Intellectual Property STEPHEN T. SCHREINER AND

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WHY BANKS ARE NOW IMPLEMENTING

PATENT PROGRAMS AND HOW PATENT

LEGISLATIVE REFORMS WILL AFFECT BANKS

Financial method patents, sometimes called “business method patents,” haveproliferated over the last 10 years. Banks, large and small, and other financial

service providers are filing for patents in record numbers in order to protecttheir technology. Meanwhile, a number of high profile cases have demonstrated

that financial patents can be successfully enforced against banks and otherfinancial service providers. At the same time, there is a growing chorus of crit-

ics who believe that certain reforms need to be made to eliminate some per-ceived abuses of the Patent System. This article examines the growing impor-tance of patents to banks, the various proposed patent reforms, and how theymay be expected to impact the banking industry if the proposed reforms are

implemented by Congress.

Over the last five years, most banking executives and in-house attor-neys have come to realize that patents are a reality for the financialservices industry. The U.S. Patent & Trademark Office (“US

PTO”) does grant financial patents (sometimes referred to as “business

STEPHEN T. SCHREINER ANDKAREN AXT

IntellectualProperty

Stephen Schreiner is a partner at the Washington, D.C., office of Goodwin ProcterLLP. Mr. Schreiner’s practice focuses on all aspects of intellectual property law,including patent litigation, patent prosecution, and counseling related to electron-ics, e-commerce, business methods, interactive media, and other areas. He canbe reached at [email protected]. Karen Axt, an associate in thefirm’s New York office, focuses her practice on patent litigation and counseling.

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Published in the September 2007 issue of The Banking Law Journal.Copyright ALEXeSOLUTIONS, INC.

INTELLECTUAL PROPERTY

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method patents”), and the federal courts will enforce them against those whoviolate them. As a result of this growing recognition, many banks are aggres-sively filing for patents to protect their intellectual property (“IP”). Somebanks are seeking patents for defensive purposes, i.e., so that they can strikeback with their own patents if an aggressor sues them. Other banks are seek-ing patents for more offensive-minded purposes, i.e., so that they can protectthe market share of their product by asserting a patent against anybody copy-ing that product. Some banks file for patents for a mixture of offensive anddefensive reasons.

While there is little question that patents will continue to be a force inthe banking industry, there is now an additional ingredient that has beenthrown in the mix: growing consensus for some type of “patent reform,” i.e.,changes to the U.S. Patent Statute to reduce some perceived abuses. Duringthe last five years, there have been a number of papers published by federalagencies, private organizations, and scholars that claim that the U.S. PatentSystem is in need of serious reform. In response to these calls, a number ofhearings have been held on the Hill and several bills that have been intro-duced. This article explores the current proposed statutory changes and howthey will affect the banking industry if implemented.

PATENT REALITY FOR THE BANKING INDUSTRY: EXAM-PLES OF SIGNIFICANT PATENT SUITS ON FINANCIALPATENTS DURING THE LAST DECADE

For years, patents attracted little attention to in-house bank counsel.The belief was the patents were only available for “hard technology” and notfor software and financial methods. Patent attorneys have long known thatfinancial methods could be patented. By and large, however, banks were notseeking financial method patents nor were they getting sued on them. As aresult, there simply was not any compelling reason for banking executivesand in-house counsel to worry about patents.

All of that changed with the State Street Bank v. Signature FinancialGroup1 decision from the Federal Circuit Court of Appeals in 1998, whichconfirmed that business methods were patentable. The State Street Bank

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invention was a pure financial method invention: a “hub & spoke” invest-ment structure invention for mutual funds to pool assets within a portfolio.

While many in the mainstream press have characterized State Street as awatershed-type decision that changed established law, that is not actually thecase. Most in the patent bar view State Street as simply confirming long-standing practice that financial methods, like other types of methods, couldbe patented provided they met the usual standards for an invention to bepatentable. That being said, State Street did bring about a sea change in per-ception — for the first time, banks and others in the financial services indus-try understood that their financial methods were subject to protection —and attack — by financial method patents.

This has been borne out during the last 10 years, as a number of finan-cial patents have been asserted against banks and others in the financial ser-vices industry (“FSI”) in high profile lawsuits.

For example, Meridian Enterprises Corp. (“Meridian”) has asserted itsfinancial patent on rewards programs2 for credit cards against many banksand other FSI companies. Meridian asserted its credit card rewards programpatent against many banks and FSI companies including: GE Capital(reward programs for payment cards; settled in 1998); American Express(reward program for payment cards; asserted against American Express and18 other companies; American Express settled in 2001); Carlson Marketing(reward programs for payment cards; 2004 jury verdict for $10M, parties set-tled following appeal); and DaimlerChrysler (reward points for paymentcards; filed in 2004, suit still pending).

Another prominent example of business method patents being assertedagainst banks is the check imaging patents3 asserted by DataTreasury Corp.against Bank One, First Data Resources, Bank of America, Citigroup,Wachovia, Wells Fargo, and others. As a result, a number of companies havepaid for licenses in these patents or otherwise settled these suits with somekind of payment to DataTreasury.

To round out the last several years, a number of other financial patentshave been asserted by or against banks or other financial service providers.

• First USA v. PayPal (patent covering on-line credit card payments usingaliases; resulting in confidential settlement in 2003).

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• MercExchange v. eBay (patent covering eBay’s buy-it-now service; result-ing in $30M for past damages in 2003).4

• TradeCard v. Bank of America (patent on purchase order processing[“POPS”] for global trade letter of credit/open account transactions;resulting in verdict against patent holder TradeCard, the jury finding thepatent to be not infringed and not valid).

• Lava Trading v. Sonic Trading Management (software that aggregatessecurities trading data from multiple trading systems; Lava is a unit ofCitigroup; a 2006 CAFC decision sent case back to district court).

• Maritz v. Interpublic Group, Givex USA and Store Financial Services(Maritz’s patents on incentive award programs for debit cards assertedagainst closed-loop gift cards).

• IMX Inc. v. LendingTree LLC (method and system for trading loans inreal time online)

These cases reflect a trend of patents becoming an increasing force in thebanking industry. Banks and other FSI companies are on the sending endand the receiving end: they are asserting patents against others, while alsofinding themselves to be tempting targets for other patent holders.

BANKS ARE RESPONDING TO THE NEW PATENT REALI-TY BY ACQUIRING PATENTS AND FOCUSING ON IP AS ACORE PART OF THEIR BUSINESS PLANS

If the Meridian and DataTreasury patents suits are not persuasive exam-ples of how patents are increasingly important to the banking industry, theactivities of major banks and other FSIs in acquiring patents over the last 10years is convincing.

Most prominent banks and other FSI companies are now filing forpatents on their software and other financial method technologies:5

• American Express has more than 100 issued patents and over 200 pub-lished patent applications in the U.S. alone.

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• MasterCard has 35 issued patents and several pending applications.

