Patents & the Financial Services Industry

From Law360 (subscription required):

Bilski — A Financial Patent’s Waterloo?

Law360, New York (July 23, 2010) — Michael Lewis’ best-seller, The Big Short, reads like the best of Agatha Christie’s mysteries, chronicling the collapse of the subprime mortgage market and its infectious spread to the underpinnings of our credit system, methodically wiping out wealth measured in trillions of dollars.

 

 

On the heels of its two-year recovery, these markets are now confronted with a new and complex infrastructure of financial regulations that might even embarrass Carter Glass and Henry Steagall of Glass-Steagall fame. To this, now add the U.S. Supreme Court’s ruling in Bilski — a ruling many thought would remove patent protection from this industry. Did it?

 

. . .

 

When the Supreme Court issued its Bilski decision, a divided court rejected both the narrowing test of the Federal Circuit and an absolute bar to business method patents — a ruling that may preserve many of the business method patents in the financial world. No Waterloo today.

 

–By James M. Bollinger, Troutman Sanders LLP

 Last week XPRT Ventures filed a complaint against eBay and subsidiaries PayPal, StubHub, Bill Me Later and Shopping.com, alleging both patent infringement and trade secret theft.  XPRT (pronounced “expert”) seeks $3.8 billion in damages, and the case has already garnered substantial attention from the mainstream media, business journals, the tech world, and patent commentators.  See here, here, here, and here.

At the heart of the claim is XPRT’s assertion that eBay misappropriated various trade secrets from George Likourezos and Michael Scaturro that related to streamlining electronic payment systems when eBay acquired PayPal back in 2002 and began practicing Likourezos and Scaturro’s invention without their permission or authorization.  The complaint also alleges that eBay infringes various patents invented by Likourezos and Scaturro, which were assigned to XPRT in 2008, including U.S. Patents  7,483,856, 7,567,937, 7,627,528, 7,610,244, 7,599,881, and 7,512,563.  The patents generally relate to payment in electronic commerce transactions, particularly for electronic auctions, and it was pointed out to me that XPRT’s ‘937 patent was one out this site’s “Patent of the Week” when the patent issued last July.

According to the complaint, Likourezos contacted eBay’s in-house IP counsel in 2001 to inform him of patent applications filed by Likourezos and Scaturro and to offer eBay the chance to review the applications on a confidential basis.  The inventions disclosed in the patent applications purportedly would have improved upon eBay’s current processes for effecting payments for online auction transactions, which at that time were being performed by eBay’s Billpoint payment system, and Likourezos wanted eBay to review them to determine if the parties could enter into a business arrangement for the inventions.

Likourezos was eventually contacted by Andre Marais (then a partner at Blakely Sokoloff Taylor and Zafman LLP, now a shareholder at Schwegman Lundberg and Woessner, P.A.), who represented eBay and requested copies of the patent applications for review and analysis.  After receiving “assurances of confidentialities” from Marais, Likourezos sent him the patent applications that disclosed – according to the complaint – descriptions of additional revenue streams for eBay, particularly automatically transferring funds to an electronic auction payment account corresponding to a user of an electronic auction website and effecting payment between a user a another party, such as an electronic auction system operator.

eBay ultimately did not enter into an agreement with Likourezos, but several months later it announced its plans to acquire PayPal for “the purposes of integrating PayPal into its eBay.com platform . . . [and] such acquisition was done in order to modify PayPal and incorporate it into the eBay.com platform in the manner suggested by Mr. Likourezos.” Complaint para. 45 (emphasis added).  The complaint goes on to assert that eBay’s access to Likourezos’s “confidential information,” namely his patent applications, allowed eBay to “recognize the advantages it would realize by acquiring, modifying and integrating PayPal’s payment platform with eBay’s own e-commerce payment platform.” Complaint para. 46.

