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Check 21 and Another Patent Infringement Lawsuit

The brouhaha over The Check Clearing for the 21st Century Act, or Check 21, is not limited to banking and payment processing. Two months into the law's existence, the implementation of Check 21 is providing a timely backdrop for the trouble brewing and spilling over into courtrooms as companies come to blows over ownership of the technology that makes Check 21 possible.

The law recognizes digitally imaged checks as legal documents, so the quality of the images and the information they contain is imperative. As more banks and financial institutions adopt the technology, the potential for profits from companies supplying it is tremendous. One case in particular, ongoing for nearly three years, was filed well before the law went into effect in October 2004.

In early 2002, a small company that developed imaging and archiving technology sued some of the largest corporations in payments, including JPMorgan Chase & Co., First Data Corp., and Ingenico, for patent infringement.

The company, DataTreasury Corp., is located in Melville, N.Y. and was founded in 1998 by Claudio Ballard. Ballard built the company around patents covering its "Global Repository Platform," an information management system.

DataTreasury filed its suit in the Texarkana Division of U.S. District Court for the Eastern Division of Texas; that venue was selected because DataTreasury was involved in a pilot program with a JPMorgan subsidiary there.

"DataTreasury Corp. and its 400-plus shareholders seek all relief, including treble damages, afforded them under United States patent law for the infringement of its patents," said the company's patent counsel Rod Cooper, of Nix, Patterson & Roach LLP, headquartered in Daingerfield, Texas.

The plaintiffs anticipate a successful outcome; damages could total in the billions of dollars.

DataTreasury filed for U.S. Patent No. 5,910,988 in 1997 and for U.S. Patent No. 6,032,137 1998; following the standard review and examination process, the Patent Office issued the patents in 1999 and 2000.

"DataTreasury raised approximately $24 million and developed a 26,000 square-foot facility upon the issuance of its first patent, but numerous large corporations willfully infringed the patents nonetheless, benefiting from the patented technology without compensating DataTreasury," Cooper said.

As with other patent infringement suits, at issue is the protection of what DataTreasury says is its property: technology that it developed and hopes to license. This is especially critical now that Check 21 makes it possible for banks to truncate checks, turning them from paper into electronic images.

In February 2004, a Markman hearing, a proceeding during the pre-trial phase of a patent infringement suit, defined language and determined the scope of the claims. The Court ruled in favor of DataTreasury in all 15 of the disputed claims. DataTreasury's attorneys said the Markman ruling constituted a major victory for their client by recognizing the broad scope of the claim coverage the company sought in prosecuting the two patents.

Markman hearings and their subsequent rulings usually determine the direction and final outcome of infringement suits. A ruling in a second Markman hearing in mid-December has yet to be determined as of press time.

JPMorgan has denied Ballard's allegations all along. In mid-December, it responded to the suit by filing charges of its own against DataTreasury, claiming that Ballard altered his patent applications after he talked with the bank about its plans for check imaging.

DataTreasury also filed suit against RDM Corp., a company that offers software products for payment capture and processing in banking applications, and Affiliated Computer Services (ACS), a company with 40,000 employees that provides business process outsourcing and IT services to corporations and governments around the world.

As of June 2003, RDM has a nonexclusive worldwide license to use DataTreasury's technology for check imaging terminals on a per-click royalty for storage of electronic documents and check information. ACS is now permanently barred from using it.

JPMorgan processed 1.5 billion checks in 2003, according to "The Wall Street Journal." A spokesman for JPMorgan Chase, the only remaining defendant in the lawsuit, declined to comment for this article.

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