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February 22, 2009

Not Circling the Wagons

Another year, another turn of the wheel, and the same patent political issues rear their ugly little heads. Senate Minority Whip Jon Kyl (R-Arizona) has his shtick of pocketing lobbyist money by promising to rape DataTreasury of patent protection for its digital bank check processing, known as "Check 21." This year's DOA bill has already been introduced (S3600). And that's but the start of it. The kibitzers aren't on vacation.

TS Tech was a death knell for plaintiff venue selection. "Plaintiff deference" became so hollow that a plaintiff's deference in venue selection is overcome by where the plaintiff resides, as an aspect of the crucial factor of convenience mandating transfer. The irony never ends. Yet the unintentionally sardonic "Progress & Freedom Foundation" touts a legislative proposal to limit venue shopping, worried over loopholes in otherwise proposed legislation that will never be passed.

The major misnomer called the Coalition for Patent Fairness has a revamped site, and a retooled message for the times: "Modernization and reform of the current patent system will spur job creation by allowing American businesses to focus on innovation instead of burdensome unjustified patent litigation against their products." If you believe that, contact me for excellent opportunities to invest in mountain peak real estate in Florida.

The Coalition web site now sports a blog, that rather surprisingly lays out, naked as a jaybird, the problem that this lobby has with inventors: you can't countersue them. In praising Microsoft getting its 10,000th patent, a shadow looms over all that lovely patent power. "Most of the suits have come not from other technology companies, he said, but rather from the firms whose primary business is acquiring and enforcing patents. In those cases, having a large patent arsenal of one's own is of little use, since there are no products that could be used to countersue over." It's a damn shame.

Long odds that anything patent related makes it into law, except for some amendment tacked onto a more critical bill. That's a rather common tactic for pork spending. And that's what Congress is all about this year: pork, to get the economy out of the 2nd Great Depression.

Congress has taken down the rigging for comprehensive patent reform passage, by abolishing its IP subcommittees. That makes it much harder to herd the cats, as all Judiciary committee members must wrap their heads around proposed legislation. With the economy in the dump, who has time to piss on patents? Only the kibitzers, and the pay-for-confession ears attached to Congressional top dogs like Senator Kyl, and Judiciary honchos in the Senate and House: Sen. Leahy (D-Vermont) and Rep. Conyers (D-Michigan), and their minority Republican counterparts Sen. Specter (R-Pennsylvania) and Rep. Smith (R-Texas).

So, no patent reform this year, unless the high courts get another bug up their butt, such as, say, over damages, one of the few significant areas left untouched in the past few years of activist court intervention in patent law, as a response to perceived political pressure. But CAFC Judge Michel has repeatedly said that damages law is well developed, and changing that regime would only impose further burden on the courts. So, to hell with that.

Posted by Patent Hawk at February 22, 2009 2:16 PM | The Patent System


It came as no surprise that Senate Minority Whip Jon Kyl (R-AZ) had recently introduced the latest Patent Reform Act (S3600). In it includes a "Check 21" exception (sec. 13, page 80): "With respect to the use by a financial institution of a check collection system that constitutes an infringement under subsection (a) or (b) of section 271, the provisions of sections 281, 283, 284, and 285 shall not apply against the financial institution with respect to such a check collection system."

Although “Data Treasury” and its patents were NOT specifically mentioned, the intent of the exception is aimed directly at Data Treasury and its ongoing litigation against the banking industry for infringing upon its "Check Collection” remote image capture technology.