Other points of interest alleged in the complaint:

• eBay filed its own patent application (App. No. 10/427,553) to cover the eBay-PayPal payment system after Likourezos disclosed his patent applications to eBay.
• Andre Marais, who was the first outside counsel of eBay to communicate with Likourezos about the Likourezos-Scaturro invention and presumably see their patent applications, was the same practitioner who later drafted the eBay patent application and Marais continues to be the attorney or record for the eBay patent application.
• Marais and others associated with the filing and prosecution of the eBay patent application 10/427,553 knew of Likourezos’ patent applications (now “the XPRT patents”) but failed to disclose the XPRT patents to the Patent Office, thereby violating their duty of disclosure to the USPTO. [Comment: eBay did file an IDS that identified one of the XPRT CIP patent applications before any examination of its 10/427,553 application occurred and eBay has since identified all of the XPRT patents in the still-pending 10/427,553 application]
• Because the claims filed by eBay in its patent application “paralleled those of” the XPRT patents, eBay thereby “admitted the patentability of” Likourezos-Scaturro claims because eBay had a duty of candor before the USPTO to submit only patentable claims. Complaint para. 68.

This last assertion is particularly interesting.  Most patent attorneys excel at drawing distinctions between patent claims and other similar technologies.  Thus, given that the claims in the eBay application and the XPRT patents undoubtedly do not have identical language, we are likely to see eBay argue that its own claims are different enough from those in the XPRT patents to simultaneously allow eBay take the position that its own claims are patentable while XPRT’s claims are invalid and/or not infringed.

In sum, XPRT alleges infringement by eBay of six patents, misappropriation of trade secrets, and unjust enrichment by eBay for unauthorized use of XPRT’s inventions.  XPRT is seeking $3.8 billion for eBay’s alleged wrongful conduct plus treble damages.

The case poses some interesting questions, particularly because it asserts intertwined patent and trade secret misappropriation claims in a financial services-related intellectual property case.

As the case progresses, we can expect to see the outcome hinge on various fact-specific issues.  Here are a few possibilities.  On the trade secret side:

• Whether Likourezos and Scaturro were employees of XPRT at the time of the initial communications with eBay in 2001 and 2002, and if not, whether and when XPRT acquired rights to Likourezos and Scaturro’s “confidential information”?
• The precise language of the confidentiality agreement between Likourezos and eBay (according to the complaint, eBay unilaterally changed the effective date of the agreement).
  • It is not clear from the complaint whether eBay entered into a written NDA with Likourezos before Likourezos disclosed the first patent applications to eBay).
  • It is also not clear from the complaint whether eBay was bound to confidentiality if it learned of Likourezos and Scaturro’s “confidential information” independently through no improper means (according to the complaint, this “confidential information” was disclosed in patent applications that were published as early as 2002, and eBay certainly would have had legitimate access to the patent applications after they published, absent contrary language in the NDA).
• Did the PayPal technology – as it existed prior to the acquisition by eBay – misappropriate the Likourezos/Scaturro “confidential information” disclosed in the Likourezos/Scaturro patent applications?  If not, precisely how did eBay modify PayPal and incorporate it into the its platform in a manner that misappropriated the Likourezos/Scaturro “confidential information” rather than just modify the PayPal technology through normal means to join PayPal to eBay.
• According to the complaint, eBay began misappropriating the Likourezos/Scaturro “confidential information” beginning when it acquired PayPal, which occurred on July 8, 2002 and was public knowledge.  Why did Likourezos and Scaturro wait eight years to file a complaint for trade secret misappropriation? Delaware Statute of Limitations states: “An action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” 6 Del. C. § 2006.  The complaint may attempted to address this by indicating that certain aspects of eBay’s misappropriation were not implemented — and were therefore perhaps not discoverable – until 2008 (although, this may come back to the issue that the inventions were most likely publicly available as published by the PTO starting in 2002); also, “For the purposes of this section, a continuing misappropriation constitutes a single claim,” 6 Del. C. § 2006.

