Docket: Ruling Threatens Banks with Patent Lawsuits
Seiberg, Jaret, American Banker
A federal appeals court decision threatens to embroil the financial services industry in hundreds of patent infringement lawsuits.
In a precedent-setting decision, a panel of the U.S. Court of Appeals for the Federal Circuit ruled July 23 that Signature Financial Group could patent a financial product.
The three-judge panel rejected claims by State Street Bank and Trust Co. that a mutual fund administration system did not qualify for patent protection because it is a "method of doing business."
The court threw out the "method of business" defense, ruling that any business practice that is new and not obvious may be patented.
"This should be a wake-up call to the industry," said Rory J. Radding, a partner in the New York office of the Pennie & Edmonds law firm, which was not involved in the case.
"Financial companies need to start doing due diligence. They need to look at their systems and see if they are potentially infringing on anyone's patents."
Mr. Radding estimated that the industry's liability could exceed $2 billion. Suits could be based on more than 2,000 patents that have been granted financial products in the last two decades, he said.
Financial institutions have generally ignored these patents, believing the "method of business" defense invalidated them. Patent holders would be entitled to every penny banks made from their inventions, plus royalties, he said.
"Imagine suing Visa or MasterCard for every transaction done," he said.
Lawyers said banks should patent all the special programs and systems they use to manage their portfolios.
"This is a double-edged sword," said David W. Roderer, a partner in the Washington office of the Goodwin, Procter & Hoar law firm. "For many banks it could be disastrous. The industry for decades has been replete with copycats. …