ABA Banking Journal - April 2012 - (Page 51)
legal issues | by lauren bowers
New rules may help curb business method patent litigation
A common question ABA likes to pose to bankers is: “What keeps you up at night?” Amid capital, troubled debt reserves, and examiner issues, it would be a rare bank CEO to have “patent trolls” on the worry list. Admittedly, the term patent troll is no longer politically correct. Patent trolls have reinvented themselves as “non-practicing entities.” NPEs don’t generate revenue creating or selling products or services. They capitalize on business method patents that grew exponentially after the 1998 Federal Circuit decision in State Street Bank v. Signature Financial Group, Inc., that reversed the socalled business method exception cited by a series of prior cases and relied upon by the District Court. That case, and a marked uptick in technological and mathematical advances, challenged business and the U.S. Patent and Trademark Office (PTO) to rethink long-held approaches to awarding business method patents. With the unwitting help of an overwhelmed PTO, NPEs developed a cottage industry where business method patents are held and exploited for financial gain. Venture capital firms invest in NPEs because they’ve proven to be solid investments. And NPEs like Data Treasury, one of the most notorious, are a thorn in the side of financial institutions that have paid millions in patentlicensing fees to avoid protracted litigation. Despite the expense involved, most patent challenges are handled in a court of law. Until recently, a reexamination of issued patents was a financial institution’s only alternative to litigation, but that approach was not used frequently. Although there is not yet a silver bullet, provisions of the Leahy-Smith America Invents Act (AIA) are expected to provide alternatives to costly patent litigation and improve patent quality. The most substantial change is harmonization of the U.S. patent system with the majority of the world by adoption of a first-to-file system. Among the many provisions in the AIA that either alter or introduce patent examination proceedings, the most notable is the Transitional Program for Covered Business Method Patents. On Feb. 9, 2012, the PTO issued proposed rules to implement these post-grant proceedings and comments will be received until April 10, 2012. Rules are scheduled to take effect on Sept. 16, 2012.
Photo: fortuna777 /shutterstock.com
While the patent system re-invents itself, NPE litigation continues. Data Treasury filed suit against more than three dozen financial institutions on Sept. 9, 2011. A newer NPE, Automated Transactions, LLC, is sending demand letters to banks alleging infringement and has litigated to enforce its patents even though one of its patents was previously invalidated. True to the NPE business model, Automated has settled already with several banks. Unfortunately this patent issue is worth adding to a banker’s ever-growing worry list. n
Lauren Bowers (lbowers@ aba.com) is senior vicepresident and senior counsel of the American Bankers Association.
april 2012 | ABA BANKING JOURNAL |
Table of Contents for the Digital Edition of ABA Banking Journal - April 2012
ABA Banking Journal - April 2012
Young CEOs: Our turn
Pass the Aspirin
What is your appetite for risk?
Top-performing big banks
ABA Banking Journal - April 2012