ABA Banking Journal - February 2014 - (Page 46)

legal issues BY MATHEW STREET Turning the tide on patent abuse Vermont's new law already inspiring other states to act The patent-troll forecast may be less gloomy for some banks thanks to a 2013 Vermont statute providing relief from bad-faith claims of patent infringement. The mighty patenttroll winds that are fueled by demand letters laced with claims of patent infringement and threats of litigation have caused banks to look for effective legal countermeasures. Patent infringement demand letters generally claim a bank's use of patented hardware, software, or business methods infringe on patents held by another entity. As end users of patented vendor service packages, banks are at the wrong end of the distribution chain that begins with an inventor and a manufacturer. Patented software and hardware like ATMs are vital to bank operations, and banks are often forced into user agreements barring them from receiving reimbursement or legal assistance from the service vendors to dispute infringement claims. Unfortunately, some banks do not discover that these contracts leave them vulnerable to infringement lawsuits until after a demand letter is received. Demand letters often lead to litigation that drains the bottom line-even while a bank is prospering. Due to potentially enormous litigation costs, many banks accede to even dubious infringement claims to avoid legal costs. The settlements that result usually force banks to purchase licenses for thousands of dollars that grant use of the patented items. So far, banks have looked in vain for effective tools to fight off patent claims. Though Congress is moving in positive directions on the issue, overwhelming passage of the helpful Goodlatte bill by the House of Representatives does not guarantee major federal law changes. However, the industry may be on the verge of a change in the tide, and the source could be state courts and state law. A new Vermont statute-Chapter 120 of Title 9, Vermont Statues Annotated- prohibits bad-faith claims of patent infringement, and allows "targets" of badfaith claims a private right of action to seek legal remedies, including injunctions, limited damages, and reimbursement for defense costs. The first question ABA has gotten in any discussion of the Vermont statute is whether or not it is preempted by federal patent law. This is where the structure and focus of the new statute really comes into play. By building the statute around the concept of bad faith, and then by a defendant using the statute to make a showing that a claim was made in bad faith, much of the preemptive power of federal patent law may be avoided. With preemption neutralized, a 46 | ABA BANKING JOURNAL | FEBRUARY 2014 Vermont court may be free to base a finding on the Vermont statute's criteria and on the conduct of the entity claiming infringement. Further, New York's attorney general reached a settlement early this year with a major patent assertion entity (PAE) and issued guidelines that incorporated many of the concepts of the Vermont statute. The guidelines have the potential of reining in abusive PAE actions in New York. At least nine states have introduced comparable measures in the 2014 legislative sessions. It is plausible that by this time next year, a significant number of other states will follow Vermont's and New York's lead and finally tame the unrelenting patenttroll winds. Mathew Street is senior vicepresident and deputy general counsel for ABA. You can reach him at mstreet@aba.com PHOTO: SHUTTERSTOCK.COM http://www.SHUTTERSTOCK.COM

Table of Contents for the Digital Edition of ABA Banking Journal - February 2014

Chairman's View
Editor's Column
The Economy
Bank Notes
Picture This
Community Banking
Pass the Aspirin
Main Street's Mr. Fix it
Wealth management of the many
Cannabis conundrum
Compliance Clinic
ABA At Your Service
Legal Issues
First Person

ABA Banking Journal - February 2014

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