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So DataTreasury fixed the way check clearing works, apparently pioneering a new digital approach instead of mailing around checks; implemented it; raised money

So DataTreasury fixed the way check clearing works, apparently pioneering a new digital approach instead of mailing around checks; implemented it; raised money and created 100 jobs; but couldn't get the banks to work with them. The banks then took the idea and implemented it themselves, driving DataTreasury out of business. Now their investors are getting some money back by licensing the patents to the banks, so they'll (hopefully) be willing to invest in innovative startups that have to work with incumbents again. Next time a small innovative company comes along, the banks are (hopefully) going to think twice before just deciding that they can easily re-implement their ideas. This doesn't seem to me like a particularly good example of the patent system gone wrong. To me, this looks like exactly what the patent system is supposed to be: protection for those with innovative concepts, so that they can have the opportunity to commercialize their inventions without incumbents simply cloning their hard work.

LuxuryMode 15y ago
I think you're missing the whole point. The DataTreasury example illustrates a fundamental problem with patents which is only exaggerated when it comes to software and software "processes." The problem is, as the article pointed out, that the patents are construed to be so broad that basically anyone can be said to be infringing it. To patent the idea itself of 'scanning checks with a device and sending it to a server' is pretty absurd. A copyright is more appropriate. If you copied the code, etc then you violate the copyright. But to say that anyone that implements this idea is in violation ... that's not encouraging innovation. It just encourages running to the patent office as fast as you can.
- justinsb 15y ago
  I don't think it's fair to say that "anyone can be said to be infringing it". I think if you're a bank that's using scanned check imaging instead of mailing around checks, you're (likely) infringing. If you're building a social network, you won't be. In other words, the people who are (accused of) infringing are precisely those that were the target market for DataTreasury; there's also no accusation that the patents have been enforced against anyone other than the banks. The US banking system feels pretty backwards in terms of its reliance on checks where Europe has adopted electronic transfers. If the banks actually wanted to innovate here, they'd introduce a real electronic transfer system. The idea of scanning checks and sending around images (and presumably one day constructing virtual check images electronically and sending those) strikes me as remarkably backwards, but nonetheless a very clever solution to a real-world problem.
  - drivingmenuts 15y ago
    Maybe I missed part of the story, but didn't it say that banks implemented their own internal systems? If so, how does that violate a patent? If you build a better mousetrap and try to sell it, but I decide to build my own copy of the mousetrap for my own use, wouldn't that be non-infringing?
    - chc 15y ago
      If I have a patent on the better mousetrap, that is absolutely infringing — you are building my patented invention without my approval. I think you're conflating patents and copyrights.
      - drivingmenuts 15y ago
        Yeah, I think I wass. Thanks to you both for clearing that up.
    - justinsb 15y ago
      That's the big difference between patents and copyrights. With a copyright, you can only infringe if you copy code. With patents, you can infringe if you implement the same idea. I think it makes many people uneasy with the patent system if someone built the same system without knowledge of a patent. The non-obvious clause is supposed to protect against that (and there are valid flaws in the implementation of this aspect of the patent system!) It's not clear to me whether in this case the check scanning systems were in fact independently invented; there's certainly a hint in the article that meetings took place and the banks only implemented the idea once it has been disclosed to them ('willful infringement' results in triple damages, which could well explain the magnitude of the licensing amounts)
- drallison 15y ago
  I think you should review the protections that copyright provides. I believe your concept of copyright does not match that provided under the law. http://www.copyright.gov/title17/92chap1.pdf http://www.copyright.gov/title17/92chap1.pdf
edelweiss 15y ago
Right, on a completely brain dead obvious idea! Patents are supposed to be "novel", and non obvious.
- tptacek 15y ago
  Most ideas are obvious in retrospect. Why was DataTreasury the first to implement this system? Seriously engage with this question. I had just started working in the industry in 1994, when this story started. Why didn't I create a B2B electronic transaction clearing system? I'm not necessarily sticking up for this patent, and I tend to believe the patent system is completely fouled up for software companies, but we can do better at analyzing the issues than just automatically saying "that's brain dead obvious".
  - te_platt 15y ago
    I agree that most ideas are obvious in retrospect. Still, In my experience most ideas are obvious before hand as well. So what is a good way to define obvious or novel as applied to patents? I have two ideas. 1. Boggle rule. In the game Boggle when two players come up with the same word neither get credit. If from a given time of filing a patent someone else files a similar patent both are rejected. 2. Virgin engineer rule. Take a group of people competent in the field of the proposed patent but without any knowledge of the patent. Give them the problem the patent purports to address. If in a single day their solutions substantially match the proposed patent, reject the patent.
    - justinsb 15y ago
      I think this is a great discussion; much more productive than the normal religious arguments. The first is reasonably sound. A potentially very interesting idea is to allow anything filed within 3 months of filing to be considered "prior art", although I'm not sure this would make a huge difference in practice. The second would be very labor intensive if done in practice. Doing this as a thought-experiment is actually how non-obviousness is determined by patent examiners. If an engineer of "ordinary skill in the art" would think the approach obvious given the prior art, then the patent is deemed obvious. I don't know if it's ever been tried to locate 'virgin engineers' to demonstrate that a patent is obvious. So the second idea is how the system works, although the examiner is supposed to be the group of engineers.
bermanoid 15y ago
So DataTreasury fixed the way check clearing works, apparently pioneering a new digital approach instead of mailing around checks; implemented it; raised money and created 100 jobs; but couldn't get the banks to work with them. The banks then took the idea and implemented it themselves, driving DataTreasury out of business. (snip) To me, this looks like exactly what the patent system is supposed to be: protection for those with innovative concepts, so that they can have the opportunity to commercialize their inventions without incumbents simply cloning their hard work. So you'd agree that if things were right in the world, we should all be using the original version of WebCrawler today, because it pioneered the idea of web search, which these other horrible idea-stealing companies like Google took and re-implemented? Do you really think that's the way business should work, that whoever first notices that a problem needs solving (and bothers to submit a patent application) should have a long-term monopoly on solutions to that problem? Personally, I'd prefer that the means of solution, if non-trivial enough, was protected, rather than the entire set of all possible solutions to a problem.
- justinsb 15y ago
  "Personally, I'd prefer that the means of solution, if non-trivial enough, was protected, rather than the entire set of all possible solutions to a problem." That's exactly what patents are.
  - bermanoid 15y ago
    Well, it's what patents are supposed to be. In reality, it all depends where you draw the line between "problem" and "solution", and IMO this is where a lot of patents, especially software ones, go seriously wrong. If the problem is defined as "send images of checks instead of checks", then DataTreasury is trying to assert ownership over the entire problem rather than their particular solution - they're claiming that any solution that deals in images of checks instead of physical checks infringes, regardless of how it's implemented. If you define the problem as "don't send physical checks", then sure, the particular solution, "send images of checks instead" is what they're asserting ownership over. But in that case, the non-triviality of the solution is seriously questionable. There's no engineering insight at all required to come up with that, and it's one of the first things any group of people would think of when presented with the problem. The entire difficulty is all in how to actually implement such a system (and pre-1994, those implementation details made it unlikely that such a system would work). IMO, in a situation like this, what the patent should cover is the new stuff that DataTreasury actually invented (and I agree that there is some non-trivial content there), not the entire high level problem that their invention allowed them to solve.
linuxhansl 15y ago
The question is: Did the "pioneering a new digital approach instead of mailing around checks" represent a significant investment that needs to be protected, or was it just a good idea? Patents do not exist to give you a an easy monopoly on any random idea (or at least they shouldn't). Patents exist to give companies an incentive to invest into costly research and then be able to publish the ideas, while getting some time to recoup the cost of the investment. The litmus test is, would this idea have seen the light of the day without a lot of upfront cost? If so, it is not in the interest of society as a whole to grant a legal monopoly here. Just my $0.02.