And on the patent side:

• After eBay acquired PayPal, was the PayPal technology applied in a specific manner that reflected eBay’s knowledge of the Likourezos/Scaturro “confidential information,” or was the mere acquisition of PayPal by eBay sufficient to infringe the XPRT patents and misappropriate the Likourezos/Scaturro “confidential information”?
• If the mere acquisition of PayPal by eBay was sufficient to misappropriate the Likourezos/Scaturro “confidential information,” whether eBay was considering acquiring PayPal before viewing Likourezos’ patent applications, which might demonstrate that eBay did not misappropriate if it can show it simply continued to proceed with an earlier business consideration – namely acquiring PayPal – notwithstanding its access to the “confidential information”?
• The impact of the prosecution history on the Likourezos/Scaturro patents on XPRT’s assertion of “provisional rights” (i.e., whether the claim amendments changed the claims beyond “substantially identical” during prosecution and, if so, what is the earliest date provisional rights will flow for royalty purposes and how does that affect the $3.8 billion damages?

More to come as this huge case develops . . .

Introduction

Much has already been written about this long-awaited decision.  The important holding was simply that (1) the Federal Circuit’s machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process,  and (2) Bilski’s claim^* covering hedging risks in commodities trading was too abstract to be patent eligible.  To some, who were expecting a new test for patent-eligible subject matter, this decision may have been disappointing or at very least anticlimactic.

Justice Kennedy wrote for the majority, and two concurring opinions were offered, by Justice Stevens and Justice Breyer.  The Majority opinion was rather short, while Justice Stevens’ concurrence was much lengthier, and some have speculated that the Stevens concurrence was written as though it were drafted to be the majority opinion but which failed to garner a fifth vote (namely Scalia, who appeared to be the swing vote in this case), while Kennedy’s shorter majority opinion may have been written as a compromise after it was clear that Stevens was not going to get five votes.  In any event, the Stevens opinion is very informative to read.

Some points to know about the decision:

• All nine Justices agreed that Bilski’s proposed patent covered an abstract idea, which (along with laws of nature and physical phenomena) is not patentable
• Only 4 Justices voted to categorically find “business methods” not patentable; the majority did not agree, and therefore business methods are not per se unpatenable (e.g., Breyer concurrence: “This Court has never before held that so-called ‘business methods’ are patentable, and, in my view, the text, history, and purposes of the Patent Act make clear that they are not.”)
• The majority probably barred any categorical exclusion of software patents, but not explicitly.  Indeed, the majority opinion did not even explicitly mention software much less expressly rule on the patentability of software, but it clearly expressed a desire to avoid categorical bars beyond abstract ideas, laws of nature, and physical phenomena.  (Kennedy discusses software briefly in his decision, but in a section not joined by Scalia and therefore this was merely a Kennedy concurrence and not signed by the majority)
• The majority did not explicitly reject the “Useful, Concrete, and Tangible result” test of State Street, but both concurring opinions (5 Justices) explicitly rejected the UCT test.  Therefore, five Justices expressed the view that the State Street test is inconsistent with Supreme Court precedent
• Absent a new or complementary test, the Benson-Flook-Diehr (BFD) cases are the “guideposts” to look towards when determining whether a claimed invention is “abstract.”
• Insofar as most observers did not expect the S.Ct. to find Bilski’s claim patent-eligible, the decision can largely be seen as a victory for Bilski – as well as proponents of broad patent protection for financial services inventions – because the Court agreed with petitioners that (1) business methods are not excluded from patentability, (2) the Federal Circuit’s machine-or-transformation test is not the exclusive test for patent eligibility, thereby expanding the category of eligible subject matter beyond only that subject matter which passes the machine-or-transformation test, and (3) the ruling allows for the possibility that software and other business methods can be patented.

Now that we are back in a BFD world again, the focus going forward for financial services patents and applications will be these three S.Ct. cases and, particularly, what is and is not an “abstract idea.”

Abstract Ideas

Because the S.Ct., probably quite correctly, did not provide a new test for determining §101 patent eligibility, we are left with a §101 framework that affirms the MOT test as a useful clue – and any claims that satisfy this test are most certainly patentable based on S.Ct. precedents unless and until we find a claim that passes MOT but is nonetheless directed towards an abstract idea – while allowing that some claimed inventions may fail the MOT test but be patent-eligible if they are not abstract ideas.

