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In his early days at American Express Co., Tracey Thomas was more pitchman than patent lawyer. After he was hired as Amex’s first IP counsel in November 2000, Thomas says he spent two years “selling patents into the [corporate] culture.” That meant road show presentations talking up the value of IP, and publicizing licensing deals and litigation wins to senior executives, who were dubious about the value of patents. During one month-and-a-half stretch, Thomas says he was making a pitch a day. Today the 39-year-old patent lawyer does less selling. New York-based American Express has 50 registered patents — not much compared with most tech companies, but five times as many as the company had in 1998. And Thomas’ two-lawyer IP department has drummed up enough cash through patent licensing to catch the interest of the company’s business side. In May, Thomas held American Express’ first in-house “Patent Summit,” bringing together employees from 20 business groups for a half-day conference in New York. Representatives from groups that had “won the lottery” on patent licensing spoke about the patent program, Thomas says. Since then, people from the business side have been coming to him every day: “They all want to get patents in their space.” American Express has always fiercely protected its trademarks, but until 1998 patents meant little to the company and its competitors in the financial services industry. Michael Bednarek, a partner in the McLean, Va., office of Pillsbury Winthrop Shaw Pittman who specializes in IP protection for financial services companies, says that the industry actually fostered a culture of copying, in which competitors freely duplicated innovations that could not be kept secret. Patent litigation was frowned upon. “Each day, trillions of dollars pass among the financial companies. They’re not about to let a patent lawsuit get in the way of that,” Bednarek says. The rules of the game changed in 1998, when the U.S. Court of Appeals for the Federal Circuit decided State Street Bank and Trust Co. v. Signature Financial Group Inc., opening the doors to business method patents. (State Street’s patent was for a method of pooling mutual fund assets.) Less than a year later, American Express received the first of a handful of letters claiming that it was infringing patents. In 2000, two of American Express’ key business units were hit with patent suits. Atlanta-based Datascape Inc. sued Amex (and about two dozen other companies), claiming that its smart card — a credit card with an embedded computer chip — infringed on patented distribution software for wireless devices. Hazelwood, Mo.-based Meridian Enterprises Corp. sued American Express, along with 18 other companies, claiming that the defendants infringed Meridian’s patented system for tracking rewards points. It was the first time American Express had faced such a situation, and the company’s paltry portfolio of ten patents meant that it had no ammunition to fend off these cases. It was a painful lesson, but it could have been worse. Both cases settled in 2001 on “very favorable” terms, Thomas says. (The details are confidential.) Still, the suits were a wake-up call for Amex general counsel Louise Parent, who says that she decided the company could use “an aggressive patent program” to protect the company’s innovations, and minimize litigation threats. Thomas, a former track star who holds a B.S. in electrical engineering and computer science from Marquette University, had the right mix of experience to run — and sell — the new initiative. In the 1990s, when Thomas was an associate at Brinks Hofer Gilson & Lione in Chicago, a former teammate from his Junior Olympics track team, who was coaching football and track at the University of Wisconsin at Madison, asked Thomas if he was interested in representing some players as their sports agent. Thomas took the challenge, and a hybrid practice was born. Thomas went on to represent National Football League players, along with some musicians, music producers, and record labels. At the same time, he also practiced patent law at Brinks Hofer, specializing in high-speed telecommunications work for companies like Hughes Network Systems Inc., and Matsushita Electric Industrial Co. Ltd. When Thomas moved to McDermott, Will & Emery in 1999, he continued both practices. As most of us learned from Tom Cruise in the film “Jerry Maguire,” sports agents work in a brutally competitive environment. Sales skills are key. Richard Starr, managing counsel at American Express, says when he interviewed Thomas, he sensed that personality wise, there was just as much sports agent in Thomas as patent lawyer. “That’s one of the reasons I hired him. I knew he’d have a lot of selling to do,” Starr says. Getting buy-in from the business side at American Express was tough. “At first, they thought filing patent applications was kind of cute, but then they’d get the bill,” Thomas says. “Many people at the company told me they thought patents were worthless.” First, as they saw it, owning patents would make little difference defending cases brought by patent-holding companies — “trolls,” in some circles — that don’t sell products, aren’t threatened by injunctions, and have no interest in cross-licensing. Second, the business side was reluctant to use patents against its competitors. Still, the Datascape and Meridian lawsuits created enough fear to convince some at the company that patents were a good idea. And in 2001 Thomas says that Amex filed 36 patent applications, triple the number filed in 2000. The patents were primarily for defensive purposes — if the company were to get sued for infringement, it could fight back with a suit of its own. Those defensive filings have paid off. Thomas says that since 2001, American Express has successfully fended off all six of the lawsuits brought by patent-holding companies, either by getting a dismissal, convincing plaintiffs that it wouldn’t be worth their while to proceed, or settling the case