Banking Law

While Democrats in Congress (and in various state houses) have been kicking banks to the curb over their alleged role in the foreclosure "tsunami" washing over this great land we like to call "the land of the free and the home of the knave," Republicans are proving that they're good politicians: those who, when they're bought, stay bought.

Sen. Jeff Sessions (R-Ala.) has sponsored an unusual provision at the urging of the nation's banks granting them immunity against an active patent lawsuit, potentially saving them billions of dollars.

Adopted with little fanfare, the amendment would prevent a small  Texas company called DataTreasury from collecting damages from banks for infringing on its patented method for digitally scanning, sending and archiving checks. The patents were upheld last summer by the U.S. Patent and Trademark Office after they were challenged.

The provision, passed without dissent by the Senate Judiciary Committee in July and inserted into legislation scheduled for a vote by the full Senate this month, is a rare attempt by Congress to intervene in ongoing litigation, congressional experts say.

Although the amendment would not invalidate DataTreasury's patents, it would spare the banks from paying for infringing them should courts decide that's warranted. If DataTreasury collected a royalty of just a couple pennies per check, the cost would run into billions of dollars.

The federal government would have to pay $1 billion to DataTreasury over 10 years as compensation for taking its property under the amendment, according to estimates by the Congressional Budget Office.

At least Congress recognized the existence of the Fifth Amendment in this instance. When it passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which revoked various supervisory forbearances granted by the savings and loan regulators in the 1980s, including regulatory capital and supervisory goodwill forbearances, aggrieved thrifts and/or their owners had to take cases all the way to the U.S. Supreme Court and to spend years pursuing their claims against the U.S. Government, which has waged a scorched earth policy of resistance to making things right with those who were damaged by that legislation. In other words, the U.S. Government acted like the mafia because, you know, they could. They're not accountable to anyone but the voters, and the voters are too busy with Lindsay Lohan's latest sexcapades to worry about "fat cat" bankers and entrepreneurs being screwed by Uncle Samuel.

In this latest instance, however, the Senate has come to the aid of bankers, albeit on the down low. Leading the charge is Jeff Sessions (his motto: "A penny for your thoughts, but a cool million for my vote"), who, I'm sure coincidentally, receives his largest share of political donations from the political action committees of financial institutions. Sessions denies that those contributions have anything to do with his sponsorship of this legislation. Instead, he attributes his support purely to the fact he hates trial lawyers. Well who doesn't?

Stephen Boyd, a spokesman for Sessions, said the provision "is designed to protect banking institutions complying with post-9/11 security requirements from the abusive practices of patent trolling trial lawyers seeking personal enrichment, which ultimately will be paid for by checking account customers across America."

Banks, too, claim that they are only fighting for what is good and true against the forces of opportunistic, bottom-feeding carp in Chilean-Sea-Bass' clothing.

The banks allege that DataTreasury bought up patents for the system that underlies electronic transfers and is trying to shake down companies for licensing fees. But DataTreasury asserts that Ballard is the inventor of the system and built a company to sell it before being squashed by banks that stole his idea. Court battles have raged between the two sides for six years.

The banks are emphatic about the need for the protection. "This is a glaring example of the abuse of the system," said former congressman Steve Bartlett (R-Tex.), president of the Financial Services Roundtable. "It's an example of what's wrong with patent law."

On the other hand, the U.S. Commerce Department thinks that special interest legislation of this sort is a bad idea.

The Commerce Department has objected to the amendment, including in a letter last week to Sen. Patrick J. Leahy (D-Vt.), the Judiciary Committee chairman. "Limiting patent holders' rights and remedies in this instance could reduce innovation in this technology area," wrote Assistant Secretary Nathaniel F. Wienecke. "The Administration does not support exceptions to patent protection based on a particular technology."

That's what happens when a president isn't running for re-election. He gets an attack of principle.

On this issue, I have to bite the hand that feeds me. DataTreasury has a valid patent, upheld in the face  of legal challenges. Certain big banks chose to play ball and license the patent rights from DataTreasury, while other, even bigger, banks decided to slug it out in court and try to wear down the little patent holder. When that tactic appeared to be a loser, the banks decided to change the rules by buying a special interest law of their very own. Don't you wish we all had that kind of "access" to Congress?

Many of us can't stand bullies in the public sector, and we have no greater love for bullies in the private sector. Special interest legislation designed to prevent the system from working exactly as existing law intends it to work seems to me to be a bad idea. Of course, that seems to be the way that the world operates these days, whether Democrats are courting consumers or Republicans are courting businesses, including banks. Congress is a playground where the rules of a free market economy are held hostage to the whims, and the need for votes, of the venal and the cynical.