The upshot of this framework is two-fold: (1) the S.Ct. in its decision did nothing to develop the MOT test further than it already has in the past, and (2) the S.Ct. did not do much more for explaining when an invention is an abstract idea.  It was already established that an invention that satisfies the MOT test is patent-eligible, but for inventions that fail MOT, the Court did not provide much guidance for distinguishing between those inventions that are simply abstract ideas and those that are not.  This aspect of the Bilski v. Kappos decision frustrated many practitioners because it is precisely in this realm of further defining what is or is not an abstract idea that would have provided more certainty with respect to §101.

It is not the case, however, that the S.Ct. provided no guidance whatsoever on what constitutes an abstract invention.  In its cursory discussion of why the Bilski claim was directed towards an abstract idea, the explained:

Read more…

Network solutions and mobile data management provider Tekelec was awarded U.S. Pat. 7,756,788 on July 13, 2010.  The patent is directed to performing sales transactions using a mobile devices without using the text messaging or paging capabilities.  The claim recites using a voice call from a mobile communications subscriber – rather than a text message or page –to verify and complete the transaction.

The day before the patent was to issue, the applicant filed a petition to withdraw the case from issue.

Also on July 13, 2010, another patent issued – this one to American Express Travel Related Services Company – by the same Examiner as the Tekelec patent and in the same field, namely performing transactions between parties at remote locations. U.S. Pat. 7,756,785.

In Lincoln National Life Insurance Co. v. Transamerica Life Insurance Co. (Fed. Cir. 2010), after a jury found claim 35 of Lincoln’s patent, U.S. Pat. 7,089,201, infringed by Transamerica and not invalid and awarded Lincoln $13 million in damages, the CAFC reversed on infringement.

What is interesting about this case is not only the subject matter of the patent – a computer system for administering an annuity plan with a guaranteed minimum payment feature – but also the claim language itself, which includes one of the ever-troublesome contingency words, “if”.  It is not unusual for method claims to be drafted in the format, “performing step A if X, and performing step B if Y”, or some variation of this arrangement.  There are inherent deficiencies in this approach, but the contingency nature of the arrangement sometimes assists applicants with differentiating their inventions from the prior art.

One of the difficulties with this approach, however, is determining when such clauses are infringed.  Must both scenarios be performed?  Does the claim read on a process that performs one of the steps and is configured to perform the other step, even if that latter step is not actually performed?  What if a process performs one of the steps and the would-be infringer is obligated to perform the other step but has not yet done so?

Here, the language employed by the claim at issue is not quite identical to the format identified above, but the same issues arise:

Claim 35

A computerized method for administering a variable annuity plan having a guaranteed minimum payment feature associated with a systematic withdrawal program, and for periodically determining an amount of a scheduled payment to be made to the owner under the plan, comprising the steps of:

a) storing data relating to a variable annuity account, including data relating to at least one of an account value, a withdrawal rate, a scheduled payment, a payout term and a period of benefit payments;

b) determining an initial scheduled payment;

c) periodically determining the account value associated with the plan and making the scheduled payment by withdrawing that amount from the account value;

d) monitoring for an unscheduled withdrawal made under the plan and adjusting the amount of the scheduled payment in response to said unscheduled withdrawal; and

e) periodically paying the scheduled payment to the owner for the period of benefit payments, even if the account value is exhausted before all payments have been made.

Lincoln’s patent is directed to computerized methods for administering variable annuity plans, which is a contract that guarantees the payment of money to an annuitant upon certain intervals.  The claimed annuity plan entails an accumulation phase followed by a distribution phase, where during the latter the insurer makes periodic benefit payments to the annuitant from the account the annuity owner deposited money during the accumulation phase.  Under a variable annuity option, when there is a sufficiently poor fund performance, the dollar amount of the annuitant’s benefit payments could drop to zero.

One of the steps of Claim 35 requires “periodically paying the scheduled payment to the owner for the period of benefit payments, even if the account value is exhausted before all payments have been made.”  Transamerica sells and administers riders that guarantees policy owners the right to minimum payments regardless of market performance, thereby ensuring – at least theoretically – that the payments are made to annuitants “even if the account value is exhausted before all payments have been made.”  Transamerica argued that it did not perform step (e) because:

(1)          none of its policy owners has ever had an exhausted account and, therefore, that it has never made payments after an “account value is exhausted”;

(2)          it has not yet implemented a computer system that will make a payment in the event an account becomes exhausted.

