Clearing The Cheque Before The Patent

I recently discovered that my bank (which will remain anonymous) had been
charging me four times as much interest as per our agreement for upwards
of a year. Eventually all the money I had erroneously forked out was
returned to me, but I was forced to bring the matter to their attention on
more than one occasion. In the end, I was not even offered as much as an
apology. Needless to say, I have reason to believe that banks will
infringe on the rights of others until they are made to suffer the

When I read an article in the Financial Post entitled, “Canadian banks
battling U.S. companies over cheque clearing patent,” a piece that puts
forth the possibility that some big Canadian banks have purposely
disregarded a patent in order to squander money, I was less than shocked.
According to the article, ignoring the patent saved the banks billions of
dollars. However, like me, the patent-holder is not going to sit idly by.
They are preparing a fight for their legal dues.

The patent is for an electronic process that allows banks to clear cheques
for less money. In August of this year, certain Canadian banks filed a
law suit to have the patent ruled invalid on the basis that the process
was too vague and not the proper subject matter of an invention. The
patent has been in existence in Canada since January of 2006. It was
generated in the United States several years prior. DataTreasury, the
company that owns the patent, has sued over fifty financial institutions
in the United States for patent infringement, with successful results in
cases with some of the major financial institutions such as JP Morgan
Chase & Co. and Merrill Lynch. Undoubtedly, the Canadian banks are well
aware of the outcomes of these law suits.

The Canadian banks in question are not small, struggling banks but large,
national banks worth a lot of money. In my opinion, their stature is
relevant because it makes them more prone to bullying rather than savvy
penny-pinching, so-to-speak. Indeed, these banks are prone to taking
calculated legal risks. I have heard that in-house counsel at a big bank
is one of the most lucrative jobs there is for a lawyer. In other words, I
would not be surprised if big banks spend big money on legal
representation so that they can disrespect patents without suffering a
financial loss. From the prior law suits in the U.S. with DataTreasury,
the Canadian banks are able to predict what the outcome of similar suits
will be in Canada. It is quite obvious that they have made a risk-reward
analysis and decided that ignoring the patent and suffering the legal
consequences at a later date pleases their bottom line. It seems to me
like the banks are using the legal system to their advantage.

There is, of course, the possibility that the Canadian banks truly feel as
if justice is absent from patenting this cheque clearing process. This
remains a possibility. However, I am truly suspicious of this being the
case and I believe my suspicion is warranted given that they are
continuing to use the process while fighting it, which suggests the
process is uniquely valuable and therefore worthy of patenting. In
addition, the fact that the courts have ruled in favour of the
patent-holder in the United States suggests that the Canadian banks’
claims are also fruitless.

The solution to the problem as I see it is fairly simple. Banks should
have to suffer greater financial disincentives if patents are to be
respected. If the banks have “done the math” and chosen to disrespect the
patent, the courts should also calculate the fine and adjust it to be more
than what ignoring the patent would save them. This solution would be the
best for everyone involved.

Respecting patent law is good for banks, good for inventors, good for the
consumer and good for the courts. If inventors are encouraged to come up
with money-saving techniques for banking, banks will prosper by having
their costs lowered. The savings will trickle down to the bank’s client
and the courts will be freed of unnecessary litigation. If patents are
disrespected, the encouragement for inventing such techniques will wane.
The public will bank at a higher cost and these cases will continue to
clog the courts. Therefore, it is up to the legal system to punish the
disrespecting banks appropriately, to truly enforce the law, for the good
of many.

One Comment
  1. I agree with your argument that respecting patent law can encourage innovation in this situation. However I think that when examining the debate about whether having strict IP restrictions (through patent law) OR an open IP(no restrictions on the use of another’s invention) encourages innovation, one should consider the relative impact on other factors in determining what system to have.

    Although one can argue here that not respecting patent law discourages other innovators to come up with more efficient ways of cheque clearing, one can also argue that issues other than innovation, such as an efficient banking system, may be affected more if these inventions are unable to be used freely. Remember with patents, owners don’t necessarily have to agree to let other’s use their invention, even for a fee. The cheque clearing patent at issue and many other patents, such as for potentially life-saving drugs, are for inventions that are very important to society. Restricting the use of some of these inventions could have consequences graver than the impact it may or may not have on innovation.

    Right now we speak in extremes: ‘IP protection encourages innovation and open IP is a barrier’, or vice versa. But why does stringent IP restrictions and open IP have to be the only choices? Why not have a middle ground? Perhaps we should focus more on implementing regulations concerning requirements on patent owners to let others use their inventions and have fees for such use regulated depending on the invention patented.

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