• VISA has more than 60 issued patents and more than 20 publishedpatent applications.

• Capital One has more than 25 issued patents and more than 65 pub-lished applications.

• Bank of America has more than 40 issued patents and more than 25 pub-lished applications.

• First Data Resources has 24 issued patents and several pending applications.

• Wells Fargo has more than 15 issued patents and several pending appli-cations.

• Schwab has more than 30 issued patents.

• UBS has five issued patents and 15 pending applications

Additionally, banks and other FSI companies are putting together con-ferences and seminars specifically focused on patent issues of interest to thefinancial services industry.

In June 2007, a conference called “National Forum on Optimizing Patentsand IP in Financial Products & Services” was held in New York City.Attendees included American Express, Bear Stearns, Chicago MercantileExchange, Citigroup, Lehman Bros., Merrill Lynch, Morgan Stanley, SwissRe, UBS Investment Bank, and Wachovia.

In July 2006, the Third Annual “Patenting Business Methods in the FinancialServices Industry” (“PBMFSI Seminar”) was held in New York City, and a FourthAnnual PBMFSI Seminar was held in July 2007. Many prominent banks andother FSI entities are proactively establishing patent programs, attending semi-nars, and learning best practices for acquiring and enforcing patents.

AT THE SAME TIME, MOMENTUM HAS BEEN BUILDINGFOR PATENT REFORMS THAT WILL CHANGE THE ROLEOF PATENTS FOR BANKS

The U.S. Patent System has come under sustained attack over the lastseveral years by commentators who complain that the patent system is “bro-

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ken” and requires overhaul. Rhetoric from legal scholars and other com-mentators demands that the PTO be overhauled because the PTO issues“bad” patents that have the effect of curbing innovation. This chorus of crit-icism has translated into a number of proposals for legislative reform. Manyof these proposed reforms would have significant impact on how patentscontinue to affect the banking industry.

The first notable call for patent reform came in October 2003 from theFederal Trade Commission, which issued a study entitled “To PromoteInnovation: The Proper Balance of Competition and Patent Law and Policy”(“FTC Report”).6 The FTC Report asserted that there was a growing body“questionable patents.”7 According to the FTC, these questionable patentshave been creating uncertainty in the marketplace for emerging technolo-gies.8 By “questionable patents,” the FTC meant patents that were too broadand should never have been granted in the first place.

Then in 2004, the National Academy of Sciences (“NAS”) issued areport entitled “A Patent System for the 21st Century” (“NAS Report”)9 thatechoed some of FTC’s concerns. The NAS, too, felt that aspects of the exist-ing patent system were hindering, not encouraging, innovation in the tech-nology marketplace.

In September 2004, Adam Jaffee, an economist from BrandeisUniversity, and Josh Lerner, a professor at Harvard Business School, pub-lished their book “Innovation and Its Discontents: How the Broken PatentSystem is Endangering Innovation and Progress and What to Do About It”(hereinafter, Innovation and Its Discontents).10 Consistent with the basic crit-icisms asserted by the FTC and NAS, Innovation and Its Discontents arguedthat in the last several decades patents have become too easy to get and havebecome dangerous, excessively potent weapons that are harming the tech-nology sector.

Finally, in August 2005 the National Academy of Public Administration(“NAPA”) issued a report on behalf of the PTO entitled “U.S. Patent andTrademark Office: Transforming to Meet the Challenges of the 21stCentury” (“NAPA Report”).11 The NAPA Report recommended a numberof changes to the Patent System in order to reduce workload on the US PTO,and as a result, improve quality.

In sum, during the last five years there has been a vociferous and influ-

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ential group of patent critics that have urged Congress to take action to makesignificant modifications to the existing Patent System.

LEGISLATIVE REFORM INITIATIVES IN THE HOUSE ANDSENATE

Largely as a result of the calls for patent reform from the FTC, portionsof academia and even the media, the Congress held a number of hearings onways in which the Patent Statute could be amended to “reform” the PatentSystem. Several pieces of legislation were proposed in the 109th Congress,and after additional hearings, renewed bicameral reform legislation has beenproposed in the new 110th Congress. Of course, what is “reform” lies in theeye of the beholder — a change to the Patent Statute that is a reform to oneinterest may be absolutely ruinous to another.

S 1145/HR 1908, “Patent Reform Act of 2007”

The current proposed legislation designed to reform the patent laws is apair of identical Senate and House bills, entitled the Patent Reform Act(“PRA”) of 2007, introduced on April 18, 2007. In the Senate, Sen. Leahy(D-VT) introduced S 1145, with Senator Hatch (R-UT) and three other co-sponsors. In the House, Rep. Berman (D-CA) introduced HR 1908, with10 co-sponsors including Reps. Smith (R-TX) and Boucher (D-VA). In the109th Congress, Reps. Smith and Boucher each had introduced patentreform legislation (HR 2795, 109th Cong.), and the Judiciary IntellectualProperty Subcommittee chaired by Sen. Hatch was very active, holding hear-ings on patent reform. This led to the introduction of S 3818, 109th Cong.,in August 2006, which was referred to committee where it died.

The current bicameral proposed legislation of the 110th Congress incor-porates not only much of that Senate bill, but also subsequent hearing testi-mony and court decisions, thus omitting some reforms of the HR 2795,109th Cong. and S 3818, 109th Cong. and modifying others.

Like its predecessors, S 1145/HR1098 would implement a post-grantreview (patent opposition) system even more onerous than that in Europe toallow the public to challenge patents and cause them to be revoked.

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S 1145/HR1098 also would make it harder for patent holders to get trebledamages in cases where the patent infringer is shown to have “willfully”infringed the patent, and would make a finding of willfulness more difficult.S 1145/HR1098 includes a host of other fundamental, in some respects, rad-ical, changes to the Patent System, including allowing interlocutory appealsto the Federal Circuit Court of Appeals of pre-trial Markman rulings (rulingson what the patent means) and requiring elaborate damages calculations tolimit reasonable royalty base to what is attributable to patent’s advance overthe prior art.

Comments on the 2007 Patent Reform Act (“PRA of 2007”) were rapid-ly issued. For example, Chief Judge Paul Michel of the Federal Circuit wrotea letter to Senators Leahy and Hatch on May 3, 2007 to express concernsabout both the interlocutory appeal of Markman rulings and the apportion-ing of damages to a patent’s contributions over the prior art. As to Markmanruling appeals, Judge Michel stated this would increase filings at the FederalCircuit and could cause trial court delays of as long as two years, whereas thefew Markman rulings that actually control the outcome of a case could bedealt with on Summary Judgment, which a party has the right to immedi-ately appeal under current law. As to apportioning damages, Judge Michelsuggested this would be a massive undertaking for courts and juries, requir-ing complex calculations and economic valuations not only of the patentableadvance but also of the prior art.

