The U.S. Patent and Trademark Office, in a re-examination, has dealt a serious blow to a payment processor that has sued many of the nation's largest financial institutions over a patented process for creating and storing digital check images.
In a preliminary action published Thursday, the federal agency's examiner rejected all 43 patent claims of DataTreasury Corp. of Plano, Tex. The ruling, technically an "office action in ex parte re-examination," does not invalidate the two patents that were at issue, but it sets the stage for their eventual revocation after a process of appeals that could stretch out for years, lawyers said Friday.
In the meantime, DataTreasury can continue to press its patent-infringement lawsuits. It has sued more than 50 banks and other check processors; the first cases could come to trial in 2007.
For its part, DataTreasury expressed confidence its patents would survive.
"This is something we have been expecting all along and preparing for all along," said Eric Wetzel, a spokesman for the company's patent counsel, the Dallas law firm Nix, Patterson & Roach LLP.
"We have not yet had a chance to fight our case before the USPTO," Mr. Wetzel said. "This is something we look forward to. We are fully confident our patents will remain valid."
First Data Corp. of Denver, the nation's largest payment processor and one of the defendants in DataTreasury's lawsuits, had requested the re-examination, citing prior art that would invalidate the company's claims, lawyers said.
First Data would not comment Friday. A spokeswoman said that its expert on the issue was traveling and could not be reached.
But other lawyers called the preliminary action damaging to DataTreasury, especially in light of the examiner's decision to reject all of its patent claims.
"This should not be underestimated. It is a significant setback for DataTreasury," said Gerald L. Fellows, a partner in the Milwaukee law firm Michael Best & Friedrich LLP.
"First Data has done a service to the industry," said Mr. Fellows, who does not have clients involved in the current lawsuits but who said he represents companies that could be affected by the patent claims. "We've long thought the broad claims were clearly invalid."
James W. Dabney, a litigation partner in the New York office of the law firm Fried, Frank, Harris, Shriver, & Jacobson, said the examiner's decision was part of a broader trend to limit the use of so-called "business method" patents.
"More important than this particular office action is the underlying legal standard that gave birth to this and is under attack," said Mr. Dabney, who said he was not familiar with the DataTreasury case but who argued before the U.S. Supreme Court last week that federal courts had adopted an overly broad approach for patenting business processes.
Under a test set forth in 1998 by the U.S. Circuit Court for the Federal Circuit, which handles all patent appeals, a patent cannot be rejected without a showing that there was a "teaching, suggestion, or motivation" that would have led a person familiar with a field to make an obvious connection, Mr. Dabney said.
"You cannot fail to issue a patent except in certain very narrow circumstances," he said. This has led companies to file claims on "technically trivial computer systems that happen to correspond to steps that take place" in a business process.
Based on the reaction of the justices during arguments on Tuesday - Justice Anton Scalia called the circuit court's test "gobbledegook," while Chief Justice John Roberts referred to it as "worse than meaningless," according to a transcript - Mr. Dabney predicted that "significant change is going to happen" when the court rules on his case, KSR International Co. v. Teleflex Inc., in the next six to nine months.
None of this necessarily changes the process in the DataTreasury case. Brigid Quinn, a spokeswoman for the patent office, said the company would have 60 days to make its case to the patent examiner who issued Thursday's preliminary decision. The examiner's final decision could then be appealed to an internal panel, the Board of Patent Appeals and Interferences, and after that to the federal courts, either to U.S. District Court in Washington, a trial court, or direct to the circuit court of appeals.
Lawyers said such processes could take years to play out.
Nor would the future disposition of the patent appeal necessarily have an impact on ongoing infringement suits, lawyers said. Judges could choose to allow those suits to proceed.
In the widely watched Blackberry lawsuit earlier this year, the court threatened an injunction to shut down the wireless e-mail system operated by Research in Motion Ltd., even though the patent office had voided patents held by NTP Inc. In that case the decision in the patent case came too late to affect the infringement suits, lawyers said.
Some companies have already reached settlements to license DataTreasury's patents, including JPMorgan Chase & Co., Zions Bancorp.'s NetDeposit check-imaging unit, and Merrill Lynch & Co. Inc.
The automated teller machine company NCR Corp. granted DataTreasury access to NCR's patent portfolio as part of a settlement in January.
