Pub. 4 2013 Issue 2

summer 2013 19 As the banking industry increasingly relies on sophisticated technologies to deliver services and products, the need to understand the threat posed by patent infringement lawsuits takes on greater significance. P atent litigation involving banks increased largely because of the 1998 United States Supreme Court opinion in State Street Bank and Trust v. Signature Financial Group which held that business methods are patentable. This ruling gave rise to nuisance lawsuits brought by “patent trolls,” patent holding companies formed solely to hold patents and demand payments for licenses from companies they claim wrongly use them. The American Bankers Association reports that in 2002, banks defended 12 patent lawsuits, by 2011 banks were the targets of 240 patent troll cases. In 2012, patent trolls filed 126 lawsuits against banks, and this disturbing trend has shown no signs of abating. The typical patent troll lawsuit starts with a plaintiff filing suit against a bank in a patentee-friendly venue, such as the Eastern District of Texas or the District of Delaware. The plaintiff then seeks to negotiate a settlement for an amount equal to the case’s “nuisance value”, an amount that is less than the cost of defending the case. One of the problems facing banks under current patent law is that the only alternatives to settlement are either expensive and time-consum- ing litigation or post-issuance review by the USPTO. The possibility of a large damage award is also a motivating factor-if a bank intentionally infringes on a patent, the bank could be subject to a treble damage award, and the standard for this penalty is very broad. Usually banks are forced to settle infringement claims by paying significant licensing fees. And often the vendors that license the software involved in the lawsuit refuse to indemnify the bank or stand behind their products. To mitigate risks, your bank should review its current vendor agreements to determine whether they contain a warranty of non-infringement and appropriate indemnification. Unfortu- nately, most insurance does not protect a bank from patent trolls and few standard commercial liability policies cover loss or damages to intellectual property, so addressing potential liability in the vendor agreement is often the t best way to mitigate liability. If your current contract does not contain these protections, your bank should try to renegotiate these provisions when the contract is up for renewal or negotiate with a new provider. In entering into new agreements or considering renewal, banks should ask prospective vendors about indemnity and liability, and in- quire whether the vendor has the right to license the intellectual property involved in the product. Banks should interview multiple vendors and avoid becoming dependent on any single vendor. Banks should not be influenced by vendor claims that large financial institutions have signed similar agreements because often such claims are simply not true. If despite these preventative measures, your bank becomes a target of a patent infringement lawsuit, it is important to understand your rights. The owner of a patent is obligated to notify an al- leged violator and to identify the patent number being infringed upon. If your bank receives a demand letter from a patent troll, you should investigate the threat and acknowledge the demand letter even if you believe the claim is unfounded. The bank should imme- diately review its vendor contract and determine if it has recourse against the Trolling for Dollars – Banks Targeted in Costly Patent Infringement Cases Sandra M. Murphy and Amy J. Tawney, Bowles Rice LLP Q Trolling for Dollars — continued on page 20