CIOs Create First Defense

on Bad Patents">

Whether the corporate legal strategy is to settle or fight, CIOs are at the front lines of the IP battlefield and hold some of the most potent weapons. If the internal or external legal team is the heavy artillery, then the IT organization is the infantry that forms a company's first line of defense. Building a solid patent portfolio is key, particularly in industries such as financial services that are attracting increased attention from patent assertion firms.

Companies with their own arsenal of patents can often brandish them as countermeasures against would-be complainants, chasing away the weakest claims or, at worst, leading to relatively harmless cross-licensing deals, legal experts say. Though such tactics are often less effective with trolls, who have no use for cross-licensing deals, they can encourage trolls to move on to easier marks. More important, aggressively building a patent portfolio enforces a discipline in documenting business processes in IT departments. That documentation, even in the absence of relevant patent awards, can help prove a prior use of a patented business method, which can invalidate infringement claims brought by trolls and competitors alike.

Traditionally, financial services firms have not patented their own inventions. "The financial services industry is pretty much in the crosshairs, because they have a lot of processes and business methods incorporated in these organizations and there's a lot of money on the table," Gerardi says. "And they haven't been as involved in [IP protection] as traditional technology and manufacturing companies have in the past."

American Express Co., for example, launched an aggressive campaign to beef up its patent portfolio after two key business units were sued for patent infringement in 2000. Datascape Inc., of Atlanta, alleged that the American Express smart card—a charge card with an embedded computer chip—infringed on its patent on distribution software for wireless devices, while Meridian Enterprises Corp., of St. Louis, sued the company (and 18 others), claiming they infringed on its patent for tracking reward points. The following year, both suits were settled on undisclosed terms, and American Express filed 36 new patent applications. The company now holds at least 50 patents, five times the number it held in 1998.

"It's very useful to have some chips, if you want to play poker," says Carolyn Blankenship, a senior vice president and principal legal counsel for intellectual property at Reuters America LLC, in New York City. "You've got to have something in the kitty, so that if somebody comes to you [with an infringement claim] you have something to negotiate with." Reuters has been at the forefront of Wall Street firms patenting business methods: It filed for patents in 1994 and 1995 on methods of automating electronic trading—years before a federal court opened the floodgates on business-method patents in a landmark decision against State Street Bank, in 1998. "We have what I regard as some of the earliest business-method patents," Blankenship says. "We're known as a media company, but we have a rich portfolio of technology."

Juice: The Creative Fuel That Drives Today's World-Class Inventors
By Evan I. SchwartzHarvard Business
School Press, 2004

Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What to Do About It
By Adam B. Jaffe and Josh Lerner
Princeton University
Press, 2004

"The Patent King"
By Nicholas Varchaver
Fortune, May 5, 2001

Web Site

Blankenship works closely with Nic Fulton, head of media technology at Reuters, and his development teams to make sure that the company's technology organizations are adequately documenting their own innovations, and bringing patentable inventions to the attention of the legal team for protection. "A lot of technical people, myself included, have egos, and technology egos are about being new, creative, inventive," says Fulton, who filed for his first patent at Reuters six years ago on a system for automating news production and distribution.

Aside from stroking the egos of its IT staff, Reuters also provides financial incentives both for patent applications and for patent awards, though Blankenship and Fulton declined to provide more details. Every technology project manager's checklist includes a patent review, along with other legal requirements such as privacy, compliance with data protection laws and copyright labeling.

This article was originally published on 12-05-2005
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