Cheque-Clearing Patent

            The concept is simple, a recent Toronto Star article explains: `By the end of 2009, if all goes according to plan, paper cheques won’t be cleared any more. Instead, electronic images will be transmitted from one financial institution to another.’

Standing in the way of this bankers’ dream, however, is the American firm DataTreasury Corp. Backed by successful court battles in the United States, DataTreasury claims that as Canadian banks revolutionize the way they handle cheques, they are infringing its patent over an electronic cheque-clearing process (Canadian patent #2301793). According to the National Post, the Canadian financial institutions in turn allege that the patent is improper for vagueness and `is not the proper subject matter of an invention.’

Claims such as this one invite the observer to wish that patent protection could be done on a `sliding scale’ of merit. Rather than receive either twenty years of protection or no protection at all, it is tempting to imagine an alternative system in which the merits of a patent claim would be measured and awarded a variable term of protection based on just how much inventiveness and novelty they showed. DataTreasury may deserve some reward for linking the concepts of scanners, cheques, encryption, and data transmission in a specific way. But it is difficult to argue that the comparatively simple logical leap of putting these elements together is deserving of twenty years of protection and financial benefit. If the Patent Office or a judge were able to award a shorter patent period (three years, for instance) for a relatively straightforward development such as electronic cheque-clearing, it would be easier to justify the patent as a whole.

It is easy to see the drawbacks of such a proposal ñ the Patent Office and courts would be deluged trying to settle the relative merits of each patent to determine exactly how long it should be protected, and coming up with consistent guidelines would be nearly impossible. Perhaps a simpler argument is that in this day and age, twenty years of patent protection is too long, given how quickly new technology can now be adopted and disseminated to the world. Although one must be mindful of the dangers of hindsight, it seems plain that electronic cheque scanning was an idea whose time had come, if not in 1997 (when the first US patent was filed for the `DataTreasury System’), then in the next few years as scanning technology and text-recognition systems improved. Even if DataTreasury’s patent passes the basic test for inventiveness, it is difficult to justify twenty years of protection for an idea that would become obvious to all reasonably technically-minded people within the next few years. Also worrisome is that DataTreasury’s patent seems so broad as to cover all possible ways to transmit cheques electronically; assuming the patent is upheld, there would potentially be no way to adopt any electronic cheque-scanning system without running afoul of the patent. If DataTreasury so wished, it could stifle development in that field for two full decades ñ an eternity in the modern age of technology. If this is not reason enough to invalidate the patent, it ought to suggest a serious re-thinking of how long patents are deserving of protection in the digital era.

Ultimately although the case has implications for patent law, it may have fewer repercussions for the public in general. The purpose of a patent is theoretically to form a contract between an inventor and the public, for the reward of the inventor and for the ultimate public good. But it is difficult to see how the public is being served by this patent, or what benefit the average person would gain whether or not it is upheld. According to the National Post article the cost to clear a cheque electronically `is cut from about $2 to a few pennies.’ This means the cost to the bank, and unless Canada’s multi-billion dollar financial institutions are sharing these savings with consumers, the only public beneficiaries appear to be the banks’ investors. Meanwhile much of these savings are likely to be from wages from jobs now rendered obsolete by the new cheque-scanning technology. Innovation always has its price, and patents cannot be considered invalid purely because they promote efficiency that leads to lost jobs. But given that the results of this litigation are unlikely to trickle down to consumers either way, the average person might be forgiven for not caring whether the multi-billion dollar banking industry emerges victorious or not.

One Comment
  1. The crux of the legal matter is that for an invention to be patentable it must be non-obvious to an un-inventive person having ordinary skill in the subject matter to which the invention pertains. It is immaterial whether the idea “would become obvious to all reasonably technically-minded people within the next few years.” There is nothing to invalidate the DataTreasury patent, so like you write, the only thing left to do is question our system for awarding patents. But if the electronic cheque clearing is not going to be felt by consumers one way or the other, should this issue really induce us to rethink the term of protection on patents?

    Though the idea of reducing the twenty year term of protection for a patent may have some merits in this age of rapid technological advancement, it would not be a simple change for Canada to make. Even if there is an impetus within our country to change this aspect of patent law, Canada is a Member of the WTO and so the TRIPS agreement applies, which in Article 33 stipulates that the term of protection shall not be less than twenty years. Maybe in the not so distant future there will be a change in international thinking with respect to the appropriateness of monopolies that last for twenty years because of patents. As technology increases the human world becomes more integrated and Canada cannot act alone in changing fundamental ideas concerning intellectual property.

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