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Last update: 07/25/14

ICBA Policy Resolutions for 2014
Track I: Legislation and Regulation

PATENT REFORM

Position

  • ICBA appreciates the passage of the Leahy-Smith America Invents Act, which established a transitional proceeding at the Patent and Trademark Office (PTO), known as a Section 18 proceeding, to re-examine the validity of questionable business method patents. ICBA is encouraged by the initial efforts of the PTO to “stand-up” Section 18 and is confident that, if made permanent, it will mature into a valuable tool to combat these frivolous lawsuits.

  • ICBA urges Congress to amend current law to provide relief for community banks from “demand letters” sent by patent assertion entities (PAEs).

  • ICBA urges Congress to amend current law to ensure that vendors that sell products or services to community banks provide the appropriate warranties and indemnification to protect the end users from infringement claims.

Background

According to a recent study by Boston University School of Law, the direct costs associated with patent assertion entities’ (PAEs’) demands and often litigation are substantial, totaling an estimated $29 billion in accrued litigation and non-litigation costs in 2011. Managing these aggressive and frivolous patent infringement claims has become an expensive distraction for a steadily-increasing number of community banks that often lack the financial and legal resources to properly dispute these claims. These claims sap valuable monetary, time and legal resources from community banks, and exhaust resources that would otherwise be directed toward serving the financial needs of their customers. PAEs often use the settlements to build war chests to assert more patent claims against other legitimate small businesses, including community banks.

Demand Letters. Community banks across the country are experiencing a dramatic increase in the number of patent infringement demand letters from law firms representing PAEs. The typical letter states that the community bank is in violation of a patent or a suite of patents held by the PAE. Frequently, the PAE is willing to settle or sell a sub-license, often a “limited or one-time offer,” to the community bank for using the technology in question. These letters are often of poor quality and accompanied by a list of patents from the PTO but contain no description of what the actual patents are or how the community bank is in violation. The community bank is then forced to choose between costly and time-consuming litigation to challenge the patent or compliance with the demand letter, however frivolous it is. Compliance with the demand letter strengthens the PAE’s incentive to target additional community banks to extract exorbitant and fraudulent fees.

Demand letters are a considerable drain on a community bank’s finite resources. Any legislation that would increase the accessibility of a Section 18 proceeding to the community banking sector will bring more questionable patents under review. Legitimate patent holders have nothing to fear from the Section 18 proceeding.

End User Indemnification/Warrantees. Community banks often white-label products that are purchased from vendors to serve their customers. As “end-users” of these products and services, community banks should not be on the hook for the infringement claims of PAEs. Community banks are especially vulnerable to being sued because they lack the resources and market power to fairly negotiate the protections they need when contracting with large sophisticated technology vendors. The vendors that provide these products and services to community banks often do not stand behind them. As a result, when a community bank is accused of infringement, the vendor, often better situated to refute the claim, sits on the sidelines and refuses to defend their customers. Congress should amend current law to ensure that vendors that sell products or services to community banks provide the appropriate warranties and indemnification to protect the end users from infringement claims.

Staff Contacts: Cary Whaley, Aaron Stetter

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