BANKTHINK

How to Out-Nuisance a Bank Patent Troll

Print
Email
Reprints
Comments (3)
Twitter
LinkedIn
Facebook
Google+

As financial institutions race to capture a portion of the increasingly popular online and mobile banking markets, they are going to be targeted by patent owners in litigations across the country. There are, however, approaches they can take to protect themselves and their customers.

Over the last decade, patent litigations against banks have increased at a rapid pace. While banks defended 12 patent cases in 2000, that number rose to 240 in 2011 and has shown no signs of trailing off.  The majority of these cases have centered on online and mobile banking applications, such as check imaging and secure transaction processing, that customers can perform through the use of smartphones. These smartphones on their own bring a high level of litigation as evidenced by the ongoing patent battles between Apple and Samsung.

Most banking patent cases are filed by nonpracticing entities, or "patent trolls," who make no products and whose primary source of revenue is patent licensing fees or settlements. Of the banking patent cases filed in 2012, patent trolls filed 126, or 87.5%.

The standard business model for such a plaintiff includes filing suit in a patentee-friendly venue, such as the Eastern District of Texas or the District of Delaware, then negotiating a settlement value, known as a "nuisance value," that is less than the cost of defending the case. That approach minimizes the merits of the case—or lack thereof—in favor of a resolution based on financial balancing.

While a number of recent articles have addressed other merits-based defensive strategies, such as the use of joint defense groups, indemnification clauses, re-examination proceedings and litigation insurance, a patentee's nuisance-value settlement strategy includes its own escape clause.

Nuisance values differ from institution to institution, however. Typically, a larger institution with a larger litigation budget is willing to pay a higher nuisance value than a smaller institution. But that does not mean that smaller institutions are at a disadvantage. On the contrary, it may be to their benefit.

One of the unwritten rules of patent trolls is that they generally prefer to avoid any decision on the merits at all costs, as an adverse ruling on one case may damage their ability to file suit against other defendants, not to mention the legal fees they must pay to actually litigate the case.  With that in mind, smaller institutions should feel comfortable drawing a line in the sand for settlement that reflects the actual value of the case. 

For example, while nuisance value is often associated with the cost of taking a case to trial, there are other earlier milestones, such as claim construction or summary judgment, which may present openings for resolution. Because those milestones occur earlier in the court's case schedule, they are less expensive to reach. A defendant with a strong summary judgment position may use this as the basis for their nuisance value in a particular case, cutting a substantial portion from their anticipated cost in legal fees alone.

Take, for example, the company sued by a patent troll seeking millions in settlement fees. With a strong noninfringement or invalidity position, the defendant, in this instance, can threaten the plaintiff with an early resolution on the merits for a sum that, due to savings in attorneys' fees and other litigation costs, could represent one-tenth of the amount initially demanded.

By taking a firm stand for early resolution, the defendant sets the nuisance value bar at the lower end of the spectrum and allows the case to settle at the lower amount—an amount the client would have paid anyway to pursue even a near-certain victory on the merits (and an amount that may be covered by an appropriate indemnification clause or litigation insurance policy).

Pursuing nuisance value settlement is not without risks, and financial institutions should evaluate every litigation independently to determine the best approach for a particular case. Regardless of the resolution financial institutions choose to pursue, whether a nuisance-value settlement or a merits-based strategy, patent litigation is now a reality of the online and mobile banking business.

Those institutions fortunate enough to have escaped litigation to this point will likely be targeted by patent trolls in the near future and should begin to develop the defensive approach that best suits them.

Brian Seal and Tom Southard are patent litigation attorneys with the law firm of Ratner Prestia PC in Washington.

JOIN THE DISCUSSION

(3) Comments

SEE MORE IN

RELATED TAGS

'Dodd-Frank Is Like the TSA': Comments of the Week
American Banker readers share their views on the most pressing banking topics of the week. Comments are excerpted from reader response sections of AmericanBanker.com articles and from our social media platforms.

(Image: iStock)

Comments (3)
'As financial institutions race to capture a portion of the increasingly popular online and mobile banking markets'

That pretty much says it all. It's a land grab and banks don't care about whose land it is. They want it and intend to squash the 'little people' that get in their way.

"Patent troll"

infringers and their paid puppets' definition of 'patent troll':

anyone who has the nerve to assert patents against us

Call it what you will...patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: "we're using your invention and we're not going to stop or pay". This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To them the only patents that are legitimate are their own.

It's about property rights. They should not only be for the rich and powerful. Show me a country with weak or ineffective property rights and I'll show you a weak economy with high unemployment. Does that remind you of any present day country?

Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don't like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

For the truth about trolls, please see http://truereform.piausa.org/default.html#pt.
Posted by staff | Friday, January 11 2013 at 9:58AM ET
While the definition of "patent troll" is somewhat open for debate, the term is appropriate to patent holders who seek only nuisance value settlements as described in the above article. By design, a nuisance value settlement strategy is one that avoids any decision on the merits, choosing instead to leverage a settlement value against the defendant's cost to reach a point in the case at which such a decision may be made. By purposefully avoiding a merits decision, the patent trolls' nuisance value strategy presupposes a weakness in the substantive issues of their case, but bargains on the defendant opting for a faster and less expensive resolution in favor of one that determines the rights of the parties. Indeed, nuisance value settlements are rarely pursued by patent owners who have strong arguments on the issues of infringement, validity, and damages, because they can generate greater value by pursuing a merits-based resolution. And while it is true that many individual inventors or small -entity patent holders may not have the funds to pursue a merits-based litigation, the legal system accommodates them by providing a tool that is not available to most patent defendants--contingency-fee arrangements that place much of the litigation cost burden on the attorneys.
Posted by BSeal | Thursday, January 17 2013 at 12:30PM ET
We are developing a patent insurance product to deal with weak patent assertions. It only works for a subset of situations but it is a good step. A positive aspect of the insurance is that it does not increase the price of weak patents like defensive aggregation does. www.altageneral.com/patent-insurance.php

Also for those of you interested, we have produced the only written transcript of the oral arguments in the CLS v Alice en banc. Its a bit rough still, but its the only one out there. See www.altageneral.com/cls-v-alice-en-banc-oral-arguments.php
Posted by Eric J Weibel | Tuesday, February 12 2013 at 11:28PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
Already a subscriber? Log in here
Please note you must now log in with your email address and password.