The Federal Circuit rejected the first argument, finding that, per the district court’s claim construction, step (e) does not require actual exhaustion, only that Transamerica’s computerized method of administering riders must necessarily make a scheduled payment in the event of an exhausted account.  If a computerized system is configured such that it does not make a payment if an account is exhausted, step (e) is not performed and there is no infringement.

However, the Federal Circuit agreed with Transamerica on its second point: that, because Transamerica’s computerized system will not make payments if account value is exhausted  it does not perform step (e).  Rather, when a policy owner’s account value drops to less than the scheduled withdrawal amount, Transamerica manually produces and sends a check for the policy owner.

Two other interesting observations:

(1)  Legal Obligation to Perform Claimed Step.  Lincoln also argued that Transamerica was contractually obligated to practice the claimed method through its sale of riders, and Lincoln asserted that the riders require Transamerica to continue making payments to policy owners even in the event of account exhaustion.  The Federal Circuit disagreed that this was insufficient:

“More fundamentally, even if the GMWB riders did obligate Transamerica to perform the claimed method, this would not be sufficient to establish infringement. “The law of this circuit is axiomatic that a method claim is directly infringed only if each step of the claimed method is performed.” Muniauction, 532 F.3d at 1328 (emphasis added). A contractual obligation to perform an act is not performance; indeed, a party could avoid infringement simply by breaching its contract. To the extent the court’s instruction to the jury implied that Lincoln could establish direct infringement by relying on the terms of the GMWB riders rather than on Transamerica’s actual performance of the claimed steps, this instruction was erroneous.”

(2)  Contingency Language Such as “If”.  Lincoln also argued that, because the district court construed the “even if” clause of step (e) to be a contingent limitation, that limitation need not be performed to support a finding of infringement unless the condition occurred (i.e., Transamerica had an exhausted account).  That is, Transamerica’s system infringed, even though the computerized system would not make payments to exhausted accounts, because the “even if” clause need not be performed unless account exhaustion occurs.  The Federal Circuit likewise rejected this line of argument:

Because Transamerica’s computerized system does not make a payment if an account is exhausted, the system does not make a guaranteed payment regardless of the account value. Therefore, Lincoln failed to prove that Transamerica performs step (e). The undisputed evidence of record shows that Transamerica’s computerized system for administering its . . . riders does not make a scheduled payment if an account is exhausted. Rather, Transamerica’s computerized system stops making payments when an account becomes exhausted and [Transamerica] provides a manual check to the policy owner.”

The Federal Circuit left the issue of patentable subject matter under §101 undecided, finding it moot based on its non-infringement holding.  That in itself is not particular interesting but a good reminder that we have a mere 3 days until the S.Ct. publishes its opinion in Bilski v. Kappos.  Let the fun begin!

From Court House News Services:

     The Federal Circuit has clarified the circumstances under which courts may block attorneys from prosecuting certain patents to keep them from inadvertently disclosing confidential information gleaned in another case.
     The ruling marks the first time the Washington, D.C.-based court has outlined the standards and scope of patent prosecution bars, which prohibit attorneys from using confidential material exchanged during litigation for any other purpose.
     The decision stems from Deutsch Bank’s efforts to block attorneys for Island Intellectual Property from prosecuting any patents related to financial “deposit sweep services.”
     Island had sued the bank for patent infringement, and Deutsch was concerned that if Island’s lawyers gained access to its confidential documents, they might disclose that sensitive information while prosecuting Island’s patents in other cases…

See complete order here: In Re Deutsche Bank Trust Co. Americas

 From Bloomberg.com:

U.S. Bancorp, Minnesota’s largest bank, should pay $27 million for infringing patents related to digital checks owned by DataTreasury Corp., a jury in Texas said Friday.

The trial is the first of three on DataTreasury’s infringement claims that may lead to more than $1 billion in damages against the banking industry.

The patents relate to the imaging of checks, their transmission and their storage in a central repository.

