Patents may not be top of mind for most bank technology executives, but these days, maybe they should be, say experts. In the wake of recent patent litigation against banks, the industry is starting to call for tougher legislation around the granting of patents.
"The financial services industry has been slow about obtaining patents," says Lewis Hudnell, a principal with New York-based law firm Fish & Richardson. "Banks are in the business of making money. The technology they develop isn't necessarily their core business," he adds. Therefore, Hudnell explains, although the technology is vital to what banks do, it often doesn't occur to them to patent what they develop -- unlike a company in the high-tech space, for example.
As a result, Hudnell continues, banks often find themselves the victims of suits brought upon them by smaller, independent entities or inventors. "Something is very wrong with the situation," he asserts. "These litigants aren't making products based on their patents but are instead suing companies that are using [the disputed patents] and are actually contributing to the economy."
For example, in Jan. 2006, Citigroup (New York) settled a suit over call center-related technology with Ronald A. Katz (RAK) Technology Licensing. More recently, PNC (Pittsburgh) and LaSalle Bank (Chicago) settled suits filed by RAK, agreeing to license certain RAK technologies.
The Financial Services Roundtable, a Washington-based organization that lobbies on the behalf of financial institutions, has been following the patent issue closely, according to Andy Barbour, the group's VP for insurance, technology and international affairs. Finally, he says, there might be some movement in Congress to relieve the situation.
In late April, a bill was introduced by both the U.S. House of Representatives and the U.S. Senate that would help improve the process by which patents are granted. The Patent Reform Act of 2007, introduced by Sen. Patrick Leahy (D-VT) and Rep. Howard Berman (D-CA), proposes to institute changes in a number of areas of the patent process, including appeals, damages and opposition proceedings. The bill's introduction, Barbour says, shows progress is being made.
"It's important that this bill be passed because we're seeing a lot of what we believe are questionable lawsuits around the assertion of dubious patents," states Barbour. "Congress needs to look at the landscape and rebalance it."
Unique Patent Challenges
The nature of patentable items in financial services is unique, Barbour points out. "The financial industry has business methods and back-office processes that are part of larger, nondifferentiated systems. These processes can contain systems with multiple functions in them, each perhaps containing an item that has been patented," he explains. In many cases, the bank doesn't learn of this until it's too late. "[The proposed bill] helps to bring down damages by addressing willful infringement and apportioning," Barbour says.
Furthermore, the bill states that applicants will have to demonstrate in very clear language, up front, what their patent does, hopefully leading to clearer patents, claims Barbour. "It will create an administrative process after the patent is granted to determine if the Patent Trade Office [PTO] made the right call without parties having to spend time and money in court," he says. "The bill will make the PTO more nimble. It also has a venue provision, since it appears that banks repeatedly find themselves taken to court in certain parts of the country. This provision says that suits can only be brought to court in areas where either the defendant or prosecution has its business. [FIs] are willing to license technology and we recognize someone's contribution, but we need fairness and an equitable playing field."
"The challenge for financial institutions is harnessing their innovation and getting patents for them," remarks Fish & Richardson's Hudnell. "It's not easy for a [bank tech executive] to make time to sit down and talk to a patent attorney, but they need to now."
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