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Banks Face Lawsuit ‘Frenzy’ After Business Patent Reviews End

April 13, 2021, 10:01 AM

Lawsuits against banks and e-commerce companies over financial services patents are piling up, following the expiration of a patent office challenge process that many saw as a potent defense mechanism against some litigation.

Nearly three times as many patent suits have been filed against financial institutions such as JPMorgan Chase Bank NA and Bank of America Corp. since August 2020 as in the previous eight months, Bloomberg Law data show. E-commerce companies have also faced new patent suits.

The U.S. Patent and Trademark Office’s review program for patents on business methods related to financial products or services offered companies accused of infringing them a way to challenge their validity more quickly and cheaply than in a federal district court.

But Congress allowed the covered business method review program to expire last September. It’s one change among others at the patent office and the courts that have left banks, among other institutions, more exposed to lawsuits, attorneys say.

“If you’re a bank, you can’t assume that a patent is going to die in the patent office,” said LOT Network CEO Ken Seddon, whose group focuses on protecting companies from patent suits from non-practicing entities, or companies that monetize their patents through licensing or litigation.

Banking, retail and other industry groups are lobbying for the program to be restarted, but lawmakers don’t appear ready to do so.

“We really do need to get this program renewed,” said Leon Buck, the National Retail Federation’s chief banking and financial services lobbyist.

Lawsuits Ramp Up

Specifically designed for patents claiming a method for performing data processing or other operations used in connection with a financial product or service, the CBM program allowed for a wider variety of challenges—including arguments on eligibility—compared to the PTO’s popular inter partes review program.

That made CBM review appealing to banks and other institutions who saw it as their best shot at getting out from under lawsuits by having finance-related patents killed.

Banks, in recent months, have been sued for allegedly infringing patents on systems for constructing unified banking systems or for processing charge-backs and other information related to a person’s financial history, among other things.

Since late August over 90 suits have been filed against banks and other financial institutions.

Walmart Inc. was also accused this month of infringing mobile payment patents with its mobile payment method, Walmart Pay. ShopKeep, a software company, was sued over a patent for a secure transaction method between a customer. A merchant and telehealth platform, Healthie, was among companies sued over a patent covering an internet billing system.

District court filings involving patents that potentially would have been eligible for CBM review spiked in the months after the program expired, according to Scott McKeown, chair of the Patent Trial and Appeal Board group at Ropes & Gray LLP.

McKeown said a number of patent portfolios were less attractive, particularly to litigation funders, when the CBM program was in place, likely discouraging litigation over business method patents.

“Now that it’s gone, you’re seeing the ramp up again of those types of lawsuits,” McKeown said.

Defendants fighting infringement lawsuits also had a shot at getting their court cases stayed that was specifically tied to CBM review.

The 2011 America Invents Act allowed for an immediate appeal of a district court’s decision to deny a motion to halt a case pending CBM review—a provision particularly valuable for companies sued for infringement in the eastern and western districts of Texas federal court, where many patent cases are brought, and judges have been reluctant to pause proceedings pending administrative patent review.

“With CBM gone, that’s probably the biggest loss for defendants—you don’t have that ability to take that stay argument to the Federal Circuit and essentially shut down that case in the meantime,” McKeown said. The U.S. Court of Appeals for the Federal Circuit is the federal court that handles patent appeals.

Use of the CBM program waned in its final years, in part, attorneys say, because the Federal Circuit pushed back on the office’s view of what patents were eligible for CBM review. The program also had its critics. Andrei Iancu, the former PTO director, called it “inherently problematic” because it isolated a particular area of technology.

Groups like IEEE-USA, which represents U.S. engineers, have said they would oppose any legislation to renew the program, saying it was only meant to be a temporary program.

Losing a Shield

Many accused infringers found success in CBM reviews. Of the cases that went to a final decision through March 2020, less than 2% ended with all of the reviewed patent claims being found valid, according to statistics compiled by Finnegan Henderson Farabow Garrett & Dunner LLP.

“It was basically your bomb squad for diffusing financially targeted patents,” Seddon said. “Banks lost one of their shields when CBMs expired.”

It also has become more difficult for defendants to get quick wins in district court infringement cases by arguing a patent covers ineligible subject matter. Two Federal Circuit decisions in 2018, Berkheimer v. HP Inc. and Aatrix v. Green Shades, said factual issues may prevent early dismissals.

And patent litigation on a whole rebounded in 2020 with around 4,000 new lawsuits, up 11% from the year before—a trend that’s expected to continue.

Attorneys have predicted more patents would hit the open market as companies struggling financially amid the coronavirus pandemic sell off their patents. Seddon noted a study from Richardson Oliver Law Group LLP found that patent purchases by non-practicing entities skyrocketed last year. Such sales can spark additional lawsuits over technologies across industries, attorneys say.

Some banks have united to fight the rising threat. Citing “renewed attention over the patent troll threat” and the financial service industry’s increasing reliance on technology, Barclays earlier this year became the first major European-headquartered bank to join the LOT Network. Other large banks that belong to the network include JP Morgan Chase, US Bank NA, and PNC Bank NA.

“Banks, in particular, are realizing that a bank is no different from Google and we have to start protecting ourselves from this feeding frenzy,” Seddon said.

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Melissa B. Robinson at mrobinson@bloomberglaw.com, Keith Perine at kperine@bloomberglaw.com

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