Editor’s Note: This is the second part
of an interview conducted in early 2003 with Peter Matos, an attorney
with the Miami law firm of Malloy and Malloy. This firm is also
listed as the attorney for the Arias/Blackstone patent #6,651,885,
which covers a so-called “Multi-Function Transaction Processing
System,” however this interview is not related to the Blackstone
patent.

According to the Blackstone press release
of December 4, 2003, the patent “…covers not only the
PIN delivery for prepaid products, but also includes the areas of
‘top-up’, loyalty, gift card and point of sale activations,
as well as real time reporting and the thermal card printing process.”
Since this appears to have a wide footprint over existing POSA devices
used in prepaid, we thought that Mr. Matos’ comments were
especially relevant. Attorney and regular contributor to The Prepaid
Press, Ed Maldonado, participated in this discussion.

In the first part of this interview, available
on The Prepaid Press website (http://www.prepaidpress.com/ppp/thisissue/12-19-03/regulars01.php),
patent attorney Peter Matos covered how a patent is obtained, and
the issues involved in protecting the patent against infringers.
Part I left off with a discussion regarding the disclosure of prior
art. We pick up at this point.

GR: How much information does
the patent holder have to tell anyone that they try to enforce the
patent against about prior art?

PM: Obviously, there are a lot
of rules and regulations and ethical issues regarding disclosure.
If you absolutely know for sure that it is invalid, then there are
issues about entering into a license for that when you know that
it is invalid. But, generally speaking, most prior art is never
exactly what the patent is. It’s usually something close,
that in all likelihood, may chip away at the patent. Therefore,
that leaves the door open to say, “Look. Do you want me to
use this? Or, do you want to make a deal?” If you get into
a lawsuit with somebody, that’s fine, but at the outset you
can wave around that sword, telling everybody you are coming after
them. Hopefully, most people will decide that they are going to
settle with you, or resolve it with you without you having to disclose
that you know there are weaknesses.

GR: What about “obvious
use?” For example, what if I wanted to file a patent on turning
a switch on to light a light bulb?

PM: You can’t get a patent
on anything that is not new, or anything that is an obvious modification
to something that already exists. One of the things to bear in mind
in the business methods scenario of patents, is that there is still
a great deal of speculation over what happens if you take a method
of accounting that has been done by hand for twenty years, then
you put it into a computer. Is it patentable? There are legitimate
arguments to state that it is patentable in the context of doing
it in this automated fashion. The improvement comes about because
now you don’t have to do it manually. Now, we can do it automated.
The question is, would it have been obvious to have merely taken
this method and digitized it?

GR: Would this type of patent
be granted by the examiner in the first place?

PM: Unfortunately, or fortunately,
whichever way you are looking at it, it depends on the person who
is sitting on the other side of the table examining it at the Patent
Office. If he is inclined to give it to you, yes. If he is inclined
to not give it to you, no. It really comes down to whether they
would consider it obvious or not. Generally, what you try to do
in those scenarios is to try to express that it is not merely taking
lists and putting it in a computer. Just doing that is not that
simple and wouldn’t work, and there are other things that
I had to do to make it work in the computer vein. Trying to establish
that it is not obvious, you can argue that. You can’t just
put A and B together, because A and B would never stick to each
other. It depends on what you can get away with as far as how much
you can grasp in the claims. It’s a negotiation. It’s
a subjective game. You are left with little recourse because all
you are doing is arguing with that person. So sometimes what you
do is you re-file the patent application in the hopes of getting
somebody else. Then the patent is subject to further scrutiny, because
when you go use it, you sue somebody with it, the judge is going
to look at it again. The general rule of thumb is that the judge
is not going to redo what the Patent Office already did. So, if
the prior art we are talking about was already considered by the
patent examiner, the judge is going to defer to what the Patent
Office decided.