In the late 1990’s Data Treasury Corp. tried to sell its technology to the banks, but instead of buying or licensing the technology, several big banks expropriated it and began using it to change the way they processed checks. Banks process more than 50 billion checks each year. At one time, those checks had to be delivered physically to be drawn upon. But six years ago -- in the wake of the grounding of aircraft laden with billions of dollars in checks after the Sept. 11, 2001, attacks -- federal law was changed to allow electronic transfers as well. The value of that technology grew exponentially when Congress in 2003 legalized the digital processing of check transactions (The Check 21 act). Instead of physically returning cancelled checks to their signers, banks could perform the whole process electronically. Data Treasury’s technology created a windfall for the banks. According to the industry's own experts, the banks save between $2 billion and $6 billion annually because of the switch to digital processing. Of course, that switch would not have been possible without Data Treasury’s technology, which was covered by patents that the banks callously ignored. Understandably, the company has sued for damages. The banks initially responded by trying to get the patents invalidated with some legal jujitsu. But the U.S. Patent and Trademark Office upheld the validity of Data Treasury’s patents in their entirety. Since then, via ongoing litigation, the Data Treasury patents have withstood the best legal challenges the banks could buy, and that some of the more responsible banks have admitted the validity of the patents by licensing them. And every entity that has been sued almost surely had opportunity to negotiate a license before being sued. Check 21 made it possible for the banks to dramatically reduce check clearance costs, relative to then current processes. Check 21 was opportunity, not burden!! Banks remain free to process checks the old way or themselves invent a non-infringing new way or license use of the Data Treasury roadmap for a modest portion of the savings it offers. Nothing in the Check 21 Act requires banks infringe the Data Treasury patents. This amendment has the backing of the Coalition for Patent Fairness, (Fairness by definition - freedom from dishonesty and injustice), a group of high-tech companies backed by (The Financial Round Table). The Financial Round Table is an institution that represents the country's' one hundred largest banks. These banks have a serious financial problem. A finding of willful infringement, will subject them to treble damages. Are they trying to slide an (unconstitutional) amendment, through in the name of (honesty and justice)? So rather than face a jury, where they obviously fear losing, the banks decided to call on their friends in Congress for legal protection.
If passed, the amendment would shift the financial responsibility for infringement to the American Taxpayer. Billions of dollars in taxes would be passed on to us in the name of (honesty and justice). The U.S. Commerce Department has recently objected to this type of legislative provision. Such a law would pave the way for Congress to start interfering in legal cases on behalf of the highest bidder. The Commerce Department -- the parent agency of the Patent and Trademark Office -- also pointed out that "limiting patent holders' rights and remedies in this instance could reduce innovation in the technology area."

In other words, revoking someone's property rights affects not only the disenfranchised property
holder but also the next round of inventors. In this instance, moreover, Congress would be sending the bill for the bailout to us -- the taxpayers. All this makes for quite a lobbying coup. The banking industry makes off with a few extra billion dollars, robs a small business of its intellectual property and again sticks taxpayers with the tab. Legislation should not be used to grant retroactive legal immunity to large corporations that willfully ignored the property rights of a small, innovative company. And no elected official who has pledged to maintain the integrity of our legal system should be a party to such a travesty. The windfall is not 2-6 billion of savings to the banks, but at 40 billion checks per year for the major institutions at $2 to $2.50 per check the savings is $40 to $80 billion dollars. The vast majority of banks who offer RDC have stated they have seen growth in deposits due to RDC. Deposits represent the lifeblood of any financial institution and have pervasive impacts throughout the organization. Recent research conducted by RemoteDepositCapture.com has revealed that for every dollar a financial institution has in deposits, they make over $2 in loans and investments. Of course Data Treasury is suing for 5 cents per check and settling for even less. The industry claimed that it cost close to $2.50 per cleared check so what justifies the banks STEALING this for FREE, except why pay if you are not forced to. The proposed legislation places the US government in the position of accountability. Since the US government both issued and affirmed the validity of the DT patents, it seems to place the government in the curious position of stipulating patent validity without having any control over the question of whether infringement is or is not occurring and with the bank's interest's non-aligned with the government's interests. The enactment of such an amendment would result in litigation against the federal government for DT to seek compensation for the taking of its private property. The federal government would have to pay $1 billion+ to Data Treasury over 10 years as compensation for taking its property under the exception, according to estimates (albeit, a conservative estimate) by the Congressional Budget Office. All this on the heels of the recent banking industry bailout!!

