its head and assert that technology allows the propagation of fraud at the speed of light; the paper check, after all, was bound by the limitations of planes, trains, and automobiles.
Lending more uncertainty to the dialog is a regulatory black hole that allows many degrees of interpretive freedom. Check 21, which is widely touted as the legislative parent of the image revolution in U.S. check processing, is noticeably silent on image exchange. All Check 21 says is that a paper "substitute check" meeting certain requirements can be created from an image of a paper check, and that this new piece of paper has the same legal standing as the original item. It says nothing about the image itself, or its transmission within or between financial institutions. While this delights and provides opportunity to those in the legal profession, it does little to shore up the basic argument- is the new image infrastructure riskier than the paper based one it is replacing?
The central issue is not whether image payments are risky (all payments arguably are risky at some level), but whether they pose additional risk. Those in the no-additional-risk camp question whether every paper item is checked for signature and check stock viability, and whether every deposit is reviewed based on business rules. They assert that technology can automatically examine every item and deposit (or a subset thereof) using rule based filters, and identify those that need manual intervention. They further point out at this can be done on "Day Zero" at initial capture, instead of on "Day Two and Beyond" in the paper world. If anything, they claim, the automated image world is less risky than its paper predecessor.
"Not so fast," say the others. The lack of robust duplicate detection systems across payment channels (branches, ATMs, other remote capture locations), and between institutions make the electronic equivalent of check kiting a real threat. With access to the right software, images can be altered with greater ease than paper items. They also point out that this risk can emanate from within financial institutions, as opposed to "the other side of the firewall". While it is theoretically possible for technology to check all items, few institutions have this capability in place. The regulatory framework is playing catch-up to the reality of billions of image payments zapping their way across the nation (and indeed the world with the international remote capture of U.S. dollar deposits), making for a Jello-like foundation.
During the now distant past when the credit card world confronted similar issues, the card associations came up with rules of governance. They were also able to establish the interchange system, which shared revenue and risk between acquirers, processors, and issuers. Thus, their approach focused less on the presence or absence of risk, and more on a system that compensated entities in the chain for risk exposure. Interchange was established at a time when the power equation between banks and merchants was tilted heavily in favor of financial institutions. It is highly unlikely that an interchange system for image exchange will see light of day. This brings up another intriguing question- regardless of the outcome of the less versus more risk debate, will future years see risk adjusted transaction fees for image processing?
The challenge with questions of this nature early in the life cycle of disruptive technology adoption is that answers cannot be based on empirical information. Like changing perspectives on beauty, there are myriad opinions. If you have a take on this, let me know. Speculating on a brave new world in itself is relatively risk free. It will be a while before your opinion is borne out one way or the other!
Showing posts with label image exchange. Show all posts
Showing posts with label image exchange. Show all posts
Sunday, June 7, 2009
Monday, March 31, 2008
DataTreasury Suit Becomes Political
Posted by Mark Brousseau
An interesting article from http://www.politico.com/ about the DataTreasury patent infringement lawsuit:
Senate, old legal woes drawn into patent fight
By: Lisa Lerer
A fight over a Senate patent bill is turning as nasty as the no-holds-barred race for the Democratic presidential nomination, with old legal problems resurfacing involving executives of a small Texas company targeted in a controversial amendment.
The amendment, backed by the country’s largest financial services companies, would prevent Plano-based DataTreasury Corp. from collecting potentially billions of dollars in damages from scores of banks in an ongoing patent lawsuit over electronic check processing technology. But as both the patent bill and the lawsuit move forward, old allegations are swirling about DataTreasury’s founder, Claudio Ballard, and chief executive officer, Keith DeLucia.
Lobbying efforts typically focus on survey data and dry policy papers, making the reemergence of decades-old civil and criminal problems particularly unusual. Ballard, according to court records, was sued by his father for fraud in 1988 over management issues at the small computer company the two co-owned. The case has been dismissed. In 1991, DeLucia, then known as Keith Wickey, was convicted of robbing an armored car in Suffolk County, N.Y., and served some time and probation.
DataTreasury acknowledged the old legal problems but dismissed them as having little to do with the company’s current business. “This is a desperate smear by a group of companies that have tried every other trick in the book and failed. Now what they are trying to do is assassinate the character of DataTreasury’s officers,” says company spokesman Eric Wetzel. “This special interest legislation is a clear example of large corporate infringers aggressively going after small companies.”
The banks may be big, but this no David and Goliath story, say financial services lobbyists. The banks argue that the amendment will prevent what they see as akin to a lawyered-up bank heist. Bank lobbyists categorize DataTreasury as a “patent troll,” a slur used in the intellectual property world to describe small companies that hold patents but do not produce any products.
“DataTreasury is Exhibit A of what’s wrong in the system,” says Steve Bartlett, CEO of the Financial Services Roundtable, an association that represents the country’s 100 largest financial services firms. “The law is tilted so badly in favor of plaintiffs that have no products and yet extort billions of dollars.” DataTreasury holds patents on technology that allows banks to settle checks by transmitting electronic images rather than paper documents.