Additionally, the General Counsel for the U.S. Department ofCommerce, John J. Sullivan, Esq., wrote a May 16, 2007 letter to Rep.Berman to identify major impacts of the proposed legislation on the USPTO. Mr. Sullivan took issue with whether there was in fact a patent qual-ity issue that should be laid at the feet of the US PTO, as quality patentsdepended on quality submissions by the applicant. To this end, Mr. Sullivanrequested that the bill be amended to limit inequitable conduct and the “dra-conian” penalty of unenforceability, to encourage candor and sharing of rel-evant information with the US PTO and other currently “risky” actions likeperforming prior art searches. (HR 2795, 109th Cong. had includedinequitable conduct reforms, which were omitted from the current legisla-tion.) Mr. Sullivan agreed with the expansion of the third party prior artsubmissions and expanded rulemaking authority for the US PTO, but dis-

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agreed that statutory reform was warranted with regard to apportioned dam-ages. He also expressed concern over the increased workload created by apost-grant review process, especially in view of the open “second window”and applicability to patents issued before the legislation is enacted. He didnot support conversion to a first-to-file system in the absence of progress andinternational agreement on other global harmonization issues.

More recently, at a June 6, 2007, hearing, Tony Squires, Esq. ofGoldman Sachs & Co. addressed the Senate Judiciary Committee on behalfof the Securities Industry and Financial Markets Association IntellectualProperty Subcommittee and the Financial Services Roundtable to supportS 1145. Mr. Squires noted a Harvard study that found financial patents were27 times more likely than non-financial patents to be asserted against allegedinfringers, and therefore certain patent reforms were of clear interest to theindustry. Echoing similar comments by banking industry witnesses in hear-ings on the bills before the 109th Congress, he strongly supported the post-grant review (including the “second window”), apportioned damages, andinterlocutory appeal of Markman rulings provisions, but recommended thatthe venue, prior user rights, and Section 102(a)(1) provisions be strength-ened or improved. For example, Mr. Squires stated that, in contrast to thebills before the 109th Congress, the current wording of Section 102(a)(1) —“public use or on sale” — is not aligned with European or UK novelty pro-visions, which make allowances for collaboration between entities.

By contrast, Kathryn Biberstein Senior Vice President and GeneralCounsel of Alkerms, Inc, who testified at the same hearing on behalf of theBiotechnology Industry Organization, opposed the open-ended “secondwindow” of the post-grant review and the apportionment of damages, as wellas the broad rulemaking authority for the US PTO. She also proposed thatthe bill be amended to repeal both unenforceability and best mode. TheCoalition for the 21st Century Patent Reform, a group of innovator andmanufacturing companies similarly proposed that the bill provide for repealof best mode and unenforceability and opposed the broad rulemakingauthority, interlocutory appeal, limited damages, and venue provisions. TheCoalition agreed with the first-to-file, prior user, third party prior art sub-missions, willfulness and 18 month publication provisions.

Thus, different stakeholders continue to have conflicting interests

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regarding patent reform, which might make arriving at reform consensus inthe 110th Congress difficult, as it was in the 107th-109th Congresses. ThisCongress, however, has set its collective mind on passing patent reform leg-islation.

Partly in response to these conflicting views, five members of the SenateJudiciary Committee wrote to Senators Leahy and Specter (R-PA) on June11, requesting that the Committee delay marking up the bill, to allow morehearings to address various important issues, including apportioned damages,post-grant opposition, and the broad rule-making authority for the US PTO.Senate Judiciary Committee has scheduled markup of the bill for June 21,2007. The House Courts Subcommittee planned a markup of its bill forMay 16, 2007, but voted it out to the full committee without markupsbecause of objections to the markups. Points of concern were similar to thosein the Senate Committee.

Summary of Patent Reform Proposals

Table 1 summarizes the major changes of the PRA of 2007. The table isordered in the priority of issues perceived to be most important to the bank-ing industry.

BILL

STATUS

S. 1145/ HR 1908 (4/18/07) (Sen. Leahy [D-VT],Hatch [R-UT], Schumer [D-NY], Cornyn (R-TX]/Reps. Berman [D-CA], Smith [R-TX]), Conyers [D-MI], Coble [R-NC], Boucher [D-VA], Goodlatte [R-VA], Lofgren [D-CA], Issa [R-CA], Schiff [D-CA],Cannon [R-UT], Jackson-Lee [D-TX])

"Patent Reform Act of 2007"

Introduced 4/18/07 in both the House & Senate.

TABLE 1SUMMARY OF PENDING PATENT REFORM INITIATIVE

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1. LimitAvailabilityofInjunctions

2. Create Post-GrantOpposition

HR 1908 was voted out of subcommittee to the full HouseJudiciary Committee without markups on 5/16/07. As of 6/19/07, a hearing for markup of S. 1145, wasplanned for 6/21/07.

Current State of the Law: Supreme Court decision ineBay v. MercExchange (2006) prevents permanent injunc-tions from being "automatic" because the Patent Actexpressly provides that injunctions "may" issue "in accor-dance with the principles of equity." Plaintiff must satisfy the traditional four-factor test, byshowing: (1) that it has suffered an irreparable injury; (2)that remedies available at law, such as monetary damages,are inadequate to compensate for that injury; (3) that, con-sidering the balance of hardships between the plaintiff anddefendant, a remedy in equity is warranted; and (4) that thepublic interest would not be disserved by a permanentinjunction.Proposed Change: None. Current bill makes nochanges to permanent injunctive relief. Congress deter-mined that the eBay case had adequately addressed theissue.

Current State of Law: There is no post-grant opposition.A patent’s validity can be challenged in district court in acivil action subject to a clear and convincing presumptionof validity, or it can be challenged in ex parte or inter partesreexamination if there is a "substantial new question ofpatentability." Proposed Change: A post-grant opposition system ("Post-grant Review") is established that would allow any thirdparty to petition to cancel a patent. See § 6 of PRA of2007:The challenge can be based on any condition for

TABLE 1, cont.SUMMARY OF PENDING PATENT REFORM INITIATIVE

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patentability, e.g., § 101 (statutory subject matter, utility,double patenting), § 102 (novelty), § 103 (obviousness),§ 112 (written description, enablement, best mode, claimindefiniteness, etc.). There are 2 windows that allow a patent to be challengedany time during its 20 year term, potentially up throughthe six year statute of limitation period after the patentexpires. The windows for challenge are:(1) First Window of 12 months after grant, or (2) Unlimited Second Window for (A) any time a petition-er "establishes a substantial reason to believe" the patent is"likely to cause significant economic harm"; (B) any timethe challenger has received an infringement notice letter; or(C) if patent owner consents. The threshold to initiate post-grant review is minimal:PTO need only determine there are "sufficient grounds toproceed" based on information provided. § 325. Post-grant review must be decided within 12 months in a trialbefore Patent Trial & Appeal Board. Burden of proof forchallenger is preponderance of evidence—there is no § 282presumption of validity. § 328.A challenger can only make one post-grant review challengeagainst a given patent. There cannot be repeated challengesby the same petitioner against the same patent in either thefirst or second windows, even if the basis for the challengeis different. See § 324 "Prohibited Filings." Following final decision upholding validity in civil suit, thelosing party cannot seek post-grant review on groundsparty raised or had actual knowledge of during civil suit. Following decision upholding patent in post-grant review,losing party cannot challenge validity "based on anyground petitioner raised" in post-grant review during alater civil suit, reexamination, or opposition. (Note:Leaves open possibility of challenge on new grounds, e.g.,


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3. LimitWillfulInfringement

prior art or any other basis for invalidity not presented toPTO in opposition.) § 334.Either patentee or the challenger can appeal decision toCAFC. § 335.The effectiveness and efficiency of post-grant opposition,compared to inter partes reexamination, will be studied andreported to Congress by the PTO Director within threeyears of the date of enactment. See § 8 of PRA of 2007.

