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Patent Carve-Out Finds Opponents Left and Right

Nothing brings liberals and libertarians together like the prospect of banks winning a sweet deal in Congress.

A handful of Republican and Democratic lawmakers, small-business lobbyists and outside groups such as the U.S. Business and Industry Council have come together in an effort to kill a bank-friendly provision in a patent reform bill that could come to the House floor this week.

The provision, which applies to patents on business processes used by the financial services industry — such as check-scanning technologies — would allow banks charged with patent infringement to demand a government review of the patent’s validity. The carve-out is highly unusual because it applies to just one industry, but proponents argue it’s necessary to deal with a spate of “business-method” patents issued earlier in the decade for practices that were already widely in use.

The Financial Services Roundtable, Independent Community Bankers of America and other financial trade groups led the charge for the language, which was inserted in the Senate version of the bill by Sens. Charles Schumer (D-N.Y.) and Jon Kyl (R-Ariz.). In a letter sent earlier this year, the coalition said it would not support the patent overhaul without this protection.

Companies that hold patents on financial processes argue that banks are trying to use the legislation to delay, or even entirely escape, fines for using their products without licenses. Lobbyists for the companies — DataTreasury in Texas, Trading Technologies International in Illinois and Intellectual Ventures in Washington state — argue that the provision amounts to an attack on their property rights.

Now, with lawmakers expected to vote on the overhaul as soon as Thursday, their lobbyists have seized on anti-Wall Street sentiment to attack the provision.

“This is nothing less than an earmark for big banks disguised as a new government program” in the Patent and Trademark Office, said a lobbyist opposing the provision.

Nix, Patterson & Roach, the Texas law firm that has handled at least 10 infringement suits for DataTreasury, bankrolled its lobbying effort, paying the firm Thorsen French Advocacy $50,000 this year to work the issue, according to federal records. Bank of America, Wells Fargo & Co. and Citigroup Inc. are among the banks DataTreasury has sued.

Lawmakers on both sides of the aisle are responding. Reps. Aaron Schock (R-Ill.) and Dan Boren (D-Okla.) will offer an amendment to scrap the provision. Reps. John Conyers (D-Mich.) and Jim Sensenbrenner (R-Wis.), two former chairmen of the House Judiciary Committee, joined Reps. Don Manzullo (R-Ill.) and Marcy Kaptur (D-Ohio) in a letter urging colleagues to oppose the patent overhaul altogether.

The controversial provision, known as Section 18, hands “large banks a special, new bailout at the expense of inventors and the American taxpayer, and even worse, does so on a retroactive basis,” the Members wrote. It would also “constitute an unconstitutional taking of property.”

Rep. Allen West, the conservative firebrand from Florida who represents the home district of one of the DataTreasury inventors, has also been circulating a letter in opposition to Section 18.

But Rep. Lamar Smith (R-Texas), who is championing the provision in the House, argues it will help weed out a number of “bad” patents issued by the Patent and Trademark Office in the 1990s and 2000s.

“Criticism that section 18 constitutes a ‘takings’ is unfounded,” he said in a statement. “If a patent is bad and shouldn’t have issued in the first place, there was no property right properly established.”

Banks have already spent millions of dollars on licensing and settlements with DataTreasury in fights over what they say are patent lawsuits without merit, but Peter Freeman, a lobbyist for the Financial Services Roundtable, insisted the group’s efforts are not intended to target any one company.

“Any inventor with a valid patent will not be harmed by this section,” Freeman said. “The real question is what are these guys afraid of?”

A range of outside groups — from the liberal Public Citizen to the conservative seniors group 60 Plus Association — and a number of university law departments have supported the Conyers letter, which raised a number of concerns about the legislation. John Whealan, associate dean for intellectual property law studies at George Washington University, described Section 18 as “troubling to the patent system in general.”

“This statute seems to benefit a particular industry — the financial industry — at the expense of a particular group of patentees,” said Whealan, who in the past has served as a consultant to DataTreasury. “Looking at the objective patent system as a whole, I cannot see a reason why Congress would want to pass such a statute.”

The provision is one of several controversial elements that could delay a vote on the broader patent reform bill, which sailed through the Senate on a 95-5 vote in March. The House Rules Committee put the brakes on Monday night because of a dispute over whether to give the patent office full control over the money that it raises through fees or to continue to require an annual Congressional appropriation for its budget.

Small-business and inventor advocates are also fiercely opposed to a provision that would grant patents to the first to file an application, as opposed to the original inventor. They argue that it gives large corporations an advantage because they have the capital and staff to quickly file for a patent.

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