Senate Mulls Security Patent Reform

House Version Passes by Substantial Margin
Senate Mulls Security Patent Reform

A Senate committee will hold a hearing Dec. 17 to consider a patent reform measure that is less aggressive than a recently approved House bill, which could help stem the tide of patent infringement lawsuits that sometimes target security technologies.

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On Dec. 5, the House passed on a 325-91 vote the Patent Litigation and Innovation Act of 2013 introduced by Rep. Bob Goodlatte, R-Va. The measure had won the backing of the House Judiciary Committee on Nov. 20.

The Senate will now consider its own legislation, the Patent Transparency and Improvements Act of 2013, which was introduced Nov. 18 by Sen. Patrick Leahy, D-Vt.

"The Senate bill is not nearly as aggressive as the House bill," says Washington-based patent attorney James Denaro.

The House measure primarily focuses on making it difficult to file and win frivolous patent infringement suits, Denaro explains. In contrast, the Senate bill focuses on stopping frivolous demand letters. These letters sent to businesses claim patent infringement and demand payment of fees to patent holding companies for use of certain technology, he adds.

If the Senate eventually approves a version of its bill, a conference committee would have to address the differences between the House and Senate approved measures. "I think it's an open question as to what will end up on the president's desk," says Denaro, who leads the intellectual property practice at the CipherLaw Group.

House Bill Gains Support

In the wake of numerous patent disputes filed in 2013 against banking institutions, claiming infringement of patents on technology related to payments and other core banking functions, the House bill has garnered support from the financial services industry, says Brad Thaler, vice president of legislative affairs at the National Association of Federal Credit Unions.

In October, 51 patent infringement suits were filed by Texas-based patent-holding company Long Corner Security against card networks, processors and e-commerce sites over payments-related technology (see A Surge of Patent Infringement Lawsuits). Earlier this summer, one of the world's largest patent-holding companies, Intellectual Ventures, filed infringement lawsuits against eight U.S. banks (see Patent Lawsuits Target Eight Banks). The patents mentioned in those suits are alleged to cover basic banking functions and features used in ATM and online-banking transactions, as well as cryptography methods used to conform to security standards, such as the Payment Card Industry Data Security Standard.

Comparing the Provisions

The House legislation includes a number of provisions that aim to limit the number of patent-infringement cases, such as an increased number of requirements associated with filing a patent infringement complaint. The measure includes statutory limitations on discovery. It would eliminate the patent-applicant option to file a civil action to obtain a patent. And it would require that the losing party in the lawsuit pay the legal fees of the prevailing party.

The Senate bill is narrower in scope, Denaro says. And the measure would allow a court to decide whether the prevailing party or the losing party should be responsible for covering legal fees associated with the dispute, he says.

"The rule would be that ... the burden would be on the loser to prove the winner should pay the fees," Denaro says. "And that means there will always be some question about how this should be determined, and how the courts decide it always will vary."

Having that provision in the bill will likely spur more debate in the Senate, he adds.

In the meantime, states are pursuing their own courses of action to defuse patent suits.

In May, Vermont's Attorney General sued MPHJ Technology, a Delaware-based patent-holding company, alleging that the company engaged in unfair and deceptive acts under Vermont's Consumer Protection Act. The complaint alleges that MPHJ sent deceptive letters to Vermont businesses, including banking institutions, claiming they had infringed on patents held by MPHJ and, in some cases, demanded thousands of dollars were owed for the infringement.

In July, Nebraska's attorney general ordered Texas-based law firm Farney Daniels PC, which is representing MPHJ, to stop sending letters to Nebraska businesses claiming patent infringement. The state argued that the letters violate its consumer protection laws (see Patent Infringement Suits Target Smaller Banks).

The Senate proposal would empower the Federal Trade Commission to deem the mailing of demand letters a violation of consumer protections, Denaro says.

About the Author

Tracy Kitten

Tracy Kitten

Former Director of Global Events Content and Executive Editor, BankInfoSecurity & CUInfoSecurity

Kitten was director of global events content and an executive editor at ISMG. A veteran journalist with more than 20 years of experience, she covered the financial sector for over 10 years. Before joining Information Security Media Group in 2010, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by, ABC News, and MSN Money.

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