Current State of Law: An adjudged infringer can be sub-ject to a finding of willful infringement and an assessmentof treble damages if the infringer had knowledge of thepatent and proceeded to infringe in disregard of the paten-tee’s rights. A defense to willfulness is good faith relianceon advice of counsel based on a competent opinion that thepatent is not infringed, is invalid, is unenforceable, etc.Proposed Change: Limits willfulness findings to cases ofspecific written notice, copying, and infringement after aprevious judgment of infringement. See § 5 of PRA of2007:Finding of willful infringement requires clear and convinc-ing evidence that infringer proceeded to infringe after (A)receiving specific written notice of infringement (i) suffi-cient to give "reasonable apprehension of suit," and (ii) thatspecifically identifies which products/processes areinfringed by which claims and how. Willful infringement can also be proven if (B) infringerintentionally copied the invention knowing it was patent-ed. Willful infringement can also be shown if (C) infringerengages in conduct not colorably different from conductpreviously adjudged to be infringing, and which is sepa-rately found to be infringing."Good faith" safe harbor based on an "informed" goodfaith belief that patent was invalid, unenforceable, or not


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4. LimitInequitableConductCharges

5. VenueReform

infringed. Good faith belief may be based on (i) reason-able reliance on advice of counsel, (ii) evidence infringersought to modify its conduct to avoid patent once discov-ered [good faith effort at design-around], or (iii) "otherevidence" the court "may find sufficient" to establish goodfaith belief. Required bifurcation of pleading/trial of willfulness fromother liability issues (validity, enforceability, and infringe-ment). The court, not a jury, shall decide willfulness. See§ 5 of PRA of 2007.

Current State of Law: Anybody substantively involved inthe prosecution of a patent has a duty to disclose materialinformation to the PTO. A patent holder’s patent can berendered unenforceable in litigation if there is a clear andconvincing showing that (1) material information waswithheld or was misrepresented, and (2) there was anintent to deceive the PTO in that the omission or misrep-resentation was knowing and purposeful.Proposed Change: None. Current bill does not makeany changes to inequitable conduct law. The provisionspreviously considered by Senate in 2006 — S. 3818, 109thCong., providing patentees with safe harbors, etc., forinequitable conduct charges — are not present in the cur-rent bill.

Current State of Law: Venue for patent cases under 28USC §1400(b) is any district (1) where defendant residesor (2) where defendant has committed acts of infringe-ment and has a regular place of business. Under the gen-eral venue provision of 28 USC §1391, a corporationresides wherever it is subject to personal jurisdiction.Thus, the combination of § 1391 with § 1400(b) meansthat in patent cases a patent holder can file in any district


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6. InterlocutoryAppeal forMarkmanDeter-minationson theMeaning ofa Patent

where the defendant is subject to personal jurisdiction.For companies that operate nationally, this often meansany district in the U.S.Proposed Change: The venue statute is amended toreduce forum shopping from venue based on whereverdefendant is subject to personal jurisdiction under §1391/§ 1400(b)(1). Instead, proper venue for patent caseswill require a meaningful nexus between the district andthe defendant, the district and the plaintiff, or the districtand the defendant’s infringement and operations in thatdistrict.§ 1400(b) is revised such that venue in patent cases is lim-ited to judicial districts where (1) either the patent holderor defendant resides, or (2) where defendant has commit-ted acts of infringement and has a regular place of business.See § 10 of PRA of 2007. Additionally, new § 1400(c)provides that 28 USC § 1391 is limited for patent cases inthat a corporation’s residence is limited to the location ofits PPOB or state of incorporation, and not wherever it issubject to personal jurisdiction. See § 10 of PRA of 2007.

Current State of Law: Interlocutory appeal of Markmanorders must be certified by the district court, and thenaccepted at the Federal Circuit’s discretion. 28 USC §1292(b). The Federal Circuit rarely accepts interlocutoryMarkman appeals. Yet Markman claim construction rul-ings are reversed by the Federal Circuit at roughly a 35 per-cent rate. This means that litigants must wait for a finaldisposition after trial before receiving appellate review ofthe often case-determinative Markman ruling, at whichtime a corrected claim construction may require remandand retrial or other further proceedings.Proposed Change: A right of interlocutory appeal ofMarkman rulings would be given to litigants. The district


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7. ExpandPrior UserDefense

8. ReformInter PartesReexam

court would normally stay proceedings pending the inter-locutory review. 28 USC § 1292(c)(2) is amended to provide civil court lit-igants with the right to interlocutory appeal to the CAFCon claim construction. See § 10 of PRA of 2007. Appealmust be filed within 10 days of entry of Markman order.

Current State of Law: A prior user defense exists wherethe invention is a business method, and the defendant had(1) an actual reduction to practice of the invention morethan one year prior to the effective filing date of the patentat issue, coupled with (2) commercial use of the inventionprior to the effective filing date of the patent. The defenseis personal, does not invalidate the patent, and must beproven to a clear and convincing evidentiary standard, 35USC §273.Proposed Change: Prior user defense expanded by remov-ing the business method requirement — any type of inven-tion [any method, system, article of manufacture, etc.] issubject to prior user defense. See § 5 of PRA of 2007.Additionally, the requirement that the prior user hadreduced the invention to practice 1 year prior to the effec-tive filing date of the patent is removed. Instead, the prioruser need only show actual reduction to practice and com-mercial use/substantial preparation for commercial use ofthe subject matter prior to the effective date of the patent.

Current State of Law: At any time, a third party mayrequest inter partes reexam based on a showing of a substan-tial new question of patentability based on prior art patentsor publications. An unsuccessful inter partes requester isestopped from asserting in a later civil suit any ground ofinvalidity that was raised or that could have been raised duringthe inter partes proceeding. 35 USC § 315(c).


