Patent Risk: The ‘New Normal’ In Patent Troll Litigation

New York – Financial companies in 2012 faced nearly four times the patent litigation from non-practicing entities (NPEs), often called “patent trolls”, than they did five years ago and 2013 promises to be no different, according to a presentation by RPX Corporation, a patent risk management services provider. Financial institutions’ use of social media and its associated risk was also a topic of discussion.

The presentation took place at the 10th Annual Patents for Financial Services Summit, hosted by the World Congress on 24-25 July in New York.

While large and visible financial institutions such as JP Morgan, Bank of America, and Wells Fargo are attractive targets for NPEs, mid-size institutions are not immune. The risks are “multi-sector and multi-defendant” and no longer target just business methods but target technology across the board with a “growing risk in the mobile space,” said David Potts, vice president of client development for RPX.

Mobile technology developments, such as check processing and electronic payments, not only point toward more costly and frequent litigation but affect more than just financial institutions. Retailers, developers, and operating system providers are at increased risk, too, according to RPX.

Seeking to Reduce the Risk

Legislative reform aimed at limiting patent litigation abuse by aggressive NPEs holds promise, panellists said.

“The climate is now ripe for legislation to get through,” said Sean Reilly, vice president and associate general counsel for The Clearing House, a trade association representing 22 commercial banks. “There was a view on Capitol Hill that all patent problems have been solved but big tech has been effective in trampling the Hill.”

Last month, the Obama administration announced five executive actions and seven legislative recommendations to improve innovation in high tech patents by restricting activities of patent trolls (IPW, US Policy, 4 June 2013).

Panellists acknowledged that legislation is not a “silver bullet” and urged institutions to “arm themselves with knowledge” against litigation aggressors.

Social Media Guidelines

Financial institutions’ use of social media channels such as Facebook, Twitter and Linkedin, was a substantial topic of discussion at the event.

Specifically, panellists addressed proposed guidance by the Federal Financial Institutions Examination Council (FFIEC) on the potential risks from increased social media use. The FFIEC is a formal interagency body that seeks to prescribe uniform standards for the federal examination of financial institutions. The FFIEC sought comments on the guidance, which concluded in March.

The guidance [pdf], issued in January, is intended to help financial institutions understand potential consumer compliance, legal, reputation, and operational risks associated with the use of social media, along with expectations for managing those risks.

Suggestions include the creation of an employee training programme for social media use and an oversight process for monitoring information posted to social media. Even if a financial institution isn’t active on social media, a process for addressing negative comments or complaints on social media is necessary, the guidance says.

Criticism of the guidance from trade groups, such as the American Bankers Association and the Financial Services Roundtable, are that the recommendations are unsophisticated and need further clarification. Panellists speculated that the FFIEC would issue a second report based on the comments it received during the comment period but gave no indication of when that would happen.