The Public-Private Role of Federal Reserve Banks

Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, et al. (Supreme Court 2020)

The question in this case is whether the Federal Reserve Banks are people.  The Patent Act allows any “person” to file a petition for covered-business-method review (or IPR/PGR). Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019) held (1) the U.S. Gov’t is not a person under the statute and (2) consequently the USPS (a branch of the US gov’t) is not permitted to petition the USPTO for review of a patent.  The question before the Supreme Court is whether these banks are part of the government.

Whether the regional Federal Reserve Banks—the “operating arms” of the Federal Reserve System, which is the central bank of the United States—are “distinct” from the Federal Government, and qualify as “persons” permitted to seek post-issuance patent review under the America Invents Act, when the Federal Government may not under the Court’s holding in Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019).

Question presented.

Alexander Hamilton was instrumental in the creation of the First Bank of the United States.  That Bank’s charter ended in 1811, but the foundation served for future national banks and eventually for creation of the Federal Reserve in 1913. The Federal Reserve system includes twelve regional Federal Reserve Banks that are largely controlled by private banking interests. The twelve are self-described “instrumentalities of the United States that, collectively, make up the operating arm of the Federal Reserve System, the central bank of the United States.” (Bank Complaint).  The system as a whole is controlled by the Board of Governors of the Federal Reserve System. The Board members are presidential appointees.

Bill Bozeman’s patents cover what he calls “Universal Positive Pay” for fraud detection and check clearing. Back in 2017, the 12 Federal Reserve Banks (but not the Board) sued Bozeman seeking a declaratory judgment of non-infringement.  The banks then also filed for Covered Business Method (CBM) review of the patents at the USPTO.  The PTO instituted review and concluded that the claims were ineligible under Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014).  In its decision, the Federal Circuit affirmed and also held that the banks are “persons” under the statute because they “are distinct from the government for purposes of the AIA.”

In other contexts, courts have found a very close link between the Banks and the Gov’t.

  • Fed. Reserve Bank of Bos. v. Comm’r of Corps. & Taxation of Com. of Mass., 499 F.2d 60, 62 (1st Cir. 1974) (Bank is a “public governmental body” whose “interests seem indistinguishable from those of the sovereign”)
  • Jet Courier Servs., Inc. v. Fed. Reserve Bank of Atlanta, 713 F.2d 1221 (6th Cir. 1983) (Banks are not “persons” under the Sherman Act because they are part of the Federal Reserve System, “an agency of the federal government.”)
  • Schroder v. Volcker, 864 F.2d 97, 99 (10th Cir. 1988) (no antitrust action against defendants “affiliated with the Federal Reserve System”, including individual banks)
  • United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982) (Fed Reserve Bank employees are public officials for purposes of anti-bribery statute).
  • Berini v. Fed. Reserve Bank of St. Louis, 420 F. Supp. 2d 1021, 1028 (E.D. Mo. 2005) (“[C]ontrol and supervision of the federal reserve banks is vested in a Board of Governors appointed by the President with the advice and consent of the Senate”)

This case is not huge for the patent system — although there are hundreds of federally-created entities that might be “people.”  In addition, the CBM program has sunset and is unlikely to be revived.

The case is still a big deal as our country discusses the role of socialist governmental policies providing a safety net for Americans. The US system is already ripe with “private” entities designed to serve a public good: Federal Reserve banking system; Fannie Mae; Freddie Mac; Highly regulated utilities (that are given the power of eminent domain); etc.  For over 100 years, this approach has been a form of back-door socialism that becomes palatable because of paperwork showing a separation from government. This case would shine some interesting light on the field with the simple question — Are the Federal Reserve Banks part of the U.S. Government?

7 thoughts on “The Public-Private Role of Federal Reserve Banks

  1. 3

    When I heard about this petition, I thought the Federal Circuit’s opinion must be crazy or must have been issued before Return Mail. Then I read the opinion. It’s succinct and sounds persuasive to me. pp. 3-7 here: link to cafc.uscourts.gov

    The banks have waived their right to respond to the petition. I suspect that that’s the end of it and cert will be denied soon.
    link to supremecourt.gov

  2. 2

    If the Federal Reserve is not part of the U.S. Government then Federal Reserve Notes are not legal currency and the U.S. Government may not accept Federal Reserve Notes for payment of taxes.

    Federal Reserve Notes are not, and have never been, money. Money is only gold and silver. That was one of the reasons we dumped the Articles of Confederation and Perpetual Union and adopted the U.S. Constitution. (So much for the Perpetual Union thing.)

    Our money used to be gold and silver coins, and paper money used to be gold and silver certificates which you could exchange for gold and silver at the U.S. Treasury. You really could.

    Federal Reserve Notes are not even notes. A note is a promise to pay something. A Federal Reserve Note is not a promise to pay anything. It is a promise to pay nothing. It can only be exchanged for another Federal Reserve Note. The only reason people accept Federal Reserve Notes is because the Government accepts it for payment of taxes.

    BTW the U.S. Constitution still says in Article One, Section 10 that:

    Section 10

    No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

    I emphasize the “make any Thing but gold and silver Coin a Tender in Payment of Debts;”. It still says that.