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9. Reform onPatentDamages

Likewise, a party that unsuccessfully challenges a patentclaim’s validity in a civil suit having a final decision or in aninter partes proceeding having a final decision is not per-mitted to challenge that claim in a later inter partes pro-ceeding based on any ground of invalidity that was raisedor could have been raised in the prior civil suit or prior interpartes proceeding. 35 USC § 317(b).The above estoppel-type provisions regarding subsequentcivil actions and subsequent inter partes proceedings do notapply to newly-discovered prior art. See 35 USC §§315(c), 317(b).Proposed Change: Relaxes estoppel provisions of interpartes reexaminations applicable to a later civil suit. Thechange would remove the "could have been raised" estop-pel provision from a inter partes proceeding preceding acivil suit. Thus, the only estoppel in a later civil actionwould be for invalidity grounds that were actually raisedduring the inter partes proceeding. See § 6 of PRA of2007. Also provides that no inter partes reexam may be soughtafter "the judgment of a district court has been entered"instead of after the "final decision has been entered," as §317(b) currently reads. See § 6 of PRA of 2007. Note thatthe prohibition from initiating a later inter partes proceed-ing following an unsuccessful validity challenge in a firstcivil suit or a first inter partes proceeding still applies toissues that were raised or that could have been raised in thefirst proceeding.

Current State of Law: Patentee is entitled to damages ade-quate to compensate for the infringement, but no less thana reasonable royalty for use of the invention by theinfringer. 35 USC § 284. The Georgia-Pacific factors andframework for determining the royalty resulting from the


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10. PublicSubmissionof Prior Art

hypothetical negotiation generally govern district court rea-sonable royalty determinations. See fn. 1 below.Proposed Change: Reasonable royalty is applied only tothat "economic value properly attributable to the patent’sspecific contribution over the prior art," and shall excludevalue associated with prior art elements in the infringingproduct or other patented or non-patented features of theinfringing product. See § 5 of PRA of 2007.The analysis is focused on circumscribing the royalty base,as opposed to royalty rate. The goal is to apportion royal-ty only to the portion of the accused product incorporatingthe invention’s advance over the prior art, not including anyprior art elements, and not including any other non-patent-ed or patented features of the infringing product as a whole. An entire market value of the infringing product as a royal-ty base is prohibited unless patentee shows the main reasonfor demand is because of the patented advance over theprior art. Court may also consider "terms of non-exclusivemarketplace licensing of invention." See § 5 of PRA of2007.

Current State of Law: For a pending patent applicationthat has been published, a member of the public can sub-mit prior art patents or publications if the submission ismade within 2 months of publication or a notice ofallowance, whichever is earlier. No more than 10 referencesare identified, and no explanation or analysis of the referencescan be included in the submission. 37 C.F.R. §1.99. Proposed Change: The public’s active participation in theexamination of a published patent application is extended.Specifically, a member of the public can submit prior artincluding commentary/analysis up to 6 months after a patentapplication publishes or before the first office action,whichever is later. See § 9 of PRA of 2007 (amending §


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11. Eighteen(18) MonthPublication

12. First-to-FileApplicationProcess

122 to add § 122(e) entitled "Preissuance Submissions byThird Parties."). The prior art submission can be patents,published applications, or publications. There appears tobe no limit on the number of prior art references that canbe submitted.

Current State of Law: Applications are published at 18months after their priority date, except that applicants canopt-out of publication by certifying that there has not been,and will not be, any foreign filing of the application. 35USC § 122(b).Proposed Change: All patent applications will be pub-lished at 18 months with no ability of an applicant to opt-out of publication. See § 9 of PRA of 2007.

Current State of Law: The U.S. has a first-to-invent sys-tem which issues a patent to the party that is first to makethe invention. In this regime, the inventor (1) can antedate("swear behind") prior art that is after the date of inventionbut not more than 1 year before the application filing date,and (2) is not barred from seeking a patent by his/her ownpublic disclosures of the invention so long as the applica-tion is filed within 1 year. In essence, the inventor has a 1year grace period that applies to the inventor’s disclosures aswell as the unrelated disclosures (publications, patents, etc.)of others. 35 USC § 102. Proposed Change: § 102(a) is amended such that a patentis unavailable if the invention is (1) patented, described ina printed publication, or is in public use or on-sale (A)more than 1 year before the effective filing date of theapplication or (B) less than 1 year before the effective filingdate other than through disclosures made by the inventoror by those who obtained the subject matter from theinventor, or (2) is described in an issued U.S. patent or


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published U.S. patent application by another that has anearlier effective filing date than the application at issue. See§ 2 of PRA of 2007. The result is a first-to-file system, but it’s not the same asEuropean Patent Office’s absolute novelty system becausethe inventor does have a 1 year grace period for his/her owndisclosures. However, there does not appear to be a graceperiod against the disclosures of others such that an inventorcould antedate (swear behind) a later public disclosure byshowing an earlier date of invention. However, proposed § 102(b)(1) appears to provide anexception that would give a 1-year grace period against thedisclosure of others if others obtained the disclosed subjectmatter directly or indirectly from inventor and against ear-lier public disclosure by the inventor of his/her invention: "Prior Inventor Disclosure Exception — Subject matterthat would otherwise qualify as prior art under subpara-graph (B) of subsection (a)(1) shall not be prior art to aclaimed invention under that subparagraph if the subjectmatter had, before the applicable date under such subpara-graph (B), been publicly disclosed by the inventor or a jointinventor or others who obtained the subject matter dis-closed directly or indirectly from the inventor, joint inven-tor, or applicant." See § 3 of PRA of 2007.The above exception appears designed to encourage earlydisclosure of new inventions even before the patent appli-cation is filed/published. By making an early public dis-closure, the inventor will protect his/her invention againstlater-published subject matter of others that would other-wise destroy novelty under § 102(a)(1)(B). Rather thankeeping the invention secret before the application is filed,the inventor is incentivized to make an earlier public dis-closure.In sum, the new bill implements a first-to-file system with


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13. Remove"BestMode"Requirement

14. ChangedDefinitionof "PriorArt,"Novelty, &Obviousness

a provision for antedating certain prior art based on earlierpublic disclosure rather than earlier date of invention.

Current State of Law: The inventor must disclose what isbelieved to be the best mode of practicing the invention.35 USC § 112(1). A party can invalidate a patent by mak-ing a clear and convincing showing that the inventor failedto disclose the best mode. 35 USC § 282(3). This require-ment is unique to the U.S. and is criticized as being sub-jective as to what the inventors consider the best mode.Proposed Change: None. Current bill excludes changesto the best mode requirement, or to litigation challengesbased on best mode.

