Push for Patent Reform Advances

Bill to Rein In Infringement Lawsuits Clears Hurdle
Push for Patent Reform Advances
Brad Thaler

As patent trolls continue to target companies with patent infringement lawsuits, bipartisan Congressional support is building to protect financial institutions.

The bipartisan Innovation Act, which cleared the House Judiciary Committee in November, is just one piece of legislation related to patent reforms that NAFCU supports.

"This legislation ... [makes] it more difficult and potentially costly for patent trolls to threaten businesses with questionable claims," says Thaler, vice president of legislative affairs, in an interview with Information Security Media Group [transcript below].

Patent Trolls

The number of patent infringement claims filed against U.S. banking institutions by patent-holding companies exploded in 2013 (see A Surge of Patent Infringement Lawsuits).

These companies often acquire patents from other companies and then attempt to enforce those patents by seeking legal damages for infringement.

In late October, 51 patent infringement suits tied to payments-related technology were filed by Long Corner Security, a Texas-based patent-holding company, against U.S. payment card networks, payment processors and e-commerce sites.

In 2013, one of the world's largest patent-holding companies, Intellectual Ventures, filed infringmenet claims against leading U.S. banking institutions (see Patent Lawsuits Target Eight Banks and 5 More Banks Sued for Patent Infringement).

During this interview, Thaler discusses:

  • Why it could take a nationally publicized retail breach to spur Congress to take action to hold retailers accountable for card data losses;
  • How banking groups are banding together to ensure all financial institutions have a united voice on Capitol Hill; and
  • Steps banking institutions should be taking to ensure they stay up-to-date about legislative progress.

Thaler has been with NAFCU since 1999, and has served as vice president of legislative affairs since January 2011. For five years, Thaler has been listed as one of the most influential lobbyists in Washington by "The Hill" newspaper. Before joining NAFCU, he was a lobbyist for the Federal Managers Association.

NAFCU's Role in Legislation

TRACY KITTEN: Can you give our audience a bit of background around the role NAFCU plays from a legislative perspective?

BRAD THALER: NAFCU is the leading trade association for the concerns of federal credit unions on Capitol Hill. We advocate for federal credit unions on a range of issues that impact them legislatively, from protecting the credit union federal tax exemption to seeking regulatory relief from ever-increasing compliance burdens, to even seeking more stringent data security standards for those who handle financial data and more.

Patent Reform

KITTEN: Patent infringement cases are getting increased attention and so-called patent trolling companies have dramatically increased the number of suits that they file against banking institutions claiming infringement of a number of technology-related patents. What can you tell us about the Innovation Act?

THALER: The Innovation Act, H.R. 3309, is a bi-partisan bill put forward by House Judiciary Chairman Bob Goodlatte from Virginia that seeks to make improvements to the Leahy-Smith America Invents Act. That act was landmark patent reform legislation just passed in 2011. From a credit union perspective, we had hoped the 2011 bill would help stem the tide of patent trolls sending demand letters and filing suits against credit unions claiming infringement of patents for programs that the credit unions have implemented. Unfortunately, the tide is still strong, not just for credit unions but for many out there.

Congress has heard the concerns of credit unions and these industries, and that has led to the introduction of the Innovation Act, which by the way was just reported out of the House Judiciary Committee earlier this week by an overwhelming bi-partisan 33-5 vote. This legislation seeks to build on the Leahy-Smith America Invents Act by making it more difficult and potentially costly for patent trolls to threaten businesses with questionable claims.

KITTEN: Beyond some of the legislative efforts that are surrounding the so-called patent trolls, what other legislative efforts is NAFCU reviewing that take aim at these types of suits?

