When I first heard the term "patent troll," I presumed it referred to some character in the latest "Hobbit" movie. But the more I heard about what patent trolls do, and how they bedevil small financial institutions -- including credit unions -- the more I became convinced that something had to be done to stop them, and right away.
And efforts are underway in the U.S. Congress -- particularly by Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, and other senior senators on the committee -- to do just that. And the faster the action to stop or slow down the trolls, the better -- to ensure that consumers, including credit union members, don't lose access to convenient services, or even their favorite small financial institutions.
I'll explain why, shortly. But first, here's a bit more about patent trolls. These are entities that don't make anything, but rather enforce their (often questionable) claims to patents by threatening to file lawsuits in attempts to collect licensing fees. But, for many credit unions and other smaller institutions, fighting the claims of the "trolls" has been an expensive proposition, costing tens of thousands of dollars just to pick up the phone and evaluate the claims. Unwilling (and unable, in many cases) to foot the high costs to defend themselves, the credit unions and others are typically forced to settle with the trolls and pay the licensing fees.
Further, as credit unions are not-for-profit cooperatives that return what they make to the member-owners in the forms of lower rates on loans, higher returns on savings and fewer and lower fees, any dollars they must spend defending themselves against the trolls ultimately comes right out of the pocket of their members.
Credit unions and other financial institutions are not the only targets, however, of "demand letters" from the trolls (the communications tools of choice for listing their ultimatums). These letters typically come out of nowhere, and often allege that the mere use of everyday technology violates the patent holders' rights. Further, these questionable letters typically state vague or hypothetical theories of infringement, often overstate or grossly reinterpret the patent in question, and, in some cases, make allegations of infringement of expired or previously licensed patents.
A 2013 White House report noted that one patent troll sent 8,000 "demand letters" (to coffee chains, hotels and retailers) seeking compensation for use of Wi-Fi equipment made by several manufacturers that the patent troll alleged to infringe on his patents.
For credit unions and the other small financial institutions that have received these letters, the target is also typically the technology that makes financial services accessible to consumers, such as ATMs, online and mobile banking, remote check capture and check processing, just to name a few. These technologies are crucial for smaller institutions in their seemingly never-ending quest to "keep up with the big guys" in providing services to consumers.
But, facing the cost of defending themselves, many credit unions may decide that technologies such as these -- however much they will help their members -- just are not worth the risk. If that's the case, consumers lose, both in the loss of convenient services, and in the future viability of their access to a small financial institution focused on their individual needs.
For example, in 2012 Vermont credit unions received "demand letters" containing lists of patent infringements with regard to the credit unions' automated teller machines (ATMs). After doing some research, it became clear to the credit unions that the troll had not done the requisite homework to even make the demand: Two months earlier, many of the patent claims on the list were declared invalid by a federal appeals court, upholding earlier rulings by a lower court and by the U.S. Patent and Trademark Office (PTO).
Also last year, the troll actually filed a case against a New York credit union that has no ATMs.
Fortunately, there is movement in the U.S. Congress to provide some relief from the trolls and their "demand letters" by making a variety of changes to U.S. patent law. Legislation has already passed the House, and companion measures are now pending in the Senate. Sen. Leahy and other key senators are ensuring that these reform bills, and others that will help credit unions, are receiving the proper review and attention.
Some have expressed concern that reforms will have an impact on legitimate patent holders, but focused measures can stop abuses in the system without harming good actors. For example, the demand letter provision in the proposed legislation requires that certain minimum disclosures be made to better identify who is sending the letter, the patent in question, and the specific nature of the infringement being alleged.
If you are a member of a credit union, a customer at another small financial institution, or an owner of a small business, I hope you will contact your senator and let them know you are behind efforts to combat the tactics of the trolls.
When these reforms are successfully adopted -- and, with your help, they will be -- perhaps the next time any of us hear mention of "trolls," it will be about the latest character in the "Hobbit" film, and not a character attempting to extort money from your local credit union or other small financial institutions.