[Ip-health] Lawmakers Move to Grant Banks Immunity Against Patent Lawsuit - 0% royalties or what?

[Riaz K Tayob]

    Lawmakers Move to Grant Banks Immunity Against Patent Lawsuit
    By Jeffrey H. Birnbaum
    The Washington Post

    Thursday 14 February 2008

    Sen. Jeff Sessions (R-Ala.) has sponsored an unusual provision at
the urging of the nation's banks granting them immunity against an
active patent lawsuit, potentially saving them billions of dollars.

    Adopted with little fanfare, the amendment would prevent a small
Texas company called DataTreasury from collecting damages from banks for
infringing on its patented method for digitally scanning, sending and
archiving checks. The patents were upheld last summer by the U.S. Patent
and Trademark Office after they were challenged.

    The provision, passed without dissent by the Senate Judiciary
Committee in July and inserted into legislation scheduled for a vote by
the full Senate this month, is a rare attempt by Congress to intervene
in ongoing litigation, congressional experts say.

    Although the amendment would not invalidate DataTreasury's patents,
it would spare the banks from paying for infringing them should courts
decide that's warranted. If DataTreasury collected a royalty of just a
couple pennies per check, the cost would run into billions of dollars.

    The federal government would have to pay $1 billion to DataTreasury
over 10 years as compensation for taking its property under the
amendment, according to estimates by the Congressional Budget Office.

    Banks process more than 40 billion checks each year. At one time,
those checks had to be delivered physically to be drawn upon. But five
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.

    When the Judiciary Committee began to draft landmark legislation
overhauling the country's patent laws last year, lobbyists for these
banks jumped into action.

    The Financial Services Roundtable, a lobby group that represents the
nation's largest financial institutions, and the banks approached
Sessions about sponsoring an amendment to protect them. They said they
chose to work with Sessions because of his long-standing antipathy
toward plaintiff's attorneys and his previous interest in the electronic
check system.

    Lobbyists for the Roundtable and the banks, including prominent
free-lance lobbying firms Smith-Free Group, Bryan Cave Strategies and
Quadripoint Strategies, conducted rush visits with Judiciary Committee
members and their aides to advocate the measure. Sessions's staff
produced a three-page description of the amendment and its background
with the help of the Roundtable and distributed it to the committee.

    Commercial banks are considered a potent force on Capitol Hill, in
part because of their heavy contributions to lawmakers. They are the
10th-largest donor to federal candidates among the industry groups
followed by the Center for Responsive Politics. They also spend millions
of dollars a year on lobbying.

    Political action committees of financial institutions were the
largest single category of industry donors to Sessions, with $52,300 in
the current election cycle, the center said. That represented nearly a
quarter of PAC contributions he received as of midyear 2007.

    Sessions said the banks' support for him was not a factor in his
decision to sponsor the amendment. Stephen Boyd, a spokesman for
Sessions, said the provision "is designed to protect banking
institutions complying with post-9/11 security requirements from the
abusive practices of patent trolling trial lawyers seeking personal
enrichment, which ultimately will be paid for by checking account
customers across America."

    In addition, bank lobbyists say they are working with senators to
alter the amendment so that it would not cost the government money.

    The provision introduced by Sessions did not name DataTreasury but
was carefully tailored to apply to that company and its "check
collection" system.

    The amendment was approved by the committee in minutes and without
opposition. The measure received little news media attention outside the
banking trade press.

    Even Claudio Ballard, the founder of DataTreasury, which holds the
patents, said he did not hear of the amendment until days afterward. He
said he had been unaware that the Judiciary Committee was considering it
and engaged lobbyists to help him only after it had passed. Ballard did
not know whom to turn to for help, so he relied on his law firm, Nix,
Patterson & Roach, which recommended two prominent Washington lobbyists:
John D. Raffaelli and Ben Barnes.

    "I've always put my full faith in the courts and the patent office;
that's all I thought I needed to do," Ballard said. "But we were
blindsided" by the Senate committee.

    "We had no notice, no opportunity to respond, to give our side of
the case, nothing," he said.

    The banks allege that DataTreasury bought up patents for the system
that underlies electronic transfers and is trying to shake down
companies for licensing fees. But DataTreasury asserts that Ballard is
the inventor of the system and built a company to sell it before being
squashed by banks that stole his idea. Court battles have raged between
the two sides for six years.

    The banks are emphatic about the need for the protection. "This is a
glaring example of the abuse of the system," said former congressman
Steve Bartlett (R-Tex.), president of the Financial Services Roundtable.
"It's an example of what's wrong with patent law."

    He called the Sessions amendment a priority for the banking industry.

    DataTreasury's patents were upheld by the patent office after a
challenge by First Data, a provider of merchant processing services. The
patent office concluded Ballard's patents were not predated by other
patents and documents, as First Data had alleged.

    Ballard asserts that he developed the basic architecture for the
system in the mid-1990s, and applied for patents in 1997 and '98. He
said he realized at the time that paper would one day be obsolete for
financial transactions but that paper and electronic images would have
to coexist for a while. His system helped make that possible, he said.

    Ballard has a long history of working with databases. He was an
early reseller of Oracle database products in the 1980s and later
developed a method of adapting Oracle's software to complex computer
applications for government and large corporations.

    He said he talked to some bank officials at an early stage of the
check system's development and, despite having signed nondisclosure
agreements with them, soon lost control over his invention.

    "We've struggled mightily," Ballard said. "We almost went bankrupt
at the end of 2001." He said he brought in investors to remain afloat
and, as a result, now owns 2 percent of the firm he founded. The
company, located in the technology corridor near Plano, Tex., once had
100 employees, he said. It now has two.

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