Targeting terror dollars

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The tragic repercussions of Sept. 11 continue to cascade down to every corner of the country as we continue to strengthen our borders, transportation networks, critical infrastructure and intelligence. As we continue to strengthen our homeland security, though, we cannot fail to shore up our nation's financial infrastructures.

Osama bin Laden and al Qaeda leaders have repeatedly implored terrorists to hit targets that will adversely impact the American economy. The decision to attack the World Trade Center was meant to send a message regarding our economic security in the same way the decision to hit the Pentagon was meant to send a message about our military security. Consider this: While America was still in shock from the attacks on Sept. 11, the Federal Reserve was forced to spring into action to prevent the disaster from crippling our financial institutions.

Prior to September 2001, our financial system used commercial transportation to move cleared checks across the country from where they were redeemed to where the money was deposited. Immediately following the Sept. 11 attacks, airplanes across the country were grounded, leaving passengers — as well as the shipments of checks representing billions — far from their destinations. While this was certainly a troubling experience for stranded passengers, it also created a liquidity crisis for banks — and for our economy.

It is estimated that for every day the checks sat on the runway after Sept. 11, some $2 billion in funds given out by banks could not be reimbursed by the depositing bank. As a result, the Federal Reserve — as it had done in 1987 — was forced to inject liquidity into the financial system to avoid a total economic collapse.

In response, Congress passed the Check 21 Act in 2004 with the intent for banks to transfer digital images of checks instead of continuing to use the more vulnerable transportation system. Along with modernizing our country's financial systems, the law increased national security by insulating fund transfers from the catastrophic terrorist attacks witnessed on Sept. 11.

End of story? Not exactly. Now those banks that complied with congressional intent are facing lawsuits from a company claiming that they have infringed on its patents for the electronic transfer of checks. The company, Data Treasury, is suing the banks over alleged patent infringement, creating a roadblock to the implementation by banks of Check 21 and its strong public-policy goals.

Let's be clear: A company should be compensated for a competitor's infringement on its patents. The question, however, is whether Data Treasury has valid patents for having laid claim to commonly used processing methods that banks, financial institutions and others had been using for years.

The claim of the patent holder in this case, compared to the national-security needs of the nation, is further undermined when it becomes clear that the company in question neither invents new products nor sells them. To quote the New York Times, this is a company "whose only business, other than one client, appears to be suing other companies." ("Small Company is Specializing in Suing Banks," New York Times, Dec. 24, 2004) One issue that rises above the validity of the patents is the role of the federal government in prompting the private sector to take certain actions. When the government dictates to the private sector, inevitably the latter faces certain costs. This is why government interference in the private sector should be done with extreme caution.

In this case, due caution was given, but the enormous responsibility for the safety and security of American citizens outweighed the specific and narrowly tailored costs to the private sector.

To address this unintended obstacle to realizing its intent, the Senate Judiciary Committee introduced bipartisan legislation that passed unanimously last summer. The legislation would protect the financial system, respect legitimate intellectual property rights and prevent frivolous lawsuits by clarifying the regulation for the financial system, for national security purposes, to efficiently process checks and transfer funds.

As patent-reform legislation heads to the full Senate for a vote, it's critical this legislation be included. Speedy passage will ensure that we close critical gaps in our nation's financial security that should have been addressed years ago.

Asa Hutchinson, a former undersecretary at the Department of Homeland Security, is CEO of the Hutchinson Group and a partner in the Venable law firm.