- The Washington Times - Thursday, December 28, 2017

William Bozeman, an independent inventor with a colorful history, says he used to have a good relationship with the Federal Reserve System and even helped improve its fraud detection efforts.

He thought the Fed was working toward a licensing deal for some of his software, which he said could help spot fraudulent checks earlier than the system it was using.

So he was stunned when the government’s central bank in 2017 went to war with him “out of nowhere” by filing a federal lawsuit and two challenges to his patents with the U.S. Patent and Trademark Office.

The Fed described Mr. Bozeman as an opportunist, trying to demand money for technology he didn’t invent.

Mr. Bozeman said he is being bullied by the secretive central bank and that the Fed is trying to run up his legal bills by filing all the complaints in an effort to make him go away.

“This appears to be a David versus Goliath story,” said Terry Fokas, a lawyer and founder of a Dallas-based patent software company. “The Federal Reserve, with all of its resources, appears to be trying to bury an independent inventor.”

The Fed filed a lawsuit this year in U.S. District Court for the Northern District of Georgia asking the court to declare that its check fraud detection system does not infringe upon two patents held by Mr. Bozeman, a banking executive who worked for every Republican president from Gerald Ford to George W. Bush.

Simultaneously, the Fed filed two petitions asking the Patent Trial and Appeal Board to invalidate Mr. Bozeman’s patents. The appeals board is an administrative tribunal used by the patent and trade office to resolve disputes outside of the courts.

One action can cost an inventor $300,000 to $750,000, said Paul Morinville, managing director of U.S. Inventor, an inventors rights group. Combined, the three federal actions could burden Mr. Bozeman with more than $1 million in legal fees.

Those legal fees pale in comparison with what he could lose if the appeals board invalidates his patents. An invalidation ruling would allow anyone to use his software without paying royalties. Nearly $27 trillion is transferred through checks each year, and royalties of just a few cents on the dollar would value Mr. Bozeman’s software in the billions.

Mr. Bozeman is no stranger to the federal government. He served briefly for Ronald Reagan’s press secretary James Brady as well as in a number of other positions. But even he was blindsided by the Fed’s actions.

“I have given so much of my life’s work to public service,” he said. “It seems that my technology should be hailed — not tattered into egregious betrayal and denials of good deeds done.”

The Fed declined to comment, citing its ongoing legal challenge to Mr. Bozeman as a reason for keeping silent.

Mr. Bozeman began working on an electronic check fraud detection system in 2000. Four years later, he was awarded a patent for a method known as “universal positive pay.”

The procedure enables banks to spot check fraud earlier than other systems by allowing multiple banks to view online check registries at once. A second patent, for an electronic database to store check registers, was issued to Mr. Bozeman in 2014.

In legal papers, Mr. Bozeman said he entered into discussions with the Fed about licensing his software as early as 2003. He halted talks the following year to focus on his second invention.

By the time Mr. Bozeman renewed talks more than a decade later, the Fed had launched its own check fraud detection system. Mr. Bozeman claims the bank’s software copies his work and notes the Fed’s reference to his invention in its patent application.

Mr. Morinville said the reference does not prove the Fed infringed upon Bozeman’s patents but certainly shows it is aware of his work.

The Fed counters in legal papers that Mr. Bozeman personally called the bank in 2015 to demand licensing fees for software that is not based on his work. It claims its technology differs from Mr. Bozeman’s patents, which it characterizes as a vague idea, not a viable way to spot fraud.

The federal lawsuit is on hold while the appeals board resolves the disputes. But analysts said that is not likely to be of much comfort to Mr. Bozeman.

Inventors say appeals board rulings are arbitrary and seem to favor large corporations and government agencies. Even more troubling for inventors is its record of invalidating patents in about 92 percent of the cases it has resolved.

Mr. Morinville’s group staged a protest of the Patent Trial and Appeal Board this summer in front of the U.S. Patent and Trademark Office in Alexandria, Virginia. As part of the protest, inventors burned their patents.

“PTAB is the death squad of patent claims,” Mr. Fokas said. “If you want to avoid paying licensing fees, PTAB is where you want to go.”

The tribunal is expected to issue a ruling in early 2018.

This is not the first time the Fed has been involved in a patent infringement lawsuit over check fraud prevention software. Advanced Software Design Corp., a banking technology company, filed litigation in 2007 against rival Fiserv and the Federal Reserve Banks of St. Louis, Philadelphia and Atlanta.

Fiserv is accused of copying Advanced Software Design’s technology and selling it to the three district banks. The case against the banks was dismissed after a federal judge ruled that the district banks were acting on behalf of the federal government and Advanced Software Design had to sue the United States rather than the banks.

Advanced Software Design and Fiserv eventually settled the case out of court.

Keith Rabenberg, a St. Louis lawyer who represented Advanced Software Design, said he sees similarities between the two cases.

“Mr. Bozeman and our client had developed computer software for solutions to check fraud and had patents based on them,” he said. “The Federal Reserve Bank, according to Mr. Bozeman and our lawsuit, seemed to be infringing on those patents.”

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