But, if you show something that is brand new
that was never considered by the Patent Office, the judge is more
likely to say, “Had the examiner had this before him, what
would the examiner have done with it?” If really good and
juicy prior art that can severely hurt the patent’s scope
or kill it altogether becomes publicly known, everybody can use
it and defend themselves with it. When they are going after a lot
of companies that might not have the resources, the ability, the
knowledge or the desire to go find that prior art, well, then, those
companies might just as well settle. Think of the prior art as the
needle in a big haystack. You might go through it for twenty hours
and never find it and you’ll say, “you’re right,
there is no needle in here.” Somebody else might go through
it for one minute, and all of a sudden, boom, there it is. They
found it. That person says, “I found it. You better not mess
with me.” If the patent holder is there, they are going to…
make a deal. Let’s move on to the people that will spend their
twenty hours, not find anything and keep moving along. If that guy
decides he wants to show everybody the needle he found, anybody
can use it. It’s not proprietary to him. As a defense, everybody
can use it to defend themselves.

GR: There are a lot of small
operators in the prepaid industry. What advice would you give them,
like checking vendor contracts for patent infringement indemnification
clauses?

PM: Certainly, that is a big
thing, and ultimately there’s a limited number of carriers
out there and everybody else is a subcarrier or a reseller, so you
might want to find out what that chain is and who does it go back
to. Because, if the guy at the back of the chain has paid this royalty,
you may very well be selling a licensed product.

EM: Some providers, depending
on how conservative or how aggressive they are, simply say, “You
know what, it’s better to talk to the people that are the
patent holders and it’s better to cut our deal now.”
Why? Because they can budget it. There are a lot of different considerations
in which type of action you select. You may be more aggressive because
you believe that there is a prior art, or you believe that the exact
patent claim they have is not strong, or, that it has been sufficiently
chipped away by previous litigation. You may take that aggressive
stance. There are others out there that take a conservative stance.
It has a lot to do with the business mentality. They will say, “Let’s
cut our deal. Let’s look at the totality of how long the patent
is going to be in effect, and what does it cover.” And, we
will look at the same considerations you see on the litigation side,
but at the negotiating table.

PM: If you have that prior art,
nothing is stopping you from knocking on their door, saying, “You
better not come after me because I’ll be able to defend myself,
but I don’t want to deal with the hassles of having to fight
this out. Let’s work it out.”

GR: Does that happen?

PM: Sure, if you have something
good and strong, there’s no reason not to do that. If you’re
sure it’s strong. There are two approaches. One, let’s
hide and hope that they won’t spot us. And, the other is,
I’ve got something so good that, let’s just kill this
issue right now, and you cut a deal. It is a negotiation stance.
At all costs, you want to avoid litigation. That’s what I
tell my clients. You want to avoid it. It’s very expensive,
and at the end of the day, if you lose, you not only have to pay
money but you can’t do that (violate the patent –ed.)
anymore. That’s a pretty big risk you’re running no
matter how strong your case might be. That’s why you see most
cases getting settled. It’s a business decision. Righteousness
doesn’t pay the bills. If you’re a defendant of a patent
infringement case, you’ve got a strong piece of prior art
and you know you are going to win. At the end of the day, after
spending all those legal fees, and winning your case, you know what
you win? You only win the right to keep doing what you were doing
beforehand. In some cases, if you did a really great job, you are
going to knock the patent away. You also won the right for everybody
else to join, and compete with your business.GR: Do industry groups
ever get together and fight patents? Rather than let them chip away
individually?

EM: I think that information
and knowledge is going to be the first cornerstone. A lot of people
in the day to day business (of prepaid) are not thinking about this.
They are not thinking, “Am I infringing on somebody’s
business idea?” No, they are thinking about how much more
money can I make on a daily basis, a weekly basis?

PM: Legal defenses are affected
by economies of scale also. If you have everybody working together,
it certainly can become more economical. You have to be careful
because at a certain point in time, different defendants are going
to have different mindsets, different interests.

Errata in Part I: In the first question,“What
is the most important part of a patent?”, we inadvertently
omitted the word “if” from Matos’ reply. His response
should have read:

PM: You go back to the back,
and which is the very important portion, called the claims. And,
the claims are the patent. I mean they define what is ultimately
protected. Now, the rest of the body helps you understand the claims,
but it comes down to the claims. So, IF those claims are written
in a manner that they require that the device, or whatever it is
that’s patented has “to be blue,” because the
claim says, “item a, item b, item c, item d and its blue.”