BoA, VISA Sued for Patent Infringement by Every Penny Counts

Bank of American and VISA were recently sued by Every Penny Counts, Inc. which alleges that BoA's "Keep the Change" program infringes upon its 1995 patent for a "Method and system to create and distribute excess funds from consumer spending transactions." When a participant in "Keep the Change" makes a purchase with his or her debit card, the Bank "rounds up" the amount deducted from the card holder's account to the nearest dollar and then puts that extra change into a savings account. In the UK, the idea has been copied by Lloyds TSB.

Last summer, BusinessWeekOnline did a big write up on how BoA, wanting to bring in new accounts, hired "an innovation and design research firm" to "conduct ethnographic research on boomer-age women with children." Women with children apparently have a tendency to round off entries in their checkbooks to an even amount, and they have a hard time saving money. Taking this important information, BoA

put together a team of product managers, finance experts, software engineers, and operations gurus and held 20 brainstorming sessions. The team generated 80 product concepts, boiled them down to 12, and overwhelmingly favored one: rounding up the financial transactions of consumers and transferring the difference to their savings.

The final little twist to this story is that at least one report in the blogosphere suggests that BoA filed for a patent on the "Keep the Change" idea itself.

A Confusing, Convoluted Victory for DataTreasury

DataTreasury Corp. scored a victory of sorts before the U.S. Court of Appeals for the Federal Circuit, announcing today that the appellate court affirmed a lower court's ruling dismissing DataTreasury's patent infringement case against Electronic Data Systems Corp. (EDS). That's right -- the court dismissed DataTreasury's suit against EDS and DataTreasury counts that as a victory. Here's why:

DataTreasury holds several patents which purport to cover the process of storing and sharing images of checks over the internet. The company claims that its patents are integral to the implementation of Check 21 -- the recently enacted law which allows banks to clear checks by sending images of the documents to each other rather than the paper itself. DataTreasury has made quite a name for itself by suing lots of banks and financial service providers for patent infringement. JPMorgan Chase, Citibank, Bank One, Wells Fargo, Zions, First Data, RDM, NetDeposit and, of course, EDS have all received a summons from DataTreasury. Even more surprising than the fact that this little company would take on the big dogs is how successful its strategy has been. Many of the defendants, including the normally ferocious rottweiler JPMorgan Chase, have settled with DataTreasury and even more corporations have lined up to pay licensing fees in order to avoid litigation.

So what explains DataTreasury's jubilation at having its case against EDS thrown out? You need to know one other fact. DataTreasury actually had two lawsuits against EDS going at the same time. The case that was dismissed was filed in Federal District Court for the Northern District of Texas (N.D.Tx). The second case was filed in Federal District Court for the Eastern District of Texas (E.D.Tx). Northern? Eastern? Does it really make a difference? You bet it does. Plaintiffs who file patent infringement suits in the E.D.Tx win more often than plaintiffs in any other Federal court in the country. If it has to be sued for patent infringement, EDS wants to be in any court other than the Eastern District. When the judge in the N.D.Tx dismissed the case before him in favor of the case in the E.D.Tx, EDS quickly appealed to the Federal Circuit. By affirming the Northern District decision, the appellate court is forcing EDS to proceed in the hostile Eastern District.

To further complicate matters, we should recognize that many commentators believe the DataTreasury patents are invalid and unenforceable. To be patentable, an innovation must be "novel" and "nonobvious." In other words, it should be something new and surprising and not an old idea or something that immediately pops to mind. Sending images of documents over the internet is not a particularly earth shattering break through, even if the documents are checks. Further, earlier patents and industry publications suggest that DataTreasury didn't come up with the process first. Critics of DataTreasury got a major boost in December 2006 when the Patent and Trademark Office (PTO), following a reexamination of DataTreasury's primary check imaging patent, concluded that it failed to meet the standards for patent protection. DataTreasury vowed to appeal the decision.

Barring a successful appeal to the Supreme Court, DataTreasury’s case against EDS will go forward in the Eastern District of Texas where the juries rarely fail to enforce a patent. It will be interesting to see what they do with a patent that even the PTO agrees isn’t valid.