The so-called Fourth Industrial Revolution is transforming the way financial services firms and fintech companies operate and pushing them to adopt new and improved IP practices, according to in-house counsel.
Speaking at the Protecting Innovation in the Financial Services Industry conference in New York last week, counsel at JPMorgan, Wells Fargo and Microsoft said digital transformation had caused them to rethink how they develop software.
They noted that they and other companies had gone from using solely proprietary code in their inventions to open source code and then to hybrid models, and had become heavily influenced by the growth of cloud computing and democratised artificial intelligence (AI) services in a short space of time.
“The computing world is changing rapidly, and that change is characterised by three major developments coming together and impacting industries built on digital services,” said Eric Andersen, corporate vice president and chief IP counsel at Microsoft.
He explained that companies are moving workloads that used to run on dedicated data centres into the public cloud and are benefiting from the scale and reduced capital costs that such a move provides. They are also benefitting from the growth of digital data that allows companies to gain insights at a much greater scale than before and the democratisation of AI that helps companies build their expertise in machine learning development.
“You have a lot of companies, including my own, investing a lot and making the underlying tech and algorithms associated with machine learning and neural networks and other techniques broadly available to developers for mere mortals to use,” he said.
Izu Emeagwali, vice president and assistant general counsel at JPMorgan, added that her company is similarly thinking about these technologies and where the business can use them to add value to the client and customer experience.
Rob Glance, senior vice president and managing counsel at Wells Fargo, agreed that such considerations are important, especially as the pace of development in these technologies gets faster and faster.
“Businesses are asking how they stay nimble and get every advantage they can,” he said. “Financial services companies have a history and organisation size that is not built around being nimble, and customer loss is a continuing challenge for us.”
Open source use
Speakers noted that one of the main IP challenges for them to tackle as part of their move into the Fourth Industrial Revolution, aside from patent eligibility concerns, was managing open source use.
They pointed out that developments in cloud computing and AI have largely been driven in the open source space, and as such it is becoming increasingly important for companies to use open source technologies and, more importantly, to understand how to use them.
“Everyone is familiar with open source and we all understand that it is a mainstream tool now,” said Andersen at Microsoft.
He added that not only can businesses use open source code to accelerate their development at no expense by using pre-built code and customising it for their purposes, it helps them widen their talent pool because of the number of software engineers that are familiar with open source code.
A business’s use of open source forums can also be an effective tool for recruitment and retention of these engineers.
“Open source use has more to do with the flexibility afforded by the code and the availability of talent that understand the code base and can accelerate it – and that is becoming increasingly the case, particularly as more companies are driving their bottom lines with data-driven solutions,” he said.
Speakers noted that there are two key IP challenges when it comes to using open source: working out the extent to which the business needs to keep inventions proprietary and the risk of inadvertently using a piece of code that carries a restrictive licence.
Glance at Wells Fargo said that on the risk side, his business has invested in the solutions it needs to manage open source risk. But he added that his business had found it challenging in the past to strike the right balance between its need to use open source materials and protect its rights.
His business has generally taken the view that inventions related to the core banking business should be patented, while those that related to customers’ ability to access services and interact with the business do not necessarily have to be proprietary and can be put back into the open source space.
Glance added that historically banks had to collaborate on some technologies and processes to enable money to be moved from one bank to another – and that such technologies that require cross-business collaboration are good candidates for the open source space.
“We are looking at tech such as blockchain where banks get together – and open source works well for those situations where you cannot have someone with proprietary tech,” he said.
The open source model might not always work for these projects, however, if one business ends up putting a lot more into it than the others, he added.
Emeagwali at JP Morgan added that it is important to dispel the myth within the business that open source means free to use. She pointed out that while open source is essentially open to everyone, to allow people to build upon it, some open source licences do not allow companies to commercialise the end product.
“We may want to commercialise that product and protect a product, so we must be careful to determine what open source licences we are using and what can we protect,” she said. “We must advise people on what licences they can and cannot use.”
Andersen agreed with this point and added that while open source has become mainstream, it is important to maintain proper hygiene practices and use reliable inventors that know their way around the issues.
There is a new initiative called Open Chain that sets out good hygiene practices for businesses to follow, he said.
“Understanding the prominence of code and getting assurances that it has gone through the proper channels is important. It is not always possible to do the due diligence on the code itself.”
Microsoft also joined an organisation called the Open Invention Network last year, which comprises a group of companies that have agreed not to assert Linux system patents. Andersen said joining such organisations is another pathway to reducing risk related to patents and open source code.
Glance also agreed that open source-oriented businesses should introduce a compliance programme and that employees must be made to understand that there is a process for bringing in new products.
Keeping up
In-house counsel at the conference also said it is important for businesses to participate actively in the open source space if they want users to keep up with developments.
Aside from IP risks, open source use introduces the danger that a backdoor has been built into the code that a business is using. Andersen at Microsoft pointed out that the open source community will often find and report such security bugs, and it is important to keep up with those updates.
“If you find a security bug, it is also important that you contribute that knowledge back to the code base – it is your responsibility to do that,” he said.
Beyond risk, it is important to keep up with what other companies are doing and how the space is evolving. Andersen explained that a decade ago, there were only proprietary companies driving products built with proprietary code and pure play open source companies making money off services associated with licences.
But by and large, the major business model being built now is ‘open core business’, where open source is used at the centre of a solution and has proprietary technology built around it.
“The most common example of this is an open source solution with proprietary data. Google search is an obvious example of that, where the availability of the data that drives the search is proprietary to Google,” said Andersen.
He said that pure play companies are also now feeling under pressure to drive a bottom line for their investors and feeling threatened by cloud business models. As a result, companies such as MongoDB, a US software company that develops and provides commercial support for the open source database, are experimenting with a dual licensing approach where they no longer provide code solely under open source licences.
