Banks, CUs Join To Stamp Out Check 21 Patent Troll

Register now

WASHINGTON – In an effort headed by big Wall Street firms, banks and credit unions last week succeeded in getting traction in a 10-year-old battle over Check 21 patent rights.

Two weeks after getting beaten in their drive to block a cut in debit fees, the powerful financial services lobby succeeded in getting a provision included in last week’s patent reform bill that could stem hundreds of millions of dollars they are paying in licensing fees for Check 21 image technology to a tiny Texas firm being derided as a “patent troll.” A provision of the America Invents Act would give financial service providers the right to demand a review by their own regulator for the validity of the patent, once they are challenged for patent infringement.

A broad group called the Coalition for Patent Fairness, which includes CUNA, NAFCU, CUNA Mutual Group, the American Bankers Association and the Financial Services Roundtable, is lobbying for the provision, which is aimed at a two-employee Dallas company called DataTreasury which has sued dozens of companies over Check 21 technology patents and collected more than $400 million in licensing fees. Among the targets have been JP Morgan Chase, US Bank, PNC, NCR, Diebold, NetDeposit and Viewpoint Exchange.

The bank-backed provision is being challenged by the owner/developer of DataTreasury, who has attracted support from the Tea Party lobby – which sees it as a violation of the rights of inventors. “Once again the banking lobby muscles its way into a bill that pushes inventors and entrepreneurs to the back of the line while allowing the big banks to cut in front,” said Claudio Ballard, co-founder of DataTreasury.

The inclusion of the provision, known as Section 18, comes as the number of legal challenges involving credit unions’ use of technology is proliferating, including last week’s suit by London’s Serverside Group charging dozens of credit unions and credit union organizations, including PSCU Financial Services and The Members Group, with infringement on its patent for card customization processes. The week before that another small Texas company called Phoenix Licensing filed a patent infringement suit against dozens of financial companies, including CUNA Mutual Group, for its electronic customer service process. Credit unions also have been faced with patent infringement suits on mobile banking and webpage authentication.

The financial services industry supports Section 18 as something that will allow the government to vacate low-quality patents, which they define as patents that should never have been granted. In particular, language in the bill would allow patents to be challenged based on evidence of prior use or sale, which are factors that cannot be considered under current rules.

“There have been several companies, including financial companies, which have been sued by non-practicing entities for infringements of low-quality patents on business practices such as customer service, payments and marketing,” pointed out Ryan Donovan, senior lobbyist for CUNA. “This section seeks to protect credit unions and other businesses from costly litigation brought by these non-practicing entities by providing a process outside of the courts for the [U.S. Patent and Trade Office] to re-examine the validity of the patent in dispute.”

“On an escalating basis, financial institutions are the target of meritless patent lawsuits brought by non-practicing entities looking for deep pockets and easy money,” added Dan Berger, chief lobbyist for NAFCU, which also is lobbying for the provision.

The Check 21 provision was slipped into the patent reform bill by New York Sen. Charles Schumer, who is a close friend of the Wall Street banks. The main focus of the bill would change the main criteria for winning a US patent from the current “first inventor” system, which acknowledges the person who can clearly prove he/she had the idea first, to one of “first filer” which rewards the first person to file for the patent.

Both the House and Senate have passed separate versions of the bill, the House as recently as last Thursday, with Section 18 in both versions. The separate versions must now be reconciled in a conference comprised of leaders of both the House and Senate, with Section 18 likely to survive in a final bill.


For reprint and licensing requests for this article, click here.