Perpetual litigant Data Treasury's recent $27 million patent infringement verdict against US Bank, Viewpointe and other codefendants was a stinging loss in the bank's gamble that Data Treasury's electronic check processing patents wouldn't hold up in court, and marks the latest spanking the banking industry has taken in patent cases.
The Data Treasury vs. US Bank verdict, from a court district in East Texas where juries notoriously favor patent holders, was a blow, but not altogether surprising: First, nearly 30 other firms, including JP Morgan Chase and Citigroup, have already cried 'uncle' and signed licensing deals with Data Treasury for use of the technology, forking over more than $350 million. Second, it's tough to imagine a jury finding in favor of a big bank these days, given the industry's battered status.
US Bank says it will appeal, but the jury verdict is reverberating, with remaining defendants Wells Fargo and Bank of America more likely to settle with Data Treasury before their fall trial dates. Perhaps it's time for the rest of the industry to settle and move on, but financial services lobbyists say the case is proof that the patent system is flawed.
They're not the only ones that think so. Congress is considering-for the fifth year in a row-patent reform legislation. A bipartisan bill from Sen. Patrick Leahy (D-VT) and Sen. Orrin Hatch (R-UT) contains several pro-business provisions:
First to File-patents would be granted to the first person to file a patent application, departing from the current first-to-invent system.
Limits on Damages-judges can act as "gatekeepers", controlling what evidence a jury hears about how to calculate damages.
Post Grant Review-Third parties can challenge patents within nine months of issue.
These are a good start, but the patent issue that banks care most about are business process patents, and those are covered by a different famous case that's about to have a verdict: Bilski. In 2008 a Federal Appeals Court rejected Bilski's claim that a trading algorithm was a business process that could be patented. The Supreme Court took the case, and a ruling is expected any day.
During oral arguments in November, Justices seemed skeptical of Bilski's argument. That helps explain why bank lobbyists are fomenting for a law to allow processes like hedging strategies trading and algorithms patent protection. "We support refinements in the patent system to allow greater recognition of the methods businesses use in their daily operation," says Financial Services Roundtable spokesman Elise Brooks.
Congress is pretty busy these days trying to pass laws to limit the excess of the financial industry, so looking for legislators or SCOTUS to be sympathetic sounds like a bet John Paulson might like to short.