US May Immunize Banks against Electronic Cheque Patent Infringement

The Judiciary Committee of the US Senate has unanimously approved a version of the Patent Reform Act of 2007 with a provision that would eliminate liability of financial institutions for infringement of patents by a cheque collection system. The bill would directly impact many pending infringement suits filed by DataTreasury Corporation ("DataTreasury") against various banks and other financial institutions. The Check 21 Act of 2003 allowed banks to create and transfer digital cheques, scanned from paper cheques. It further required all banks to recognize and accept these substitute cheques. However, DataTreasury claims that its patents (US 5,910,988 and 6,032,137) are necessarily infringed by following the Check 21 Act procedures for processing digital cheques. The patents survived re-examination in July, 2007 by a USPTO panel, which process delayed the infringement actions. Some financial institutions have licensed the DataTreasury technology, but many have not. The potential cost is very great given that US banks process more than 40 billion cheques each year. As noted in the bill, the importance of digital cheque processing was perceived to be much greater after September 11, 2001, when transporting paper checks by airplane was impossible for several days. The bill justifies the exemption based on the fact that banks are required to implement the Check 21 procedures, and it limits its applicability to use as required under that Act. However, the Commerce Department has objected to the exemption because it does not support exceptions to patent protection based on a particular technology. It is unclear if the Committee considered the US treaty obligations under TRIPS and NAFTA, both of which generally require that patentability be technology-neutral, but do provide for very limited exceptions. DataTreasury was apparently taken by surprise by the provision, and is now strongly opposing it. It has been reported that the Congressional Budget Office has estimated that the value of taking away DataTreasury's right to sue is about one billion dollars. The government may have to pay compensation for a "regulatory taking" if the provision is enacted, based on the market value of the reduction in DataTreasury's patent rights. The full Senate is expected to vote on the bill within a month. However, the House of Representatives passed its version of the bill last September, which had no similar exemption for banks. Also considering the opposition of the administration to this exemption, its future is uncertain. For a related news report, see: http://tinyurl.com/2wjtzn Summary by: Tom Feather