    When the Court rules that, in order to achieve the ends they have already decided on, the Federal Reserve is not part of the U.S. Government, then everything will start to unravel.

    It is going to unravel anyway when Trump pronounces himself President-For-Life and the U.S. dead from the Covid-19 virus passes 1M. We are already 1/5 of the way there.

    Vaccines won’t stop the plague. People who have recovered from the virus are getting it again. It is because the antibodies you make from the virus only last a few weeks or so. The antibodies you will make from a vaccine will be the same antibodies you make from the virus.

    See this discussion of a study conducted by Swiss scientists: link to laboratoryequipment.com

    The study, which included more than 61,000 participants, also found that 14% of people who tested positive for COVID-19 antibodies in the first round of testing no longer tested positive in follow-up tests conducted weeks later. This hints at the idea that—as has been suggested by other studies—immunity to COVID-19 is especially short-lived in people who experience mild or no symptoms. The research team used two IgG antibody tests aimed at different SARS-CoV-2 antigens to test a random, representative sample of Spaniards in what is believed to be the largest seroprevalence study in Europe.

    The Swiss scientists concluded that there will be no Herd immunity. Or Herd Mentality as Trump calls it. That is because he considers his followers to be cattle to be led to the slaughter.

    There was a commentator on Lawrence O’Donnell tonight who said he was tired of begging Trump’s supporters to wear masks to save their dumb a$$e $. And that they should all wear t-shirts that say, “I’m with Stupid.”

    In July John Cleese said in an interview, “sorry, stupid people, but there are certain disadvantages to being stupid.”

    “You will know fear. You will know pain. And then you will die.” (Babylon 5)

    1. 2.1

      [premise]If the Federal Reserve is not part of the U.S. Government [conclusion]then Federal Reserve Notes are not legal currency and the U.S. Government may not accept Federal Reserve Notes for payment of taxes.

      Your premise does not really follow from your conclusion here. I agree that it is unwise for the government to treat as legal tender a currency whose production and retirement is not controlled by that same government (a truth evidenced daily in the Eurozone and in the various Latin American countries that use the USD as their local currency). The very fact that many nations do so, however, proves that it is possible, both legally and economically if a sovereign chooses so to do.

      BTW the U.S. Constitution still says in Article One, Section 10 that… No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts…

      Happily, not a single one of the 50 states in our Union makes anything (gold, silver, or otherwise) legal tender, so we are all in strict conformity to this constitutional provision.

    2. 2.2

      [premise]If the Federal Reserve is not part of the U.S. Government [conclusion]then Federal Reserve Notes are not legal currency and the U.S. Government may not accept Federal Reserve Notes for payment of taxes.

      Meh, don’t follow that logic. See, assuming the authorization statute delegates coinage power to the Federal Reserve (must be in there somewhere), then it’s coinage. My hunch is there is a case directly on point. There are lots of government charter corporations, independent agencies, etc., that have certain powers via the statutory scheme delegated to them to administer. The SEC comes to mind. FCC too.

      Interestingly back in the Taft administration and the study of the US patent system one of the proposed improvements was to make USPTO an independent agency. You know, to drive out the political favor factory aspects of the patent grant (and now by-your-leave administration of said patent grant). Of course, back then, no one would have even questioned that only the judicial department had the power to invalidate a granted patent. Indeed, the land grant patent cases holding the same drew authority from US patent law! Indeed, the complex NextWave Communications fight – a license to spectrum issued at government auction (a ‘public right’ if there ever was one) – and the fight between the bankruptcy courts and the FCC power to ‘do the auction over’ ends with that same logic, a license is a property right, and the issuing agency can’t collaterally attack that right arguing fraud, mistake, do over, technicalities, or anythings else – as only the independent judiciary – has that power under our structure of government. See, sep. of powers. Anyways, all the more fascinating the can of worms the Oil States holding has opened. Can the Federal Reserve create a Federal Reserve ‘Court’ to invalidate the federal reserve notes a person or entity holds (owns)? I suppose under the reasoning of Oil States it could.

      Back to your point on our fiat currency, it’s the taxes and IMHO the military – as in the governments power to blow up your stuff and then pay you in the fiat that ultimately backs the fiat currency.

      1. 2.2.1

        Interesting points vis a vis Oil States.

        I believe that it was Night Writer that called our Justice Thomas’s (odd) anti-patent streak there.

        Goodness knows that everyone’s favorite ( ) Greg DeLassus has pointed out that a “Public Franchise” (note that the term carries with it the implications of rights/duties of FranchisEE-FranchisOR), is a form of personal property, even as he neglects the necessary legal implications, as has the Court.

        Critical thinking is supposed to highlight these types of missteps – not turn a blind eye, and shrug one’s shoulders with a “well, that’s what the Court did.”

  3. 1

    Somehow this seems too small-fry to be of interest to the SCOTUS (although I thought the same thing about the USPS case, so what do I know?).

    1. 1.1

      It has several other factors leaning towards ‘no’ as well.

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