For years and much to their frustration, big banks have paid hundreds of millions of dollars to a tiny Texas company to use a patented system for processing digital copies of checks, making Claudio Ballard, the inventor of the system, a wealthy man and the bank industry’s biggest patent foe.
After years of fighting Mr. Ballard at the federal Patent Office, in court and across a negotiating table, the banks went to see one of their best friends in Congress, Senator Charles E. Schumer of New York, who inserted into a patent overhaul bill a provision that appears largely aimed at helping banks rid themselves of the Ballard problem. The Senate passed the bill easily in March.
The proposal would allow banks to get a federal re-examination of certain patents that they have been accused of infringing, specifically limited to “a financial product or service.” The language is now included in a bill that may come to a vote in the House of Representatives as early as Wednesday. While at least two House members have moved to strip the provision from the bill, bank lobbyists have worked hard to defeat previous attempts to remove it.
Mr. Schumer and the Financial Services Roundtable, a business group that pushed the measure, say the provision is not focused on any one company but more broadly at “meritless litigation over patents of dubious quality,” as Steve Bartlett, the president of the Roundtable, said at a House hearing.
Mr. Schumer said that most of the largest New York banks had settled disputes with Mr. Ballard and his DataTreasury Corporation of Plano, Tex., and Mr. Schumer says those agreements will not be affected.
But DataTreasury and Mr. Ballard have fought back. They have hired their own Washington lobbyist, financed in part by the $400 million in settlements, jury verdicts and royalties earned in recent years.
In an interview, Mr. Ballard said the banks’ argument that they had embarked on electronic check processing — the process covered by his patents — long before his patents were issued is simply wordplay.
“You can say that about the guy who invented the light bulb,” Mr. Ballard said. “Steel had been around forever, tungsten had been around forever, glass had been around forever. But someone put all those elements together and created the light bulb.”
The patents at issue are called “business method” patents, which cover a process for performing a task but not necessarily the technology required to make it happen. Method patents are the bane of the corporate world, and business groups say they encourage frivolous lawsuits based on faulty application of patent law.
Mr. Schumer said he believed he did the right thing. “This is a case where one company has made a cottage industry out of extracting legal settlements by exploiting a fuzzy part of the law on patents,” he said. “When New York institutions are in the right and under assault, I will support them all the way. If these lawsuits are legit, the company should have no problem letting the patent office do an independent review.”
DataTreasury patents have already been reviewed and validated by the patent office, but the bill would allow for an expanded consideration of other elements in a new review format.
While other provisions address reviews for patents after they are issued, the language of Mr. Schumer’s provision seems aimed at banks or, specifically, “a method or corresponding apparatus for performing data processing operations used in the practice, administration or management of a financial product or service.”
The DataTreasury camp says it has little doubt that the Schumer provision is aimed at the company. “There’s no question about that,” said John Feehery, a prominent Washington public relations executive and a spokesman for DataTreasury. “It’s a specific provision aimed at a small company.”
Supporters insist that the provision can be used against patents for electronic commerce in any industry, but banks have been especially energetic in their support of the measure.