Current State of Law: A patent may be denied for lack ofnovelty or as statutorily barred based on prior art including(a) public knowledge/use in the U.S. or patents or publica-tions anywhere, before the date of invention, (b) patents orpublications anywhere or in public use or on sale in theU.S., more than 1 year before the application date…(e)published U.S. applications or issued U.S. patents byanother that were filed before the date of the invention…(f ) the inventor did not himself invent the subject mat-ter sought to be patented, or (g) invention was made byanother in the U.S. before the date of the invention at issue.Proposed Change: See No. 12 above. Categories of priorart generally adhere to existing scheme, including patents,publications, public use, on- sale, and U.S. patents andU.S. patent publications that are earlier-filed. Note, how-ever, that the public use and on-sale categories of prior artare not limited to the U.S. as in the existing § 102, whichcould raise difficult proof issues for on-sale/public useactivities alleged to occur in foreign countries. The PRA of 2007 uses the narrower "in public use or on


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15. RulemakingAuthority ofPTO

sale" language rather than the broader "or otherwise pub-licly known" language of S. 3818, 109th Cong. As noted above in No. 12, all prior art under § 102 is mea-sured against effective filing date (first-to-file), not date ofinvention (first-to-invent), although antedating some refer-ences may be possible based on an earlier date of public dis-closure by the inventors. See § 3.Inventions of another, derived from another and conflict-ing claims are no longer prior art issues, but would be sub-ject to Derivation Proceedings. See No. 16 below.Language of § 103 is modified to refer to effective filingdate instead of date of invention as in the current § 103.Other word changes are made to § 103, such as referring to"claimed invention" instead of "subject matter sought to bepatented" (current § 103 verbiage). Not clear what sub-stantive effect is intended. See § 3.

Current State of Law: Limited grant of rulemakingauthority. PTO may issue regulations "not inconsistentwith law" which (1) govern conduct of proceedings atPTO, (2) facilitate/expedite processing of patent applica-tions (e.g., electronic filings), (3) govern conduct of patentattorneys/agents, (4) provide for small entity access to thePatent System through a reduced fee structure, and (5) pro-vide for quantitative and qualitative measures of PTO effi-cacy. 35 USC § 2. Proposed Change: 35 USC § 3(a) is amended to providethe PTO with a broad grant of rulemaking authority: See§ 11 of PRA of 2007:"In addition to the authority conferred by other provisionsof this title, the Director may promulgate such rules, regu-lations, and orders that the Director determines appropri-ate to carry out the provisions of this title or any other lawapplicable to the United States Patent and Trademark


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16. OtherProvisions:DerivationProceedings,Ex partereexamina-tion, OathandDeclaration

Office or that the Director determines necessary to governthe organization and operation of the Office."

Current State of Law: Priority contests to determine thefirst inventor in conflicting patent applications or patentsare decided in interference proceedings tried before theBPAI. (35 USC § 135) or in a civil suit before a districtcourt (35 USC § 291). Proposed Change: In line with the change from a first-to-invent to a first-to-file system, § 291 on Interfering Patentremedies is removed and § 135, et seq. on interferences arerestructured into "Derivation Proceeding" on allegations ofderivation of invention. The issue to be decided will bewhether an earlier applicant actually derived the inventionfrom another, later applicant. Director may initiate aDerivative Proceeding, or applicant may request such pro-ceeding if he/she has filed application within 18 months offirst filed application, and makes the request within 12months of first publication of same or substantially thesame claimed invention. Will be decided by the renamed"Patent Trial & Appeal Board." Current State of Law: At any time, any party may requestex parte reexamination of an issued patent because there isalleged to be a substantial new question of patentabilitybased on prior art patents or printed publications. 35 USC§ 302. Under § 303, the Director shall decide the requestfor reexamination within 3 months of the filing of therequest by the requester.Proposed Change: The proposed change appears to beminor, though the reason for the change is not readilyapparent. The 3 month timeframe for the Director todecide a Request for Reexamination under § 303"Determination of Issue by Director" will only apply topatent holder requests, and apparently not to requests by


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third parties. As rewritten, § 303 provides that the PTOmust act on a request for reexam "[w]ithin 3 months afterthe owner of a patent files a request for reexamination…"See § 6 of PRA of 2007 [emphasis added].Current State of Law: No oath or declaration is requiredfor the inventors in a provisional application. 35 USC §111(b)(8); 37 C.F.R. § 1.51(b)(3).Proposed Change: Provisional applications might requirean oath or declaration like regular utility applications. See§ 3 (amending § 111(b)(8) to remove § 115 exclusion).Current State of Law: The inventor must make an oath orexecute a declaration that the inventors believes him/herselfto be the original and first inventor of the invention that isclaimed, that he/she has read the specification and claims,and that he/she acknowledges the duty of disclosure. 35USC § 115; 37 C.F.R. §§ 1.51(b)(2), 1.63, 1.68.Proposed Change: For an unavailable inventor, a"Substitute Statement" in lieu of an oath/declaration maybe submitted by the applicant. Additionally, an inventor’sassignment may include the statements needed for anoath/declaration so that the single assignment documentcan be used for both purposes. See § 4.


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OTHER LEGISLATIVE INITIATIVES RELATING TOPATENTS

HR 34, “Pilot Program in Certain District Courts”

On February 13, 2007, Rep. Issa (R-CA) introduced a bill for a “PilotProgram for Expert Patent Judges” that would seek to develop “expert”patent judges in certain district courts. Unlike S 1145 and HR 1908, thegoal of HR 34 is not to overhaul the Patent System by implementing sweep-ing reform. Rather, the goal of HR 34 is to effectively implement somefocused litigation reform by establishing a 10 year program to create special-ized “patent judges” who could volunteer for patent cases, while permittingjudges not interested in taking patent cases to decline them and have thempassed to patent judges.

The bill passed without amendment by voice vote in the House onFebruary 12, 2007 and was referred to the Senate on February 13, 2007, whereit was referred to Committee. An identical bill passed in the House in the lastCongress and was referred to the Senate, but did not emerge from Committee.For those litigators who have had the pleasure of litigating a patent case beforea judge who enjoys technology and the Patent Law, as well as the displeasure oflitigating a patent case before a judge who does not, this kind of program todevelop specialized patent judges is very welcome. On the other hand, thereare judicial purists who believe that our district court judges should remaingeneralists who hear all kinds of cases including patent cases.

S 681/HR 2136, “Stop Tax Haven Abuse Act”

Other proposed legislation that could have an impact on patents of inter-est to the banking community is S 681, “Stop Tax Haven Abuse Act,” intro-duced by Sen. Levin (D-MI) on February 17, 2007, with Senators Coleman(R-MN) and Mr. Obama (D-IL) as co-sponsors. An identical bill, HR 2136,was introduced in the House by Rep. Doggett (D-TX), with over 20 co-sponsors. The House and Senate bills are identical. The bill primarily focus-es on offshore tax secrecy jurisdictions, full disclosure of foreign holdings andtransactions and “tax evasion” schemes, but also contains a provision thatamends the Patent Statute.

