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House Retains Contested Provision in Patent Bill

Updated: 8:24 p.m.

Pressured by a coalition of financial institutions and retailers, House lawmakers rallied Thursday to defeat an effort to kill a bank-friendly provision aimed at rooting out bad patents.

An amendment sponsored by Reps. Aaron Schock (R-Ill.) and Maxine Waters (D-Calif.) would have removed the controversial provision, known as Section 18, from a patent reform bill that the House went on to pass Thursday afternoon. The amendment was defeated 158-262.

Section 18 applies to patents on business processes used by the financial services industry, such as check-scanning practices. It would allow banks charged with patent infringement to demand a government review of the patent’s validity.

Companies that hold patents on financial processes argue that banks are trying to use the legislation to delay, or even escape, fines for using their products without licenses. And in recent weeks, lobbyists for these companies have hit the pavement hard to encourage lawmakers on both sides of the aisle to reject the provision.

“While the result was disappointing, there is consolation that in the face of the substantial political force that the big banks applied, a significant number of Members from both parties agreed with our hastily stitched together coalition of small inventors that Section 18 raises serious Constitutional and fairness issues,” Carl Thorsen, a lobbyist representing DataTreasury Corp., one of the companies fighting the provision, said about Thursday’s vote. “What Congress ought to do is slow down and address this issue with the appropriate caution it deserves.”

For months, the Financial Services Roundtable, the Independent Community Bankers of America and other financial trade groups have been leading the fight for the provision, arguing it is necessary to deal with a spate of “business-method” patents inappropriately issued earlier in the decade for practices that were already widely in use.

Businesses including McDonald’s and have also been sued for infringing on these kinds of patents, which they describe as low-quality patents held by nonpracticing entities.

Peter Freeman, a lobbyist for the Financial Services Roundtable who worked on the issue for the banks, was pleased with Thursday’s vote. “I am just happy good policy won over an incredibly well-funded campaign of misinformation,” he said. “This was about nothing more than patent quality and litigation abuse.”

Section 18 is one of several contentious elements in what was expected to be a noncontroversial makeover of the patent system. For instance, the bill is also caught in a battle over whether the Patent and Trademark Office should have full control over the money it raises through fees or whether it should continue to go through the annual Congressional appropriations process for its budget.

Two amendments attempting to strip or delay the primary purpose of the bill — a move to the first-to-file system from the first-to-invent system — also failed by wide margins.

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