Patent Reform a Sham: Data Treasury Story Exposes True Motives
The Data Treasury story (reproduced below) shows that Patent “Deform” (America Invents [not] Act) is just a scheme for large international companies to steal American inventors’ technology. Data Treasury was a startup formed in 1998. Large Wall StreetBanks colluded to steal Data Treasury’s technology and forced Data Treasury out of business. Instead of just going away quietly, Data Treasury fought back by filing a patent infringement lawsuit. When they had some initial success in the courts, the banks responded by trying to use their pals in Congress to change the patent laws so they would not have to pay Data Treasury. In fact, the America Invents (not) Act, presently being considered by the House, contains a special provision attacking the Data Treasury patents. It allows Wall Street banks to attack “business method” patents, the very same patents that they are already infringing. This doesn’t extend to any other industry— only the financial industry- another Wall Street giveaway.
In my post Wall Street is Un-American I show that the interests of Wall Street and multinational companies are not aligned with the American people and this is just one more example. Data Treasury also exposes the Patent Troll myth. Data Treasury intended to be an operating company, but the theft of its technology made it impossible to compete in the marketplace against larger, better financed, entrenched, colluding competitors. As a result, they were forced seek restitution in the courts instead of competing in the marketplace. How many Data Treasury type companies did not receive funding because investors were scared away by this example of the uncertainty of property rights in technology (patents) in theUnited States? While Data Treasury is still a separate company, if Data Treasury had been forced to sell their patents, would justice be served by allowing these large international banks to steal American technology? In this case, it is clear that Data Treasury would be an operating company but for the theft of their technology.
This case also shows why the America Invents (not) Act will weaken the United Stateseconomy. HR1249 and passed S23’s provisions will weaken inventor’s property rights in their inventions. This will make it much more difficult to compete with established companies. As a result, startups will be much less likely to obtain funding. It has been shown that large, established companies are not the creators of emerging technologies, in general, and HR1249 and passed S23’s will significantly reduce funding for the startups and individual inventors who are the creators of emerging technologies. (See Invention – A Financial Analysis). Increases in our level of technology (inventions) is the only way to increase our per capita standard of living. This bill will cause the American standard of living to decline precipitously.
Some people excuse the theft of other people’s inventions, because they say patents are monopolies and anticompetitive. This is like arguing that property rights in, for example, cars is a monopoly and prosecuting car thieves inhibits competition in the market. There is no such thing as a “free market” separate from property rights. Creation is the foundation of property rights and patents are awarded to the creators of inventions – which, by the way, is why the America Invents (not) Act, HR1249 and passed S23’s, is Un-Constitutional.
Here is the Data Treasury story:
IT ALL BEGAN ONE NIGHT IN THE SUMMER OF 1994.
President Clinton was early in his first term as our nation’s president, the media’s obsession with O.J. Simpson was just beginning, and WebCrawler, the Internet’s first true search engine, had been up and running for a little more than three months.
Claudio Ballard was a 35-year-old computer engineer, entrepreneur, and inventor, and he had taken his father out to dinner at aLong Islandpizzeria.
In talking with the restaurant owner, Ballard learned that he was in the habit of keeping his copies of customers’ credit card receipts in a shoebox.
There has to be a better way, Claudio thought. Why hang on to all that paper? Why risk losing such important financial information?
What the pizzeria and other businesses needed was a single, integrated system that could capture, store, and transmit the images of receipts, returned checks, and other paper documents. If the system’s security could be guaranteed, companies could do away with their filing cabinets. They could also track customer data more efficiently, locate missing information easily, and improve their bookkeeping in a host of other ways.
A system like this, Ballard thought, would also be a big help to the banking industry. Banks spent billions of dollars every year transporting and processing paper checks, and they were actively looking for ways to streamline the process using electronics.
Ballard went to work. By 1997, he had a working prototype and applied for patent protection with the U.S. Patent and Trademark Office (USPTO). In 1998, he started a company, DataTreasury Corporation, to market his invention. Ballard and his associates soon began meeting with high-level decision makers at banks and financial services companies.
Several of those banks showed considerable interest in DataTreasury’s check-imaging system. Executives from Chase Manhattan (today known as JPMorgan Chase) were among those who signed confidentiality agreements and examined the company’s technology and secret patent filings. In 1998, the two parties began discussing a joint venture in which the bank would use DataTreasury’s system to store digital images of its customers’ checks.
Later, those discussions came to an abrupt and unexpected end.
Ballard didn’t realize it at the time, but his check-imaging invention was about to be stolen, shared, and put to use by some of the biggest banks in the world.
Unaware of the banking industry’s plans, Ballard pressed forward with the patenting process. In 1999 and 2000, the patent office granted Ballard U.S. Patents 5,910,988 and 6,032,137 for his check-imaging system.
DATATREASURY’S FUTURE LOOKED BRIGHT.
On the strength of the company’s new patents, Ballard raised more than $20 million from hundreds of investors, hired a staff, and moved the firm into a large, state-of-the-art data center.
DataTreasury signed one of its first major deals in 2001, when it agreed to provide biometric security solutions to the customers of Computer Associates, one of the world’s largest independent software companies. U.S. Representative Steve Israel, then a member of the House Armed Services Committee, later called DataTreasury a good candidate for Homeland Security procurement opportunities. The New York Daily News reported that the company developed “the kind of computer networking systems that will be needed if the government decides to create a national iris and/or fingerprint registry.”
