WASHINGTON - A law enacted this week will reduce the risk of patent infringement lawsuits against financial services companies, but experts warned Wednesday that the industry is not completely insulated.
The American Inventors Protection Act of 1999, which was attached to the federal budget signed Monday by President Clinton, would shield from such lawsuits any company that has commercially used a product or process for at least a year before another company applied for a patent on it.
The new law, which Rep. Howard Coble, R-N.C., wrote to apply to a broad range of industries, is supposed to protect banks, securities firms, and others that have developed financial instruments, information systems, or operational practices and used them for years.
Industry lawyers had long thought such "methods of doing business" did not require patents, but a federal appeals court last year ruled otherwise. This decision sparked concern that the industry may face more than $2 billion of liability to patent holders who could claim ownership of products others had used first.
At risk were a host of inventions, including special types of derivatives and asset-backed securities, software, or unique back-office processes for liquidity management, automated teller machine processing, and on-line banking. Patent holders could demand revenue from these inventions plus royalties.
Experts are still trying to figure out the durability of the law's protections. Lawmakers tried to strike a balance between some patent holders who felt their legal rights were being sacrificed and corporate interests that demanded a legislative remedy.
"Most people in the financial services industry are pleased," a House Judiciary Committee aide said. "It may not be as expansive as some people wanted, but at least they've got a defense."
The law will not stop lawsuits, said Kelly Talcott, a partner in the New York office of the Pennie & Edmonds intellectual property law firm, but should make them briefer and less expensive for many companies. The law has limits, he warned, such as how long the disputed innovation has been used.
"It reduces the risk where you have had something in place for a good period of time," Mr. Talcott said. "You are in much better shape than you were before the law was passed."
The law was prompted by a July 1998 ruling in the U.S. Court of Appeals for the Federal Circuit on a case involving State Street Bank and Trust Co. and Signature Financial Group. Boston-based State Street sued to void Signature's patent on a data processing system for pooling mutual funds in a partnership.
The appeals judges reversed a lower court decision that the patent was invalid because it involved a method of doing business. They said the data processing system was indeed a useful product composed of formulas and computer processes that could be patented.