Huntington Bancshares Claims Patent Infringement

Huntington Bancshares' legal claim against the Clearing House Association of the Southwest has brought renewed attention to the patenting ofpreviously established, routine business practices.

The charges center on Huntington's Check Exchange System, or Chex, an automated check settlement and exchange technology that the Columbus, Ohio-based bank created in 1992 with check courier company U.S. Check and bank consultant Littlewood Shain. Huntington patented Chex in 1993 and soon after licensed the system to the nonprofit National Clearinghouse Association, or NCHA, which exchanges and settles checks for the nation's 40 largest banks.

Huntington, whose National Clearinghouse contract expires June 9, has charged the Dallas-based Clearing House Association of the Southwest with selling NCHA a system comparable to Chex that Huntington claims infringes on its patent. The suit, filed in U.S. District Court for the Southern District of Ohio, seeks a permanent injunction against Clearing House Association of the Southwest, the check-clearing arm of the Southwestern Automated Clearing House Association, and triple damages, according to court records.

Fred Redeker, president of Clearing House Association of the Southwest, said the bank's action surprised him. "We're not aware of any way in which our technology infringes," he said. A Huntington spokeswoman said the bank could not comment on any aspect of the litigation.

Losing the NCHA contract to the Dallas clearinghouse could cost Huntington $3 million to $4 million a year, say industry observers, who believe the lost revenue might have motivated Huntington's lawsuit.

"NCHA picked somebody else, and one way they can delay the decision is to sue," said one industry observer who declined to be identified.

Huntington's lawsuit recalls the case of State Street Bank & Trust three years ago, when State Street tried to put in place a new mutual fund allocation system that Signature Financial had previously patented. An appellate court upheld that business practices could be patented, and State Street had to pay a licensing fee to use its own internally developed system, said Gordon Glaza, senior counsel at Wells Fargo in Minneapolis and former senior counsel for regulatory and trust affairs at the American Bankers Association.

In response to the State Street ruling, the U.S. Patent and Trademark Office created a class of patent applications to cover automated business practices. The number of applications has increased from a few hundred in 1997 to about 6,000 in 2000, according to Glaza.

"That's the case that sort of started this whole process," said Glaza. "We haven't seen that much litigation yet, but it's the next step now that you've got patent holders and precedent out there for enforcing the patents."

"I just hope the industry knows how to resolve this," said Allen Lipis, CEO at Atlanta-based Global Concepts, a consultancy specializing in payment system services, "without having to spend a ton of money on lawyers."