Efficient Infringement and Patent Theft as a Business Strategy

America’s largest big tech corporations are now using a business technique called “efficient infringement,” which means that they calculate the benefits of stealing someone else’s patented technology against the possibility of getting caught, tried in court and being forced to pay damages and penalties. If the benefits exceed the costs, they steal.

What makes patent theft so attractive is that infringement is not a criminal act and those found guilty face no jail time. Paying up is the worst that can happen to the infringer.

The most aggressive users of this business model are fifteen of America’s largest big tech corporations. Led by Cisco, Intel, IBM, Microsoft and HP, these giants have spent millions of lobbying dollars over the past five years trying to buy legislation in Washington that would weaken the existing U.S. laws on patent infringement. Their interest is obvious since in the 13 years between 1996 and 2008, patent owners have sued these fifteen corporations 740 times for infringement and have won $4 billion in damages. Not surprisingly, these big tech corporations’ political goal is to change the law so patent theft is more difficult to prove, less costly when caught, and willful infringement virtually impossible to prove.

The principal victims of these big corporations’ “efficient infringement” approach are America’s independent inventors, small businesses and universities – the source of most breakthrough innovations and the creators of two-thirds of all new jobs in America.

This “steal-what-you-want” approach to business is spreading throughout our economy. Now, corporate behemoths in the financial services industry are using the technique and ganging up on small patent holders. Nowhere is this more evident than the case of DataTreasury Corporation, a tiny Texas company locked in battle with some of the biggest banks in the world.

As I have written before, DataTreasury’s founder invented a revolutionary check-processing system in the mid-1990s and tried to market it to high-level executives at Chase Manhattan Bank (now known as JPMorgan Chase). Instead of partnering with DataTreasury, those bankers are accused of walking off with the idea and using it to start a pair of highly successful check-processing companies of their own — companies which are now owned by the biggest banks in the nation.

According to industry sources, the banking industry is now making $2-4 billion annually because of DataTreasury’s patented check-processing technology. DataTreasury has been forced to go to court to protect its property rights, and over the years has reached settlements with JPMorgan Chase, Citibank, HSBC, and scores of other large banks.

But Bank of America, Wells Fargo, and about a dozen other banks refuse to deal with the little company. Instead of paying up, those remaining banks have played dirty. In 2007, Washington lobbyists working for the banking industry had an amendment inserted into a pending patent-reform bill that would have granted legal immunity to all of DataTreasury’s defendants. The amendment died on the floor of the U.S. Senate after the press exposed the story.