Traditionally banks depended on paper checks, flying massive numbers of slips around the country for processing. But after the Sept. 11 terrorist attacks grounded billions of dollars’ worth of checks in 2001, regulators changed federal law to allow banks to shred the paper.
DataTreasury saw opportunity in the new law. The company had benefited from a controversial 1998 court ruling that broadened the definition of a patent to include business processes. In June 1999 and February 2000, the company acquired two patents covering a method for processing checks electronically. Later, Bank of America Corp., Chase Manhattan Corp. and IBM announced the creation of a new national digital archive of check images called Viewpointe.
In its complaint, DataTreasury alleges that the banks stole its technology and distributed it throughout the industry. Some major financial institutions, most notably JPMorgan Chase and Merrill Lynch, settled for what the company considers a “significant sum.” Cases against Bank of America, Citigroup, Wells Fargo and 53 other financial institutions were put on hold pending the results of a U.S. Patent and Trademark Office reexamination of the patents. The patent office upheld the patents several months ago, and last Wednesday the court lifted the stay, allowing the cases to move forward.
While the cases were on hold, the banks worked Capitol Hill. In July, Sen. Jeff Sessions (R-Ala.) introduced an amendment in the Senate Judiciary Committee to essentially grant the banks immunity from the suit. The Roundtable, with help from in-house bank lobbyists, briefed staffers of each member of the committee. The amendment was approved on a bipartisan vote. The Roundtable considers passing the Sessions amendment a top legislative priority.
“It’s right up there because it’s real money,” Bartlett said. “If we were talking about millions or even hundreds of millions, it wouldn’t be, but this could cost billions.” DataTreasury shot back with its own lobbying campaign. The company’s legal counsel, well-known Texas trial firm Nix, Patterson & Roach, recommended prominent Democratic lobbyists John Raffaelli and Ben Barnes. Both signed on to lobby for DataTreasury and have met with the staff of several committee members. DataTreasury points to a Congressional Budget Office study estimating that the amendment would result in litigation against the federal government, seeking compensation for taking private property.
The CBO estimated that the government’s liability in that case, based on typical settlement payments, would be roughly $1 billion. Bank lobbyists say they are working to adjust the amendment to ensure that taxpayers will not foot the bill. “That would be a bit like putting lipstick on a pig,” Raffaelli said. “The fact is that this is a giveaway to the banks.” Raffaelli has met with Sessions about revisiting the amendment. “Jeff Sessions has been very classy about dealing with us on this issue,” he said.
The Commerce Department also came down against the amendment. “Limiting patent holders’ rights and remedies in this instance could reduce innovation in this technology area,” Nathaniel Wienecke, assistant secretary for legislative and intergovernmental affairs, wrote to Sen. Arlen Specter (R-Pa.). “As a general matter, the administration does not support exceptions to patent protection based on a particular technology.”
DataTreasury is quick to point out that commercial banks were the 12th-largest donor to members of Congress last year, according to the Center for Responsive Politics. And the Roundtable spent almost $6.9 million on lobbying last year. The company says the banks’ campaign contributions to Sessions have influenced him, a charge his staff has denied. But name partners at Nix, Patterson & Roach have given more than $1 million to mostly Democratic candidates. DataTreasury’s lobbyists are also active players on Capitol Hill.
Raffaelli’s firm, Capitol Counsel, made about $4.6 million in lobbying fees in 2007, according to congressional filings. Barnes’ firm, The Ben Barnes Group, made more than $2.6 million in lobbying fees last year, including $120,000 from Nix Patterson. Bank lobbyists are confident the amendment will survive on the Senate floor, reasoning that it would be highly unusual for the committee to drop an amendment that it already has adopted. But DataTreasury isn’t so sure.
“It’s a last-ditch effort by a group of banks whose backs are against the wall,” Wetzel said.
An interesting article from http://www.politico.com/ about the DataTreasury patent infringement lawsuit:
Senate, old legal woes drawn into patent fight
By: Lisa Lerer
A fight over a Senate patent bill is turning as nasty as the no-holds-barred race for the Democratic presidential nomination, with old legal problems resurfacing involving executives of a small Texas company targeted in a controversial amendment.
The amendment, backed by the country’s largest financial services companies, would prevent Plano-based DataTreasury Corp. from collecting potentially billions of dollars in damages from scores of banks in an ongoing patent lawsuit over electronic check processing technology. But as both the patent bill and the lawsuit move forward, old allegations are swirling about DataTreasury’s founder, Claudio Ballard, and chief executive officer, Keith DeLucia.
Lobbying efforts typically focus on survey data and dry policy papers, making the reemergence of decades-old civil and criminal problems particularly unusual. Ballard, according to court records, was sued by his father for fraud in 1988 over management issues at the small computer company the two co-owned. The case has been dismissed. In 1991, DeLucia, then known as Keith Wickey, was convicted of robbing an armored car in Suffolk County, N.Y., and served some time and probation.