U.S. Bancorp denied infringing the patents. The company’s lawyers had no comment on the verdict.

On its face, this case is a David versus Goliath story about a small Plano-based company with just a few patents to its name fighting against the behemoth commercial banks of the world, including U.S. Bank any many others.  DataTreasury is asserting it’s patents against U.S. Bank, Wells Fargo, Bank of America, Wachovia, Deutsche Bank, and many, many others.  Although some of the banks have already settled with DataTreasury, about a dozen are still fighting the suit.

Background

Being in the check processing business got expensive for banks.  Declining volumes and high fixed-costs made per-check processing fees go up for paper checks.  Not surprisingly, many banks sought to find a cheaper way to process checks; rather than sorting physical checks and lugging them about the county every day, some banks decided to exchange electronic images of checks rather than the original checks themselves.  This worked fine for the banks that agreed to the electronic alternative, but a large number of banks were unwilling to sign on (they still liked to get the paper checks) and, as was their right under previous laws, they could demand that the original paper check be presented for payment.  Therefore, it was a practical impossibility for a bank to switch to an electronic-only system because that would require it to obtain electronic presentment agreements with all other banks and there were still holdouts.

In 2003, Congress passed the Check Clearing for the 21st Century Act, which came into effect on October 28, 2004.  The Act facilitates electronic check exchange by a authorizing a new negotiable instrument called a “substitute check.”  A substitute check is a paper reproduction of an original check, and it is the legal equivalent of an original check.  Under the Act, all banks must accept substitute checks in place of the originals, even if the banks do not choose to create substitute checks.  Thus, by creating legally equivalent substitute checks for presentment to banks, even those banks that had not agreed to accept checks electronically previously now must accept the paper reproduction of the original check.  The ability to eliminate the need to sort and ship checks around the country saved the banking sector $2 to $4 billion annually under some estimates.

The timing of the Check Clearing for the 21st Century Act worked out quite nicely for DataTreasury, which received two patents covering its check-imaging technology, U.S. Patents 5,910,988 and 6,032,137, in 1999 and 2000 respectively.  Initially, DataTreasury sought to partner with banks in a check-imaging joint venture, but the prospective banks ending up going it along or enlisting the likes of IBM to develop their own technology without DataTreasury.

DataTreasury brought suit against dozens of banks, asserting the ‘988 and ‘137 patents and claiming that the banks’ systems for capturing and exchanging digital images of checks infringed the patents.  The banks attempted to fight the suit in Congress too: there was a failed legislative effort that would have granted banks immunity against DataTreasury’s patent lawsuit. Many of the banks entered into settlement agreements with DataTreasury, including JP Morgan Chase, Bank One, Ingenico and RDM, and they now pay licensing fees.  However, U.S. Bank is one of the defendants that decided to fight in court, and after many years the case is now finally being heard.

The Financial Services Industry: Prime Target for Patent Litigation

Regardless of whether DataTreasury is a patent troll (or more charitably, a “non-practicing entity” or NPE) or a true technology provider and innovator in the industry, it is clear that one of its greatest assets is its intellectual property, which it is currently licensing and asserting against dozens of banks.  Financial services corporations are prime targets for the business model of NPEs because they tend to have deep pockets and substantial transaction volume, which allows the NPEs to extract large sums even from relatively small per-transaction royalties, and financial institutions tend to be risk averse and prefer settlement, at least historically. 

Case in point: in the current litigation, DataTreasury is seeking a combined $1.6 billion in damages, with $200 million of that against U.S. Bank.  Such numbers are daunting, even for large companies, but the alternatives to fighting a patent suit are not particularly attractive either.  Those familiar with the upward trend of NPEs targeting financial services corporations understand that there are a number of ways to fight back or take proactive defensive actions to protect themselves, but there is no easy answer to the situation.