LuxuryMode 15y ago

I think you're missing the whole point. The DataTreasury example illustrates a fundamental problem with patents which is only exaggerated when it comes to software and software "processes." The problem is, as the article pointed out, that the patents are construed to be so broad that basically anyone can be said to be infringing it. To patent the idea itself of 'scanning checks with a device and sending it to a server' is pretty absurd. A copyright is more appropriate. If you copied the code, etc then you violate the copyright. But to say that anyone that implements this idea is in violation ... that's not encouraging innovation. It just encourages running to the patent office as fast as you can.

justinsb 15y ago
I don't think it's fair to say that "anyone can be said to be infringing it". I think if you're a bank that's using scanned check imaging instead of mailing around checks, you're (likely) infringing. If you're building a social network, you won't be. In other words, the people who are (accused of) infringing are precisely those that were the target market for DataTreasury; there's also no accusation that the patents have been enforced against anyone other than the banks. The US banking system feels pretty backwards in terms of its reliance on checks where Europe has adopted electronic transfers. If the banks actually wanted to innovate here, they'd introduce a real electronic transfer system. The idea of scanning checks and sending around images (and presumably one day constructing virtual check images electronically and sending those) strikes me as remarkably backwards, but nonetheless a very clever solution to a real-world problem.
- drivingmenuts 15y ago
  Maybe I missed part of the story, but didn't it say that banks implemented their own internal systems? If so, how does that violate a patent? If you build a better mousetrap and try to sell it, but I decide to build my own copy of the mousetrap for my own use, wouldn't that be non-infringing?
  - chc 15y ago
    If I have a patent on the better mousetrap, that is absolutely infringing — you are building my patented invention without my approval. I think you're conflating patents and copyrights.
    - drivingmenuts 15y ago
      Yeah, I think I wass. Thanks to you both for clearing that up.
  - justinsb 15y ago
    That's the big difference between patents and copyrights. With a copyright, you can only infringe if you copy code. With patents, you can infringe if you implement the same idea. I think it makes many people uneasy with the patent system if someone built the same system without knowledge of a patent. The non-obvious clause is supposed to protect against that (and there are valid flaws in the implementation of this aspect of the patent system!) It's not clear to me whether in this case the check scanning systems were in fact independently invented; there's certainly a hint in the article that meetings took place and the banks only implemented the idea once it has been disclosed to them ('willful infringement' results in triple damages, which could well explain the magnitude of the licensing amounts)
drallison 15y ago
I think you should review the protections that copyright provides. I believe your concept of copyright does not match that provided under the law. http://www.copyright.gov/title17/92chap1.pdf http://www.copyright.gov/title17/92chap1.pdf

edelweiss 15y ago

Right, on a completely brain dead obvious idea! Patents are supposed to be "novel", and non obvious.

