1. © BITS 2002 The Importance of Patents: A Financial Services Industry Perspective John Burke Outside Counsel to BITS Partner, Foley Hoag LLP Cheryl Charles Senior Director, BITS Presentation to the USPTO Business Method Partnership Meeting July 18, 2002

2. © BITS 2002 2 Perspective on BITS’ Initiatives “Our goal is to establish the framework for safe, sound, private and secure financial services whether online or in traditional settings. BITS fosters collaboration among financial institutions nationwide to leverage the intellectual capital and best practices in technology for the benefit of our key constituencies— customers, shareholders, employees and the communities we serve.” James E. Rohr, Chairman, President and CEO PNC Financial Services Group Chairman, BITS Board of Directors

3. © BITS 2002 3 A Bit About BITS CEO-created and CEO-driven Technology and Business Strategy Group Sister organization to The Financial Services Roundtable Founded in 1996 to address areas in which there is need for collaborative industry action Focuses on emerging technologies, payments and e- commerce Two membership categories: –BITS Members –BITS Affiliates

4. © BITS 2002 4 The Financial Services Roundtable Is a Washington DC-based trade association, and the advocate for integrated financial services providers. Represents 100 of the largest integrated financial services companies providing banking, insurance and investment products and services. Member companies participate through the CEO and other senior executives. Uses grassroots power, knowledge and experience to help shape public policy. Provides a forum at twice yearly meetings for members to discuss industry trends and public policy issues.

5. © BITS 2002 5 BITS Board of Directors

6. © BITS 2002 6 Founding Board Members Emeritus BITS Board of Directors, cont.

7. © BITS 2002 7 BITS Advisory Group

8. © BITS 2002 8 BITS Advisory Group

9. © BITS 2002 9 BITS Advisory Group

10. © BITS 2002 10 BITS Mission Statement The BITS Mission is to serve the financial services industry’s needs at the interface between commerce, technology and financial services. Commerce Financial Services Technology

11. © BITS 2002 11 Strategic Future Privacy Operational Today Security Lab and Related Initiatives Mobile Financial Services Authentication Issues Fraud Reduction Program Aggregation Services IT Service Providers Patent Issues Payments Strategies (EA/ECP) Standards Role of Insurance in E-Commerce Crisis Management BITS Initiatives

12. © BITS 2002 12 The BITS Value Proposition Addresses cutting edge issues from a CEO perspective. Marshals key players to respond quickly to industry issues. Provides strategic as well as tactical direction. Accomplishes as an industry what individual institutions cannot. Reduces the risk of legislation and regulation. Mitigates threats, reduces industry costs, identifies new business opportunities and increases revenue. Shares intellectual capital and enables peer-to-peer networking.

13. © BITS 2002 13 Market Forces that Drive FIs Concerns about terrorism-related impacts on the Nation—including public confidence, the economy, continuity of the industry’s business operations and employee well being. Concerns about increased scrutiny of financial institutions with regard to operational and technology risk management. Gramm-Leach-Bliley legislation, Basel II and other regulatory guidelines in response to concerns related to privacy, security and operational risk.

14. © BITS 2002 14 Market Forces, cont. Rapid development/deployment of new technologies. Globalization of markets, competition and issues. Security, privacy and business continuity practices of outsourcers, service providers and aggregators. Urgency to migrate legacy payment systems and the impact on revenues and costs. Increased threats to the current and new payments systems. Ambiguity and confusion concerning definition of business method patents and challenges associated with the quality of the patent process.

15. © BITS 2002 15 Identifies Critical Issues Assesses Impact on Financial Institutions and What to Do Makes Recommendations to the BITS Board Implements Action Steps Monitors Results and Reports Back to BITS Board How BITS Works

16. © BITS 2002 16 Financial Service Industry Perspective BITS and The Financial Services Roundtable are strong believers in the US patent process. Since the State Street decision, business method patents have become a focus of attention at the US Patent and Trademark Office (USPTO). Financial institutions have increasingly become a target of frivolous claims of patent infringement. Debate and actions are needed to improve the quality of the patent process. We commend the current efforts underway within the USPTO to improve the process and quality of the patents process.

17. © BITS 2002 17 Industry Perspective, cont. The financial service industry is a good example of an industry which has used the trade secret approach to protect proprietary methods of doing business. The trade secret approach is fundamentally in opposition to the patent approach which requires the full disclosure of processes. Many financial institutions are now dealing with patent claims which can hinder their ability to move into Internet-based delivery of products and services.

18. © BITS 2002 18 Threats to Financial Services Threats of concern to the financial services industry include: –Substantial cost of litigation to defend against claims of patent infringement. –Licensing fees for past infringement and future use. –Losses from shutting down business operations if patent claims cannot be settled and are enforced by court order. –Potential liabilities associated with infringement claims against third parties with which businesses may have contractual relationships.

19. © BITS 2002 19 Guidance for Financial Institutions Patent considerations are critical in managing vendor relationships –Due Diligence Is the vendor’s product/service patented or is a patent pending? Is the vendor’s company aware of any patented technology which may affect the financial institution’s product/service? Is the vendor’s company aware of any allegation of infringement made against it or its customers involving the product/service?

20. © BITS 2002 20 Recommendations Support the concept of an opposition proceeding. Support the concept of third-party requestor appeal of decisions to the Federal Circuit Court of Appeals. Modify the prior user right defense. Remove injunctive relief for paper patents. Address the “notice” issue. Change the marking statute. Support full funding for the USPTO.

21. © BITS 2002 21 BITS’ Patent Issues Working Group BITS has been working with the US Patent and Trademark Office (USPTO) for the past three years to help inform examiners about trends in the industry, through special briefings and presentations at the USPTO Technology Fairs; provide references and access to “prior art;” participate in the Business Method Patents Partnership program; and cooperate in areas of mutual concern.

22. © BITS 2002 22 BITS’ Working Group, cont. BITS also works to support and assist its members through education and coordination of patent-related questions under the auspices of the BITS Patent Issues Working Group, co-chaired by Mark Kesslen of JP Morgan Chase & Co. and David Schreiber, Citigroup. The Working Group is helping to inform the Roundtable’s communications with Members of Congress about patent-related issues.

23. © BITS 2002 23 For Additional Information John Burke, Partner, Foley Hoag, LLP (202) 261-7320, jburke@foleyhoag.comjburke@foleyhoag.com Cheryl Charles, Senior Director, BITS The Financial Services Roundtable (202) 289-4322, cheryl@fsround.org