The worst patent trolls bring weak cases and use the cost of defending a lawsuit as leverage to force settlements. A company called Joao Bock Transaction Systems LLC (“JBTS”) has elevated this business model to an art form. The company is associated with patent attorney and prolific “inventor” Raymond Joao. Apparently not content with drafting patents on behalf of others, Joao began to file his own patents. His companies have since launched dozens of lawsuits against technology ranging from streaming video to financial transactions. Of course, if you talk to the people who actually pioneered real-world technology, they’ve never heard of Joao or his companies. From all indications, Joao is solely in business of filing paper patents and forming companies to sue.
While all of Joao’s patents are contenders, we’ve chosen US Patent No. 7,096,003 (the ’003 patent), titled “Transaction Security Apparatus,” as our Stupid Patent of the Month. This patent, part of a family that includes US Patent No. 6,529,725 (the ’725 patent), relates to electronic financial transactions. The patent purports to describe a new system for secure transactions that includes a step of obtaining authorization from the account owner. The claims are drafted in vague, functional terms with language like “a processing device” that “processes information regarding a banking transaction” and “generates a signal containing information for authorizing or disallowing the transaction.” JBTS has been asserting the patent against dozens of banks and financial services companies, essentially saying that the patent covers any electronic transaction with a confirmation step.
What makes Joao’s patent extra special, however, is the staggering number of patent claims. All patents end with at least one claim (the claims are the part of the patent that are supposed to alert the public to the boundaries of the invention). The average number of claims per patent is around 20. The ’003 patent, however, has an astonishing 424 claims: a seemingly endless list of small, indeed mostly trivial, variations on the same idea. The related ‘725 patent has another 340 claims, bringing the total to over 750 claims all based off the same application.
We do not believe there is any legitimate reason for Joao to include so many claims in his patent applications. In fact, it appears this is done solely to allow him to game the system. First, it allows him to raise the cost of defending a lawsuit—for example, in its complaints, JBTS doesn’t identify a single claim that’s allegedly infringed, likely to prevent a motion to dismiss. More disturbingly, JBTS has used the duplicative claims to continue asserting the patents despite multiple defeats in court. Each time the company loses, it picks out some new claims and asserts those, even though they are largely identical to claims already thrown out.
Take the story of Jack Henry & Associates. In 2010, Jack Henry went all the way to trial against Joao Bock Transaction Systems and convinced a jury to invalidate claims from the ’725 patent. It subsequently prevailed on appeal. But Joao was not done. JBTS sued Jack Henry again asserting very similar claims from the ’003 patent. (Arguably, collateral estoppel should have applied, but the judge held the claims were sufficiently different.) In December of this year, Jack Henry won again, with the judge ruling that the asserted claims of the ’003 patent are invalid as abstract under Alice v. CLS Bank.
Remarkably, Joao’s company is still asserting claims from the ‘003 patent, even though the logic of the latest court decision clearly applies to all the claims. Last week, Fidelity National Bank filed a motion for sanctions outlining this history in detail. We hope the judge in that case imposes sanctions. The gamesmanship will only continue for as long as judges allow it.
We also hope that the Patent Office finally puts a stop to Joao’s patent “factory.” He still has at least one application from the same family pending (application no. 11/091,200). The Alice decision should prevent him from getting yet more claims on the same abstract idea.
Finally, it is worth noting that many of the changes proposed in the Innovation Act would make it harder for JBTS to abuse the system. Heightened pleading would require it to identify at the outset of litigation which claims it is asserting. Currently, defendants are left to wonder which of hundreds of claims will be at issue. Discovery reform will making harder for plaintiffs like JBTS to run up costs. And fee shifting will make the business model much less viable. Tell your lawmaker: Let's stop patent trolls. Pass the Innovation Act!