tptacek 15y ago
Most ideas are obvious in retrospect. Why was DataTreasury the first to implement this system? Seriously engage with this question. I had just started working in the industry in 1994, when this story started. Why didn't I create a B2B electronic transaction clearing system? I'm not necessarily sticking up for this patent, and I tend to believe the patent system is completely fouled up for software companies, but we can do better at analyzing the issues than just automatically saying "that's brain dead obvious".
- te_platt 15y ago
  I agree that most ideas are obvious in retrospect. Still, In my experience most ideas are obvious before hand as well. So what is a good way to define obvious or novel as applied to patents? I have two ideas. 1. Boggle rule. In the game Boggle when two players come up with the same word neither get credit. If from a given time of filing a patent someone else files a similar patent both are rejected. 2. Virgin engineer rule. Take a group of people competent in the field of the proposed patent but without any knowledge of the patent. Give them the problem the patent purports to address. If in a single day their solutions substantially match the proposed patent, reject the patent.
  - justinsb 15y ago
    I think this is a great discussion; much more productive than the normal religious arguments. The first is reasonably sound. A potentially very interesting idea is to allow anything filed within 3 months of filing to be considered "prior art", although I'm not sure this would make a huge difference in practice. The second would be very labor intensive if done in practice. Doing this as a thought-experiment is actually how non-obviousness is determined by patent examiners. If an engineer of "ordinary skill in the art" would think the approach obvious given the prior art, then the patent is deemed obvious. I don't know if it's ever been tried to locate 'virgin engineers' to demonstrate that a patent is obvious. So the second idea is how the system works, although the examiner is supposed to be the group of engineers.

bermanoid 15y ago

So DataTreasury fixed the way check clearing works, apparently pioneering a new digital approach instead of mailing around checks; implemented it; raised money and created 100 jobs; but couldn't get the banks to work with them. The banks then took the idea and implemented it themselves, driving DataTreasury out of business. (snip) To me, this looks like exactly what the patent system is supposed to be: protection for those with innovative concepts, so that they can have the opportunity to commercialize their inventions without incumbents simply cloning their hard work. So you'd agree that if things were right in the world, we should all be using the original version of WebCrawler today, because it pioneered the idea of web search, which these other horrible idea-stealing companies like Google took and re-implemented? Do you really think that's the way business should work, that whoever first notices that a problem needs solving (and bothers to submit a patent application) should have a long-term monopoly on solutions to that problem? Personally, I'd prefer that the means of solution, if non-trivial enough, was protected, rather than the entire set of all possible solutions to a problem.

justinsb 15y ago
"Personally, I'd prefer that the means of solution, if non-trivial enough, was protected, rather than the entire set of all possible solutions to a problem." That's exactly what patents are.
- bermanoid 15y ago
  Well, it's what patents are supposed to be. In reality, it all depends where you draw the line between "problem" and "solution", and IMO this is where a lot of patents, especially software ones, go seriously wrong. If the problem is defined as "send images of checks instead of checks", then DataTreasury is trying to assert ownership over the entire problem rather than their particular solution - they're claiming that any solution that deals in images of checks instead of physical checks infringes, regardless of how it's implemented. If you define the problem as "don't send physical checks", then sure, the particular solution, "send images of checks instead" is what they're asserting ownership over. But in that case, the non-triviality of the solution is seriously questionable. There's no engineering insight at all required to come up with that, and it's one of the first things any group of people would think of when presented with the problem. The entire difficulty is all in how to actually implement such a system (and pre-1994, those implementation details made it unlikely that such a system would work). IMO, in a situation like this, what the patent should cover is the new stuff that DataTreasury actually invented (and I agree that there is some non-trivial content there), not the entire high level problem that their invention allowed them to solve.

linuxhansl 15y ago

The question is: Did the "pioneering a new digital approach instead of mailing around checks" represent a significant investment that needs to be protected, or was it just a good idea? Patents do not exist to give you a an easy monopoly on any random idea (or at least they shouldn't). Patents exist to give companies an incentive to invest into costly research and then be able to publish the ideas, while getting some time to recoup the cost of the investment. The litmus test is, would this idea have seen the light of the day without a lot of upfront cost? If so, it is not in the interest of society as a whole to grant a legal monopoly here. Just my $0.02.