for what Thomas calls “nuisance value” — less than a month’s worth of the cost of litigating. “What we’ve learned is that patent trolls are worried that their patents could be invalidated,” says Thomas. “If the plaintiff’s attorney sees that we hold the dominant patent, it puts downward pressure on their settlement price.” McDermott Will & Emery in Chicago and Robins, Kaplan, Miller & Ciresi in Minneapolis handle American Express’ patent litigation. The company’s early prosecution work was handled by Phoenix-based Snell & Wilmer. This year the company started sending prosecution to the D.C. offices of Fitzpatrick, Cella, Harper & Scinto and Sterne Kessler Goldstein Fox. “We made the change for strategic reasons, not performance,” says Thomas. Fitzpatrick Cella and Sterne Kessler “both have great reputations. Plus they have offices next door to the patent office.” (“We understand that when a company obtains new in house patent counsel, the new counsel may want to try a law firm that he or she may have been more familiar with in the past,” says Howard Sobelman, a partner in Snell & Wilmer’s Phoenix office. “The firm continues to handle select patent prosecution matters for American Express and will continue to do so moving forward.”) To get the business side truly interested in patents, however, Thomas concluded that he needed to do more than just file defensive applications. He had to develop a program that would generate licensing income over the long term, an approach integral to the business at places such as IBM Corp., but considered radical in the financial services industry. Thomas says he decided to focus on protecting key or “core” IP such as smart cards, security, and filtering (the ability to distinguish merchants that are authorized to accept American Express cards). Core IP is also easier to identify because it typically recurs within the same divisions, departments and groups. (Noncore IP is more of a fluke, and can arise anywhere in the company.) Early on in his tenure, Thomas promoted two licensing successes around the company: A multimillion-dollar deal, signed in 2001, with Tokyo-based Mitsui Mutual Life Insurance Co., for financial planning software, and a deal with a vendor who ended up taking a license from American Express after suing on alleged copyright violations. From the perspective of overall revenue (American Express had over $29 billion in sales in 2004), the deals were miniscule. However, the couple of million dollars each deal generated “can be very significant” in the context of a business group, says Thomas. By 2003, Thomas’ IP group produced “tens of millions” of dollars in annual licensing revenue, and the group has continued to pay for itself “multiple times,” he says. Emmet Murtha, head of Fairfield Resources International Inc., a licensing consulting firm based in Stamford, Conn., and IBM’s director of licensing from 1969 to 1997, says that American Express has one of the leading patent programs in the financial services industry when it comes to capturing and licensing patented innovations. “A lot of companies simply collect patents like people collect antique teacups,” says Murtha, who counts American Express among his clients. “[American Express] is not only very thoughtful about getting patents but also about what they are going to do with them.” Thomas’ sales skills have been key in the licensing arena. For instance, when Amex wanted to market a transparent card that could still be read by an ATM machine, it worked with a software vendor to create the technology. (The solution involved over 100 layers of film.) In the past, Amex, like many in the industry, would hire companies such as IBM or Electronic Data Systems Corp. to develop technology, and then Amex would license the technology back. This time Thomas convinced company marketers to ensure that Amex would own the technology behind the card. In late 2003 Thomas starting licensing the clear card technology. He sent letters to 100 companies notifying them that American Express had patents on an ATM-readable clear card, and if anyone wanted to market their own readable clear cards, they had to pay for the technology. Thomas says it was the first time in its 150-year history that American Express had ever taken such an aggressive step: “It was a little scary for me.” So far, four companies have taken a license, Thomas says. However, he won’t disclose licensing rates or partners. As it turned out, the company was sued over the clear card. Perfect Plastic Printing filed a complaint in January 2004 alleging that it was the real inventor of the technology. A year later the case settled. Thomas says that American Express now owns the St. Charles, Ill.-based company’s clear card-related patents, and Perfect Plastic has a license from American Express. Thomas continues to build American Express’ patent portfolio, which now also includes patents on the stored value card Meridian had sued on, smart cards, and filtering, the subject of another 100 or so notice letters Thomas sent out this year. Most recently, Thomas began working on licensing the company’s ExpressPay technology, which gives people a way to pay for everyday purchases, like a newspaper or soda, with a radio frequency identification device that is read with a wave instead of a swipe. Ultimately, Thomas says that he wants American Express to be the dominant patent holder of all technology considered key to its business. He has a way to go. American Express, the world’s third-largest payment company, is also in third place in terms of patents. Citigroup leads the industry with 132 patents, and Visa International holds 65. However American Express has pulled ahead of its competitors in published patent applications, with 91 as of March, versus Visa’s 29 applications and Citigroup’s one. And there are still competitors in the financial services industry — such as Lehman Brothers Holdings Inc., which has zero patents and two published applications — that are far behind.

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