AT&T Patent Settlement Worries Financial Firms: Inventor Claims Call Center Technologies

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In an ominous sign for banks trying to fend off claims from patent holders, AT&T Corp. has agreed to pay a sizable legal settlement to a California inventor who holds patents on 40 technologies, covering everything from interactive voice-response units to other systems commonly used by banks.

The inventor, Ronald A. Katz of Los Angeles, runs a small, eponymous firm whose primary business is licensing the technologies that Mr. Katz developed early in his career when he formed Telecredit, a real-time credit and check-cashing authorization service, and worked at First Data, which was then a subsidiary of American Express Co.

So far, 43 technology and financial services companies -- including Marshall & Ilsley Corp., the AT&T Universal Card Services division of Citigroup Inc., International Business Machines Corp., and the MoneyGram Payment Systems Inc. subsidiary of Viad Corp. -- have agreed to pay licensing fees to Mr. Katz's firm, as have several other companies that Ronald A. Katz Technology Licensing LP has slapped with lawsuits.

The situation highlights what bankers say is a growing predicament: inventors and entrepreneurs stepping forward to lay patent claim to widespread and longstanding operating methods in banking. Since the U.S. Patent and Trademark Office began a few years ago granting patents that protect business practices, banks say they have been barraged with demands for licensing fees from people who claim to have patented everything from check-cashing on up, and legal tangles with these claimants are costly. The problem has grown so pronounced that BITS, the technology arm of the Financial Services Roundtable, has made it a priority agenda item for the year.

The patents Mr. Katz holds seem to cover technologies that have become part of the backbone of automated call systems at banks, and Mr. Katz, emboldened by the settlement with AT&T and three previous legal victories, appears eager to collect what he says is his fair due. He estimates that 2,000 companies are using his patented technology for interactive telephone systems and methods of accumulating and processing caller data, and he says he is in negotiations with "well over one dozen" banks about licensing his patents.

Neither he nor AT&T would name the dollar amount of the settlement, which was made in November after three years of litigation, but one expert in intellectual property said the amount was likely to be in the ballpark of $100 million.

Mr. Katz said he expects to finalize licensing agreements with at least two major institutions within the next 60 to 90 days. Though he hopes to avoid filing lawsuits against any banks, Mr. Katz has filed several such suits over the years, and said in a telephone interview that he is now in "meaningful discussions" with various companies that might be in violation.

"We believe a large number of banks utilize our technology," he said.

Mr. Katz's patents cover a wide range of call-related procedures and technologies; a critic called them "vague" in their specificity and scope. People who view Mr. Katz as an opportunist who is trying to cash in on commonly accepted technology procedures say that many companies would rather settle than spend time and money in court.

John Jainschigg, an engineer and programmer who is editor-in-chief of Computer Telephony magazine, said the stuff of Mr. Katz's patents can be found in thousands of computing science textbooks written in the past 50 years. "These are the fundamental techniques of computer science," he said. "This isn't unique intellectual property. It's like trying to patent the idea of putting a file on a disk -- well, how else are you going to store information?"

Of Mr. Katz, Mr. Jainschigg said, "Some of the things that he has patented are so vaguely described and so fundamentally conceptual in nature that they almost qualify as ideas rather than what patents are supposed to cover, which are specific applications and processes. …