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Section 303 of S681/HR 2136 amends Section 102 of the Patent Statuteto redesignate subsection (g) as subsection (h) and insert as a new subsection(g): “the invention is designed to minimize, avoid, defer, or otherwise affectthe liability for Federal, State, local or foreign tax.” To the extent banks pro-vide this type of product to their clients, they would be impacted by such leg-islation. This provision is not limited to tax shelters, as the bill’s title sug-gests, but is sufficiently vague that it would broadly ban any patents directedto tax strategies, for example tax preparation software or methods that enabletaxpayers to identify and take advantage of tax incentives or other tax codeprovisions that legally minimize or defer tax payments, such as estate plan-ning or charitable giving plans.

Moreover, as drafted, the provision is inconsistent with the historicallytechnology-neutral Patent Laws which have avoided special provisions or dif-ferent standards for specific technologies. This provision excludes frompatentability one subject matter area, which could set up a slippery slope toexcluding other specific technologies. One might even find it ironic that thePatent Statute, which has been crafted leanly to adapt to ever-changing tech-nologies and successfully so, may now be eroded by the long arm of Tax leg-islation, which is notoriously burdened with complexity and exceptions dri-ven by policy changes and special interests.

As of the writing of this article, the bills have been referred toCommittee, but it does not appear that hearings have been held in either theHouse or the Senate, nor is it clear how much support this particular provi-sion enjoys.

HR 2365

The patent provision of S 681 and HR 2136 did get the attention ofRepresentatives involved in the PRA of 2007, prompting introduction in theHouse by Rep. Boucher (D-VA) of a related bill, HR 2365, on May 17,2007. This is a bill to amend the Patent Law to limit the damages that couldbe incurred by taxpayers, tax practitioners and related professionals withregard to tax planning methods. HR 2365 would minimize the impact oftax strategy patents, so that the tax payers, tax preparers and their employerswho use patented tax strategy tools and methods would be protected against

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the infringement and remedies provisions of the Patent laws. Thus, ratherthan broadly prohibiting a particular type of patent technology, it wouldminimize the impact of a set of patents to persons using the technology. Itwould neither counteract the S 681/HR 2136 Section 303 ban on obtainingsuch patents, nor protect the owners of such patents against a select group ofpotential infringers.

At the May 16, 2007 House Courts Subcommittee hearing to discuss thePRA of 2007, Rep. Goodlatte (R-VA), who cosponsored HR 2365, raisedthe proposed legislation as something the Committee should consider inconjunction with the PRA of 2007. He pointed out that since the StateStreet Bank decision there have been 51 tax strategy patents granted and 80additional pending tax strategy patent applications.

HR 2365 and the patent provision of S 681 and HR 2136 may be aresponse to the perception that there are “bad patents” — in this case “bad”because of subject matter rather than quality. No hearings have been heldand no action has been taken on this bill as of this writing.

SOME OF THE PROPOSED CHANGES TO OUR PATENTSYSTEM WILL HAVE SIGNIFICANT IMPACT ON BANKS’OFFENSIVE AND DEFENSIVE USE OF PATENTS

There is little doubt that this year or next year some kind of new patentlegislation is going to be passed by the Congress. As the bicameral billpresently stands, this legislation would be the most sweeping since the PatentAct of 1952. However, strong opposition by the pharma industry, indepen-dent inventors, university interests, the patent bar, and other interests couldlead to legislation that is not nearly as radical an overhaul of our PatentSystem as some would hope and others would fear. Issues on the patentreform table that could have particular significance to the banking industryare discussed below.

Injunctions

At one time, the issue of patent injunctions was the most hotly-contest-ed aspect of patent reform. For example, an original version of HR 2795,

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109th Cong. placed some limits on injunctions, but opposition led to anAmended HR 2795, 109th Cong. that omitted the provision. The wholeissue was then mooted by the Supreme Court’s May 15, 2006 decision ineBay v. MercExchange,12 where the Court held that injunctions in patent cases— just as in all other cases — would be decided on the usual four-part equi-table test. Thus, while injunctions can be issued in patent cases to protectthe exclusive rights of that property, injunctive relief is not automatic. It willbe decided on a case-by-case basis just like in other contexts. Thus, limit oninjunctive relief is not included in the PRA of 2007.

Importantly, what does the Supreme Court’s decision mean for the bank-ing industry? In essence, injunctions in patent cases are now less certain, sothere is less predictability. In an industry where the greatest fear is the cata-strophic scenario of a patent holder achieving an injunction to shut down abank’s operations — consider the DataTreasury scenario of having yourbank’s check processing operations enjoined — this uncertainty is, on bal-ance, a good thing.

It means that your bank can fight a patent suit and, even if you are ulti-mately found liable for infringement, an injunction does not automatically fol-low. Particularly in the case where your bank is sued by a party that does notpractice its patent — i.e., a party whose business is using its patents to suebanks and not to actually provide any services or products — you can arguethat equity dictates against an injunction in favor of awarding appropriatemoney damages. However, a recent case suggests that such patentees who arenot market competitors may still get injunctive relief if they can show that theyare irreparably harmed by the infringement in ways beyond financially.13

Of course, the flip side to this uncertainty is that banks cannot depend onprotecting their market share for key products/services by enforcing their ownpatents against infringing competitors. As noted above, a number of promi-nent banks are getting patents to cover their key products. If injunctions areless reliable, then your bank can enforce its patent against an infringing com-petitor to extract some tribute, but you cannot necessarily prevent that com-petitor from using your patented property. Thus far in 2007, in six of ninecases, the district court granted plaintiff ’s motion for entry of permanentinjunction. Where permanent injunctions were denied, the patentee’s marketshare, or lack of evidence thereof, was a significant factor.

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One final ramification to consider from the eBay decision is that theuncertainty of injunctions will reduce the incentive for settlement. Whilebanking executives may have cringed at having to pay settlements in caseslike DataTreasury and Meridian, the risk of an injunction if infringement wasproven was without doubt a significant factor in bringing those cases to clo-sure. As settlement may take longer and occur less often, banking executivesand in-house counsel should expect that future patent cases will be litigatedlonger and more fiercely.

Post-Grant Opposition

Generally, post-grant opposition will be beneficial to the banking indus-try. Post-grant opposition means that following the grant of a patent by thePatent Office, members of the public can oppose that patent on the basis thatit should have never been granted in the first instance. Typically, this willoccur by submitting “prior art” (prior technology) that the Patent Officefailed to consider before granting the patent.

It is not unusual for banks to receive threatening letters from patentowners for patents on technology that had been in use long before the patentowner filed his/her patent application. In other words, the patent is invalidand never should have been issued.

Post-grant opposition will give banks a mechanism to challenge thesesorts of invalid patents without having to resort to expensive litigation orpaying “nuisance” license fees that only encourage similar demands by otherpatent holders attracted by the deep pockets of banks.

Limits on Willful Infringement

Next to an injunction, the greatest concern to a bank accused of patentinfringement is the imposition of treble damages as a result of a finding ofwillful infringement.

Consider the DataTreasury scenario: Not only is an accused bank at riskof having its check imaging processes shut down, but jury damages in the$100M range could be tripled to $300M if the infringement is found to bewillful.