THALER: The House effort seems to be coalescing around H.R. 3309. There are also a number of efforts under way in the Senate. For example, Senator Schumer has S.866, the Patent Quality Improvement Act of 2013, that would improve the post-grant review process for covered business methods established under the Leahy-Smith America Invents Act. Senator Hatch has S.1612, the Patent Litigation Integrity Act of 2013. This legislation would ... discourage patent assertion entities, which is another name for patent trolls, from filing frivolous lawsuits. Senate Judiciary Chairman Patrick Leahy and Senators Mike Lee and Sheldon Whitehouse just recently unveiled the Patent Transparency and Improvements Act of 2013 that would increase transparency and patent ownership; protect consumers who are sued for patent infringement by allowing the case against them to be stayed while the manufacturer litigates the suit; target the widespread sending of frivolous demand letters; and improve resources for small businesses that are targeted in patent infringement suits. All these efforts are part of our ongoing effort to try to address the concerns of credit unions as it relates to patent trolls and demand letters.

Collaborating with Financial Groups

KITTEN: What about beyond credit unions? Are you working with other banking associations or groups such as the American Bankers Association?

THALER: NAFCU is working with a coalition of interested groups in the financial services sector, from financial institution trade organizations to insurance associations, any number of entities that are impacted by these patent trolls. We've worked with them and joined with them on a number of joint letters, even joint testimony in the past on the Hill.

Card Data Breaches

KITTEN: Card data losses is an area that NAFCU has taken a unique step as far as legislation is concerned. In 2013, NAFCU asked Congress to hold breach retailers, processors and other third parties accountable when their lax security practices resulted in the leakage of card data. What can you tell us about this initiative?

THALER: In February of last year, recognizing the growing burden on credit unions from numerous new laws and regulations over the past several years, NAFCU took the step to outline a series of regulatory relief measures that Congress needed in five key areas, one of which is in data security. On the data security front, credit unions and other financial institutions have been subject to stringent data security requirements since the passage of the Gramm-Leach-Bliley Act at the end of the last century. But a lot has changed in that time until today, and many entities handle consumer financial data but aren't subject to the same stringent standards of safeguarding it that financial institutions are. When data breaches inevitably occur from this lack of safeguarding, it's often the financial institution that's left to clean up the mess even though they were often not the cause.

To that end, we outlined a series of reforms on the data security front that we would like to see, including: establishing national standards for safekeeping of all financial information; establishing enforcement standards for data security that prohibit merchants from retaining financial data and require merchants to disclose their data security policies to consumers; hold merchants accountable for the cost of a data breach, especially when it was due to their own negligence; and shift the burden of proof in data breach cases to the party that incurred the breach and require a timely disclosure in the event of a breach.

Five-Point Plan

KITTEN: What you've outlined is NAFCU's Five-Point Plan. How unique is this plan and has anything like it ever been introduced before Congress before?

THALER: We were the first ones to push for regulatory relief for credit unions in this Congress, and that really helps jumpstart the broader regulatory relief in the data security debate. Others have chimed in with similar proposals after seeing ours and it has gained widespread support on Capitol Hill.

KITTEN: What about support from other banking groups or organizations?

THALER: Yes, it has gained that too. Regulatory relief is now part of the Congressional lexicon and, specifically, our data security push has gained support from many in the financial services community. I even had one financial services lobbyist tell me that he wished he had thought of it.

KITTEN: Do you expect some of this legislation linked to the so-called Five-Point Plan to actually pass?

THALER: Passing any legislation in the current congressional environment is difficult. We're successful in getting the data security issue on the radar of many members of Congress. We also are using the ongoing cybersecurity debate, which is related to data security to a degree, to look for vehicles to attach some of our data security initiatives. Furthermore, Congress is often a reactive body, and any new major national data breach could also help spur them to action.

New Legislative Efforts in 2014

KITTEN: Are there any new legislative efforts that are coming up in 2014 that our audience would be interested in knowing about?

THALER: I'm optimistic that we'll continue to make advances on both of the issues we've talked about today - patent reform and data security in 2014 - and I expect you may see more developments on both of these issues as we roll into 2014.

Your listeners can get all the latest news for credit unions by visiting NAFCU's website at www.nafcu.org. We also have a great technology and data security conference coming up in February that anyone can attend. Your listeners can visit the website to learn more about it.

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