For example, rather than fighting the case in court, a bank might take a license from the licensor.  The cost-benefit analysis of taking a license may be doable, albeit probably more complicated than it initially seems, but the direct costs involved with paying a per-transaction royalty would not be the only cost at stake; once you take a license from NPE, expectations have been announced to other NPEs about how you deal with their threats.  Thus, taking a license may be the correct answer in some circumstances, but it’s not necessarily a cheap one and it has its own secondary and tertiary effects.  Alternatively, a bank may attempt to design around a family of patents that protect certain technology, such as check-imaging.  But again, there are costs involved: the design around may not be cheap, a licensor may still dispute whether a bank has effectively avoided infringement with the design-around, and the licensor will certainly still want to be compensated for perceived past infringement.

Current U.S. Bank Litigation

The current case dates back to 2002 and, in addition to the ‘988 and ‘137 patents, includes several other DataTreasury patents.  When DataTreasury asserted the various patents against numerous banks, several simply accepted a license with DataTreasury.  However, many other banks chose to fight the litigation instead, and the resultant case became so big and complex that the judge in the U.S. District Court’s eastern district of Texas broke it into three different trials.  The first trial, which includes U.S. Bank, is currently underway.  The second patent infringement trial will be against Well Fargo in August, and the third one will be in October against Bank of America.

In the current trial against U.S. Bank, DataTreasury asserts that U.S. Bank makes, uses, sells, or offers for sale a system or method that infringes claims 1, 26, and 46 of the ‘988 patent and claims 42 and 43 of the ‘137 patent, in part through direction or control of The Clearing House Payments Company L.L.C., or Viewpointe Archive Services, L.L.C.  A sample claim from the ‘988 patent is reproduced below:

26. A method for central management, storage and verification of remotely captured paper transactions from documents and receipts comprising the steps of:

capturing an image of the paper transaction data at one or more remote locations and sending a captured image of the paper transaction data;

managing the capturing and sending of the transaction data;

collecting, processing, sending and storing the transaction data at a central location;

managing the collecting, processing, sending and storing of the transaction data;

encrypting subsystem identification information and the transaction data; and

transmitting the transaction data and the subsystem identification information within and between the remote location(s) and the central location.

Among U.S. Bank’s defenses are non-infringement, invalidity, no direct infringement coupled with lack of control over third parties (namely Viewpointe and The Clearing House), and standing (defendants argue that DataTreasury is not the rightful owner of the patents in suit and therefore lacks standing).  And not surprisingly, the case has been bitterly disputed at every step of the way.  A read of the court’s 116-page claim construction order alone shows how the parties challenged every possible issue.

For example, in construing the term “image” (e.g., claim 26 recites “capturing an image of the paper transaction data at one or more remote locations and sending a captured image of the paper transaction data”), the plaintiff requested that the court merely construct the term as “an electronic representation of an object” whereas the defendants requested the narrower construction of “electronic representation of an object having a pictorial likeness of the object.”  As with other construed elements, the court tried to find a measured middle ground, construing “image” as “an electronic, visual representation of at least part of an object,” which falls short of the defendants request that the “image” must to be a pictorial likeness of the object but requires that the image be a visual representation of at least part of an object, which accounts for “snippets” that might not be considered “visual representations” of an entire object but are “images” nonetheless as the term is discussed in the patent.

The hard-fought battle is understandable.  According to an order issued by the judge, Bank of America handles about 62 percent of the alleged check volume and faces about 55% of the alleged damages — $868.7 million –  and Wells Fargo accounts for $100.6 million of the alleged damages (6.3% of the total) and U.S. Bank’s share is just under $202 million (13% of the total).  If the defendants lose, the damages could be trebled.  So, the stakes are high and many banks are watching to see what happens to U.S. Bank.  Who knew writing checks could be so interesting.  And expensive.

“Global Standard Financial, Inc. (GSF) www.gsf-inc.com announced today the awarding of two patents by the US Patent and Trademark Office which cover the fundamental processes necessary to securely create paperless Check 21-based checks or Electronic Payment Orders (EPO). The term EPO was described in a November 2009 Chicago Federal Reserve Policy Paper which outlined the benefits of paperless checks and was used to distinguish pure digital checks from paper-based Check 21 image processing.” 

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The folks at Target recently received a U.S. Patent for a “Financial transaction card holder with card,” U.S. Pat. No. D610346.  Yes, it’s just a design patent, but it’s pretty nifty nonetheless.