Then, in 2002, the company signed its first banking client. DataTreasury would provide Israel-based Bank Hapoalim with check-imaging systems and services for some of its customer base.
By that time, though, the bigU.S.banks had already made their move. Armed with full knowledge of DataTreasury’s proprietary technology, JPMorgan Chase partnered with other major banks to launch SVPCO, a check-imaging company that is now a subsidiary of The Clearing House Payments Company. SVPCO created the Image Payments Network, infringing DataTreasury’s technology. JP Morgan Chase also partnered with Bank of America and IBM to launch Viewpointe Archive Services, which set out to make its own check image archive the industry leader.
DataTreasury’s trajectory was cut short.
The financial services industry quickly closed ranks around The Clearing House, Viewpointe, and a small group of other bank-owned check-image archives and exchanges. The trend only increased after 2004, when the law known as the Check Clearing for the 21st Century Act, or “Check 21,” went into effect.
Check 21 allows banks to stop physically transporting paper checks and to start exchanging digital check images instead. The biggest banks in the country lobbied Congress to pass Check 21 because they were eager to reap the cost savings it makes possible, and the American Bankers Association even testified before Congress to this effect.
Those saving are enormous. According to estimates by the Electronic Check Clearing House Organization (ECCHO), Global Concepts, and even The Clearing House Payments Company itself,U.S.banks are now reaping more than $2 billion every year due to the efficiencies and new profits created by digital check imaging.
None of these benefits would be possible without DataTreasury’s revolutionary technology.
The Clearing House now runs the largest check-image exchange in the country, and Viewpointe operates the largest archive of digital check images in the world. In essence, the nation’s biggest financial institutions took DataTreasury’s check-imaging technology and distributed it throughout the banking community free of charge.
THE LITTLE COMPANY LOOKED TO THE COURTS FOR HELP.
In June 2002, DataTreasury filed the first of several patent infringement lawsuits against the banking industry, accusing JPMorgan Chase and a handful of other check-processing companies of taking and using its technology.
DataTreasury’s only request was that it be fairly compensated for the use of its technology—that it be granted a tiny portion of the huge savings that Mr. Ballard’s invention created for the banks.
JPMorgan Chase settled its case with DataTreasury in 2005. In doing so, the bank licensed DataTreasury’s check-imaging patents and filed a document with the court admitting that those patents are valid and enforceable, and acknowledging that it had indeed been infringing them.
Over the next year, DataTreasury filed suit against dozens of other banks that had jumped on board the check-imaging bandwagon. These new defendants included Bank of America, Citibank, Wachovia, and Wells Fargo.
The banks fought back. In November 2005, one of the defendants in DataTreasury’s litigation filed a request for a reexamination of DataTreasury’s check-imaging patents with the USPTO, citing earlier technology (or “prior art”) that it felt invalidated the company’s patents. In a reexamination proceeding, the patent office takes a second look at one or more previously issued patents and makes a final determination regarding validity.
In 2007, after poring over thousands of pages of prior art, the USPTO upheld both of DataTreasury’s check-imaging patents. The patent office even allowed the company to add additional claims to the patents. DataTreasury’s patents were now ironclad—stronger, in fact, than they were before.
The banks weren’t down for the count. Just as the USPTO was revalidating DataTreasury’s patents, lobbyists representing the financial services industry had an amendment inserted into the U.S. Senate’s version of the Patent Reform Act of 2007 that targeted the company in a very narrow way. Incredibly, this amendment would have prevented DataTreasury from collecting monetary damages in the event of a legal victory. According to The Washington Post, the amendment “would not invalidate DataTreasury’s patents, [but] would spare the banks from paying for infringing them should courts decide that’s warranted.”
DataTreasury received no official notification of the amendment ahead of time, so the Senate was not given the opportunity to hear both sides of the case before it included the amendment in the Act.
It didn’t take long for the facts to come out, though.
In 2008, the Department of Commerce issued a letter opposing the anti-DataTreasury amendment, claiming that it could hamper American innovation. The Congressional Budget Office (CBO) then reported that the amendment could cost American taxpayers $1 billion, since DataTreasury would need to be reimbursed for its lost property.
Soon afterward, the amendment’s sponsor withdrew his support for the measure, and the U.S. Senate set aside the larger Patent Reform Act for further consideration.
DATATREASURY’S FIGHT GOES ON.
Dozens of banks—Citibank, Bank of New York, Union Bank of California, and others—have since agreed to license DataTreasury’s check-imaging patents and have been dropped from the litigation. But Bank of America, Wells Fargo, and several others have refused to deal with the company.
In early 2010, the court hearing DataTreasury’s case scheduled trials for these remaining defendants.
In March 2010, DataTreasury went to trial against Viewpointe, The Clearing House, and U.S. Bank, the fifth-largest bank in the country. The jury ruled in DataTreasury’s favor, finding its check-imaging patents to be valid and infringement on the part of all three defendants. DataTreasury was awarded $27 million in damages, an amount that might later be increased due to the jury’s finding of willfulness on the part of U.S. Bank and Viewpointe.
In August 2010, DataTreasury is set to go to trial against Wells Fargo, Wachovia, and BancorpSouth. In October, the company is scheduled to face Bank of America, LaSalle, SunTrust, and KeyBank.
DataTreasury looks forward to the opportunity to make its case against these banks. In the meantime, the company hopes its story serves as both warning and inspiration to all American innovators, large and small.
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