I am asking "HONEST" politicians "for Change" to consider ridding the pollution of a legitimate legislative effort with an ex post facto and probably unconstitutional amendment having the lofty purpose of allowing banks infringing Data Treasury Patents to negate and or dramatically reduce the damages they face or demand that Senator Kyle by championing this exception be made (with a clear answer devoid of spin) to explain why exactly, banks should be immune to patent law that applies to everybody else and why the public should fund any patent royalties when infringing returns billions in operational savings to the banks !! The funny part about this campaign is that everybody will take a sudden, but belated, interest in this fiasco if and when the bill comes due and has to be paid by the American taxpayer. But you don't mind, do you? After all, I'm sure you want to show as much love to Bank of America, Citibank, etc. as Citibank and its group shows to you. All this on the heels of the recent Wall Street bailout. I guess business as usual is still the main diet of some elected officials!! DISGRACEFUL!!!

Posted by: PAUL PRINCIPATO at February 22, 2009 4:55 PM



Recently, Senate Minority Whip Jon Kyl (R-AZ) introduced the latest Patent Reform Act (S3600), which includes a "Check 21" exception (sec. 13, page 80):

"With respect to the use by a financial institution of ----(A CHECK COLLECTION SYSTEM THAT CONSTITUTES AN INFRINGEMENT )a check collection system that constitutes an infringement)

under subsection (a) or (b) of section 271, the provisions of sections 281, 283, 284, and 285----(SHALL NOT APPLY AGAINST THE FINANCIAL INSTITUTIONS WITH RESPECT TO SUCH
A CHECK COLLECTION SYSTEM'')--- Of course, there is no secret that this provision relates to patent litigation between Data Treasury and practically the entire banking industry.

By Senator Sessions own admission, --"I don’t know how (the provision) can be modified to pass a constitutional muster".
Jeff Sessions was attempting to add, an unconstitutional amendment, to the Patent Reform Bill. I question his motivation.( I also question yours.) Perhaps some banking lobbyist, (with an overdose of truth serum ) ,might answer the motivation ($$$$$) question! If this amendment does pass
it will cost taxpayers billions of dollars for allowing illegal infringement of the Data Treasury's patents. This court battle has been raging ,for four years, and is scheduled to continue in October. Having spent over ONE BILLION DOLLARS in attorneys fees, the banking industry has not scored one legal victory. Well, If we cant win it in court lets use our politicians and try to buy our way out of this patent infringement situation. Give it up, Minority Whip Kyk. In the name of honesty, integrity, and justice,
(ARE THESE WORDS PART OF YOUR VOCABULARY?) let this issue be resolved by our judicial system!

Posted by: Inspector Cluseau at February 22, 2009 7:46 PM

Last year it was Jeff Sessions
and this year it is Jon Kyl ...

Don't those congressional dudes have more important things to do, like finally taking control of giant MNCs and banks ruining this nation ?

Of course not, all they worry about is their next paycheck from their corporate donors for reelection campaign

Posted by: angry dude at February 23, 2009 10:10 AM

Some good thoughts, Hawk. Some of your best.

But why is that we patent practitioners sit around with our thumbs up our sphincters waiting for some Congressional sub-committee to decide which, if any, patent reforms are needed?

I have yet to see any organized, coherent attempt by patent professionals to initiate or guide patent reform. A few -- very few -- brave souls jumped in to slap back the new continuation rules idiocy, but the vast tens of thousands of us just ignore the whole issue of patent reform except to complain about the malfeasance of the PTO and the nonfeasance of Congress.

Posted by: Babel Boy at February 23, 2009 3:13 PM

Babel Boy,

Thanks for the comments.

You wrote: "I have yet to see any organized, coherent attempt by patent professionals to initiate or guide patent reform."

There's AIPLA and IPO. You are right. Their silence has been deafening, on what should be one of their primary roles. If one were to put an adjective to the value of these organizations in this regard, it would have to be a synonym for "worthless."

Posted by: Patent Hawk at February 23, 2009 3:32 PM

Roger that, Hawk. "worthless" would sound like a compliment next to what some practitioners would say.

Posted by: Babel Boy at February 24, 2009 9:24 AM