DataTreasury acknowledged the old legal problems but dismissed them as having little to do with the company’s current business. “This is a desperate smear by a group of companies that have tried every other trick in the book and failed. Now what they are trying to do is assassinate the character of DataTreasury’s officers,” says company spokesman Eric Wetzel. “This special interest legislation is a clear example of large corporate infringers aggressively going after small companies.”
The banks may be big, but this no David and Goliath story, say financial services lobbyists. The banks argue that the amendment will prevent what they see as akin to a lawyered-up bank heist. Bank lobbyists categorize DataTreasury as a “patent troll,” a slur used in the intellectual property world to describe small companies that hold patents but do not produce any products.
“DataTreasury is Exhibit A of what’s wrong in the system,” says Steve Bartlett, CEO of the Financial Services Roundtable, an association that represents the country’s 100 largest financial services firms. “The law is tilted so badly in favor of plaintiffs that have no products and yet extort billions of dollars.” DataTreasury holds patents on technology that allows banks to settle checks by transmitting electronic images rather than paper documents.
Traditionally banks depended on paper checks, flying massive numbers of slips around the country for processing. But after the Sept. 11 terrorist attacks grounded billions of dollars’ worth of checks in 2001, regulators changed federal law to allow banks to shred the paper.
DataTreasury saw opportunity in the new law. The company had benefited from a controversial 1998 court ruling that broadened the definition of a patent to include business processes. In June 1999 and February 2000, the company acquired two patents covering a method for processing checks electronically. Later, Bank of America Corp., Chase Manhattan Corp. and IBM announced the creation of a new national digital archive of check images called Viewpointe.
In its complaint, DataTreasury alleges that the banks stole its technology and distributed it throughout the industry. Some major financial institutions, most notably JPMorgan Chase and Merrill Lynch, settled for what the company considers a “significant sum.” Cases against Bank of America, Citigroup, Wells Fargo and 53 other financial institutions were put on hold pending the results of a U.S. Patent and Trademark Office reexamination of the patents. The patent office upheld the patents several months ago, and last Wednesday the court lifted the stay, allowing the cases to move forward.
While the cases were on hold, the banks worked Capitol Hill. In July, Sen. Jeff Sessions (R-Ala.) introduced an amendment in the Senate Judiciary Committee to essentially grant the banks immunity from the suit. The Roundtable, with help from in-house bank lobbyists, briefed staffers of each member of the committee. The amendment was approved on a bipartisan vote. The Roundtable considers passing the Sessions amendment a top legislative priority.
“It’s right up there because it’s real money,” Bartlett said. “If we were talking about millions or even hundreds of millions, it wouldn’t be, but this could cost billions.” DataTreasury shot back with its own lobbying campaign. The company’s legal counsel, well-known Texas trial firm Nix, Patterson & Roach, recommended prominent Democratic lobbyists John Raffaelli and Ben Barnes. Both signed on to lobby for DataTreasury and have met with the staff of several committee members. DataTreasury points to a Congressional Budget Office study estimating that the amendment would result in litigation against the federal government, seeking compensation for taking private property.
The CBO estimated that the government’s liability in that case, based on typical settlement payments, would be roughly $1 billion. Bank lobbyists say they are working to adjust the amendment to ensure that taxpayers will not foot the bill. “That would be a bit like putting lipstick on a pig,” Raffaelli said. “The fact is that this is a giveaway to the banks.” Raffaelli has met with Sessions about revisiting the amendment. “Jeff Sessions has been very classy about dealing with us on this issue,” he said.
The Commerce Department also came down against the amendment. “Limiting patent holders’ rights and remedies in this instance could reduce innovation in this technology area,” Nathaniel Wienecke, assistant secretary for legislative and intergovernmental affairs, wrote to Sen. Arlen Specter (R-Pa.). “As a general matter, the administration does not support exceptions to patent protection based on a particular technology.”
DataTreasury is quick to point out that commercial banks were the 12th-largest donor to members of Congress last year, according to the Center for Responsive Politics. And the Roundtable spent almost $6.9 million on lobbying last year. The company says the banks’ campaign contributions to Sessions have influenced him, a charge his staff has denied. But name partners at Nix, Patterson & Roach have given more than $1 million to mostly Democratic candidates. DataTreasury’s lobbyists are also active players on Capitol Hill.
Raffaelli’s firm, Capitol Counsel, made about $4.6 million in lobbying fees in 2007, according to congressional filings. Barnes’ firm, The Ben Barnes Group, made more than $2.6 million in lobbying fees last year, including $120,000 from Nix Patterson. Bank lobbyists are confident the amendment will survive on the Senate floor, reasoning that it would be highly unusual for the committee to drop an amendment that it already has adopted. But DataTreasury isn’t so sure.
“It’s a last-ditch effort by a group of banks whose backs are against the wall,” Wetzel said.
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