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The limits on willful infringement and treble damages found in the PRAof 2007 are good for the banking industry because they will reduce the like-lihood of such catastrophic outcomes. Only in the most egregious casesdemonstrating bad faith should there be any real risk of treble damages if thelegislative changes are implemented.

Venue Reform

Venue reform will benefit the banking industry as it relates to patentsuits. Forum shopping for excessively pro-plaintiff patent forums, such asthe now notorious Eastern District of Texas (Marshall, Texas), has become aproblem in patent litigation.

Venue reform should reduce such forum shopping and will help ensurethat patent cases are tried in forums that have some kind of reasonable con-nection with the alleged acts of infringement, the patent holder, and theaccused infringer.

The separate proposal (HR 34) to help develop expert patent judges invarious districts may also benefit banks by leading to more predictability.Whether trying a patent case as a plaintiff or defendant, banks will benefit byjudges who have an interest and understanding of technology and the PatentLaw.

Interlocutory Appeals Of Markman Decisions

Markman rulings are orders issued by district courts interpreting themeaning and scope of patents. The meaning of a patent is an issue of lawreviewed de novo by the Federal Circuit Court of Appeals.

Historically, the rate of reversal by the Federal Circuit of these patentinterpretations has been high, 40 percent or more. As a result, district courtpatent litigations have a significant amount of uncertainty in outcome and induration. It is not uncommon for a patent suit to be tried before a jury,appealed, and then reversed and remanded for further district court pro-ceedings that could include trial before a new jury.

Permitting interlocutory appeals as a matter of right for patent claim inter-pretations could ameliorate the effects of the high reversal rate of the Federal

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Circuit. The issue has yet to be fully explored in the patent literature, so thevarious pros and cons have yet to be fully identified and analyzed. However,there is growing support for Chief Judge Michel’s view that such appeals areunnecessary and may do more harm than good by delaying litigations.

Permitting interlocutory appeals of patent claim constructions has thepotential to greatly increase litigation outcome certainty for banks, as well asreduce overall litigation costs.

Public Submission of Prior Art

Permitting the submission of relevant prior art for the Patent Office toconsider during examination of questionable patent applications will be asignificant benefit to banks.

A good illustration can be made based on the so-called Y2K patentsissued to Bruce Dickens that purported to cover basic techniques for resolv-ing the Y2K computer database date-ambiguity problem.14 After the so-called Dickens’s Y2K patent issued in 1998, he sent dozens, perhaps hun-dreds, of letters to banks and other large non-financial companies demand-ing royalties for the use of his patented technique.

The problem was that much of, if not all of, the technique that Mr.Dickens claimed to have invented had been known long before his patentwas filed. Eventually, his patent was placed into reexamination by interestedmembers of the public and as of this date that dubious patent stands reject-ed by the Patent Office.

If public submission of prior art had been permitted while his applica-tion was being examined, all of this could have been avoided as that patentwould have never been granted in the first instance. In sum, banks and oth-ers will benefit from the proposed change to the Patent Statute permittingthird party submission of relevant prior art during patent examination.

CLOSING THOUGHTS

Patents are significant to the banking industry from both a defensive andoffensive standpoint. Banks need to be concerned about the patents of oth-ers, and the potential for lawsuits. Banks should also arm themselves by

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acquiring patents to protect their own key products. In parallel, the patentreform movement of the last five years should result in changes to our PatentSystem that, by and large, have the potential to benefit the banking industry.The next 12 to 24 months will determine whether the patent reform initia-tives strengthen — or undermine — the Patent System’s protection for thebanking industry.

NOTES1 State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368(Fed. Cir. 1998).2 U.S. Pat. No. 5,025,372, entitled “System and Method for Administration ofIncentive Award Program Through Use of Credit,” was originally filed in 1987 andissued as a patent in 1992.3 U.S. Pat. No. 5,910,988, entitled “Remote Image Capture with CentralizedProcessing and Storage,” was filed in 1997 and issued in 1999; and U.S. Pat. No.6,032,137 (same name), which was filed in 1998 and issued in 2000.4 MercExchange, L.L.C. v. eBay, Inc., 275 F.Supp.2d 695 (E.D. Va. 2003).5 All of the figures on issued patents and pending applications were based on asearch at the US PTO web site at www.uspto.gov as of June 12, 2007, and includeutility and design patents.6 “U.S. Federal Trade Commission, To Promote Innovation: The Proper Balance ofCompetition and Patent Law and Policy 5” (2003).7 Id. at 5, 7, 16 (“A poor quality or questionable patent is one that is likely invalidor contains claims that are overly broad….Questionable patents contribute to thepatent thicket….If the applicant uses procedures such as continuing applications toextend the period of patent prosecution, the potential for anticompetitive hold upincreases.”); see also Ch. 4 “Competition Perspectives on Substantive Standards ofPatentability” at 26-31.8 Id. at 5-7.9 See “National Research Council, National Academy of Sciences, A Patent Systemfor the 21st Century” (Stephen A. Merrill, Richard C. Levin & Mark B. Myers eds.,National Academies Press 2004).10 Adam B. Jaffee & Josh Lerner, “Innovation and Its Discontents: How our BrokenPatent System is Endangering Innovation and Progress and What to do about It”(Princeton University Press 2004). 11 See “National Academy of Public Administration, U.S. Patent and Trademark

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Office: Transforming to Meet the Challenges of the 21st Century” 50-53 (2005)[hereinafter NAPA REPORT]. 12 See eBay Inc. v. MercExchange, L.L.C., 126 S.Ct. 1837, 1838-40 (May 15, 2006)[holding that the general four-factor test for plaintiff seeking a permanent injunctionapplies in patent cases just like in other cases, so that plaintiff must show (1) that ithas suffered an irreparable injury; (2) that remedies available at law, such as mone-tary damages, are inadequate to compensate for that injury; (3) that, considering thebalance of hardships between the plaintiff and defendant, a remedy in equity is war-ranted; and (4) that the public interest would not be disserved by a permanentinjunction.]. In so doing, the Court rejected the Federal Circuit’s prior jurispru-dence that there was a “general rule,” unique to patent disputes, “that a permanentinjunction will issue once infringement and validity have been adjudged.” Id. at1841.13 CSIRO v. Buffalo Technol. Inc., No. 6:06-CV-324, 2007 U.S. Dist. LEXIS 43832at *7 (E.D. Tex., June 15, 2007) (CSIRO, not a market competitor, showed that itwas and would continue to be irreparably harmed by Buffalo’s infringement and theimpending appeal, not only by lost licensing revenues which Buffalo’s competitorswere unlikely to pay, but by lost reputation and opportunity costs from reduced rev-enue stream). 14 U.S. Pat. No., 5,806,063, entitled “Date Formatting and Sorting for DatesSpanning the Turn of the Century.”

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Documents

Intellectual Property STEPHEN T. SCHREINER AND