Comments on: Business method patents: good or bad for the U.S. financial services?

By: Ronald

Ronald — Wed, 25 Jun 2008 03:40:24 +0000

I just read that story on Policico about the Texas-based DataTreasury and there seems to be uncertainty about that is going on there. Because, as Guillaume clarifies, the boundary for BMP is obscure DataTreasury has ravenously held to their patents and it has definitely decreased innovation for the financial sector. It seems like this company is using patents to bully the financial sector while being very secretive about what they are doing. The Politico story talks about an upcoming GAO review that will hopefully shine light on what is actually happening. I wasn’t quite sure what to think about BMP but having seen how they work in practice, it is obvious that they are a bad idea and that they disincentivize innovation.

By: Guillaume

Guillaume — Mon, 23 Jun 2008 16:57:44 +0000

@Mar the first aspect you mention (loose boundaries of BMPs and the resulting increased risk of accidental infringement) in your comment is talked about towards the end of the paper. The author uses the metaphor of a territory with fluctuating boundaries leaving visitors with uncertainty as to whether they are on the good/wrong side of the boundary. What the author says is that creates incentives to patent and disincentives to innovate. I think this is what you are describing.

By: Mar

Mar — Mon, 23 Jun 2008 15:39:00 +0000

An often overlooked result of BMPs, especially in the financial sector, is the disincentives they create for new companies to enter markets and, inversely, the patent trolls they help to create. BMPs have the unfortunate effect of allowing seemingly obvious processes to be protected–this can create a prohibitively expensive barrier to new companies entering new industries. If companies do not double check each and every seemingly obvious process, they could very well end up infringing.

The other effect is to create patent trolls. Companies, especially in the immediate aftermath of State Street, had every incentive in the world to grab as many BMPs as possible and then use those to become a company whose only business lies in litigating against “infringers.” An excellent example is the company DataTreasury out of Plano, TX. This company was once involved in bio-technology, but immediately after State Street nabbed several very generically worded business method patents on the process of scanning checks electronically. After Congress passed a law in 2003, The Check 21 Act, which sought to make the entire financial industry switch from paper check processing to electronic processing and transfer, DataTreasury pulled out their patents, fired 98 of their 100 employees, hired the largest law firm in Texas, and ever since their only business has been in suing banks who are trying to comply with Congress’ wishes. I bring up this example because 1) it is a textbook case of the problems with BMPs in the financial sector, 2) Congress recently requested a GAO review of DataTreasury. This is a clear sign DC is considering acting at least on this specific case.

There was a Politico article a couple of weeks ago on this review: http://www.politico.com/news/stories/0608/10808.html#replyform

Anyway, just wanted to provide a different angle on the issue