How financial services companies want to monetise their portfolios
In-house counsel at five financial services firms explain why the industry is increasingly looking to generate returns on patent investments, and speculate on how that monetisation might be achieved
After a considerable expansion of their patent portfolios, traditional financial services companies are increasingly considering monetising their IP to justify a growing expenditure on protection, according to in-house counsel at five financial services firms.
Since the proliferation of fintech firms in the financial space, these traditional companies have been looking to compete with their new tech-savvy rivals by investing heavily in new solutions to help streamline processes and improve the customer experience.
Those businesses, which previously had few IP rights, have sought to protect these innovations with patents. Bank of America, JPMorgan and Capital One have been particularly prolific filers for technologies in areas such as banking and IT infrastructure, online and mobile banking, and transaction data processing, according to a 2018 report by patent analysis firm Cipher.
“For a business to be sustainable and profitable, it must meet customer needs and even anticipate what the customer will want next, rather than always reacting to demand,” says Ziad Katul, senior counsel at Bank of Montreal in Canada. “That entails technology, and through the creation of that technology, you create IP.”
But those portfolios have so far been largely used to protect businesses’ competitive advantage – and financial leaders are becoming increasingly aware of the fact that they cost considerable sums to renew each year and do not directly generate returns.
While portfolio monetisation has yet to become a common practice in the financial industry, in-house counsel have responded to this pressure from above by looking at ways to generate additional returns on IP portfolios and are keeping an eye on how their competitors might look to do it.
“All of a sudden, the industry is sitting on a pile of assets that this business has never really had before and has no idea how to monetise,” says Katul. “There is a question about how we monetise that – and the first person to answer that so they can play in that space sooner will have an enormous advantage.”
The general counsel at a financial services company in New York adds that his business thinks about patent monetisation a great deal. As one of the largest patent filers for blockchain technologies, his firm is considering how it can generate returns by using decentralised-ledger solutions in new and interesting ways.
Dan Pirolo, senior counsel for IP and technology at Synchrony in the US, adds that he has heard rumblings and seen indications that at least some financial companies would like to generate additional return from their IP portfolios.
Elizabeth Lester, assistant general counsel at Equifax in Atlanta, says monetisation is indeed something more companies are exploring as a way to justify the cost of obtaining patents in the first place, although there are a few different ways they could approach it.
The topic of monetisation is even coming up at fintech conferences. David Easwaran, senior IP counsel at Wells Fargo in North Carolina, tells Managing IP sister title Patent Strategy: “Monetisation is something that came up in a panel I spoke on recently, but I do not know if it will represent a shift in the industry. I can theorise that as more people file applications someone will look to do more with their assets, so it seems bound to happen.
“I’m not sure what the timetable might be for that shift or what it would look like though,” he adds.
But monetisation is simply not on the table for some large financial firms. Maxine Graham, vice president and senior IP counsel at American Express in New York, says her business does not have plans to monetise its portfolio.
“We have been patenting things to protect ourselves and our internal business efforts and the money we can derive from that. But we are not looking to go out and assert our patents against anyone or license against other people – that is not part of the plan.”
Follow the litigation
Sources note that monetisation efforts could take several avenues: a business might choose to follow an aggressive litigation strategy, develop a sophisticated licensing arm or simply start selling off more of its IP assets.
The first of those options has recently been taken by a US bank. In perhaps the first case of a bank litigating against another for patent infringement, USAA sued Wells Fargo in 2018 for using its remote deposit capture technology.
Journalists and financial professionals have since speculated on whether this lawsuit might be the harbinger of a new era of patent fights between financial services companies as they seek to monetise their rights.
Speakingin the American Banker newspaper, professor Megan La Belle at the Catholic University of America’s Columbus School of Law said: “We may see more bank-on-bank patent suits.”
But in-house counsel are much more sceptical of the idea that patent litigation could become a common occurrence in the financial industry for the same reason that it has not happened before. Banks and other financial firms have to work together to function; a client is unlikely to stay with a bank for very long, for example, if that client cannot or will not work with the bank that services one of that client’s key suppliers.
“My guess is that we all want to stay out of litigation,” says Lester at Equifax. “We all do business with each other and are connected in a way that we are both competitors and partners in some respects.”
Easwaran at Wells Fargo agrees that relationships will likely be a considerable factor when businesses come to deciding their monetisation strategies. Depending on the outcome of the USAA v Wells Fargo matter, he adds, some businesses might be convinced to follow a similar monetisation-by-litigation strategy, but equally they may decide that the “juice just isn’t worth the squeeze.”
Some sources suggest that litigation could be a possibility in certain circumstances where the technology is broad enough to be applicable to other industries and is being infringed by a non-financial company. But even in these scenarios, monetisation by litigation might be the exception that proves the rule.
Easwaran says that such a situation might be more likely than bank versus bank, but points out that any technology company worth suing is likely to have some sort of relationship with the business – particularly if the business in question is one of the big four banks.
A hard sell?
Pirolo at Synchrony similarly suggests that the industry as a whole is unlikely to take the litigation route, and that while some financial firms may pursue enforcement strategies, it is likely that many will pursue a less aggressive strategy such as a sale of patent assets.
He notes that such activity has precedent. American Express sold a substantial portion of its patent portfolio several years ago that is now owned by a patent assertion entity.
“That kind of strategy enables a financial to see some return for its portfolio, but generally does not expose it to the risks associated with an aggressive licensing campaign,” he says.
Financial firms may also attempt to monetise their portfolios by licensing patents. Pirolo points out that they could seek to leverage their investments by licensing relevant patents to start-ups as part of said investment.
They might also choose to license inventions through their subsidiaries. The financial services general counsel says his company has started to do this on a small scale.
Lester at Equifax adds that a strong licensing programme could be particularly lucrative for financial companies that have strong portfolios of patents that are broadly applicable across and outside of the financial services industry.
But the practicalities of setting up such a programme, she adds, might hold back financial businesses from setting one up. “If you look at the companies that are successful at licensing, they have entire departments separate from most of their other IP practitioners. They look for opportunities to license, make contact with a potential licensee and negotiate the terms of the deal.”
She adds that it will be very difficult for financial firms to take on a licensing programme unless they have a dedicate function for it – which will not happen unless there is a concerted effort to create one where the business makes it a priority and acknowledges that other projects will be put on hold.
Such an effort is unlikely to happen unless the business has patents that are broadly applicable and they can make a significant return on investment.
The other barrier to a licensing programme, she adds, might be the public relations repercussions. The financial services industry is not necessarily a popular sector with the public, and people may become disgruntled by a business that has a patent for a piece of cybersecurity tech that can keep people’s money safe, for example, and chooses to commercialise it.
Patent monetisation has yet to become the norm in the financial services sector because of its market dynamics and the barriers those create. But the rumblings of IP commercialisation are there and getting louder because of the inherent opportunities there.
As banks invest more in innovation and develop larger portfolios, the potential added returns that could be generated may be too tempting to ignore. The question may soon no longer be whether financial companies will start monetising their portfolios, but when they will start.
This article was first published on Managing IP sister title Patent Strategy.