Six in-house sources at banks and other financial services firms explain that they have put considerable investment into financial software solutions over the past five to 10 years, either to streamline internal processes or improve customer experience.
But they point out that high-tech firms have also been developing financial technologies in areas such as transaction and data processing and online and mobile banking; and, more importantly, have massively outpaced traditional financial institutions in patent filings.
As an example of the difference in patent applications between financial services firms and tech companies, research from patent data firm Cipher shows that IBM, Google, Oracle, SAP and Microsoft have more fintech patents than all the banks combined.
“We are now playing in a space that we were not even thinking about a decade ago,” says the senior IP counsel at a credit card and payments firm. “The business has developed software and has applications in various app stores, which has created a significant amount of overlap between what we do and what a company like Apple does, for example.”
He adds that there is now so much overlap between what technology and financial services companies do that there is some concern that the different footing in the IP world presents a risk that did not exist for traditional institutions a decade ago.
The foray into fintech, he says, has brought two industries together that have developed very different attitudes to IP. It has also raised fears that these tech companies will look to enforce these rights in this new area against their new competitors.
“It is a concern that we are moving into areas where other companies have been working for a long time,” says chief IP counsel at a fintech company. “We have to be aware of how we operate while our R&D is growing so rapidly and we continue to invest in certain fintech areas.”
The enormous spate of tech company filings has also expanded the fintech patent landscape significantly and made FTO more difficult. That change has raised the risk of infringement and therefore the likelihood that financial institutions will face court actions from large companies with deep pockets and litigious cultures.
Elizabeth Lester, assistant general counsel at credit analytics firm Equifax in the US, says it is easy to for her company to identify its baseline competitors and the prior art they have created, but that determining which of the many tech companies out there might have been working on similar fintech solutions is another matter.
“Fintech is a much broader space, and the universe of what I am having to look at now is much bigger.”
She adds that the worry that the company might miss something and get sued by a big tech company is a consistent concern across the industry.
Banks started to enter the fintech market a decade ago in response to the swathe of fintech start-ups that entered the market at that time.
The IP director of a US fintech company says that companies such as his emerged to fill a very obvious gap left in the market by financial institutions’ lack of focus on software and customer experience.
“We took the bedrock of banks’ businesses by giving the power of transactions to any consumer with a mobile phone,” he says. “That change made the financial giants sit up and pay more attention to innovation and to their consumers.”
He adds that this change also showed companies such as Amazon and Google, which already did a lot of payment processing, that they did not necessarily need to rely on banks anymore. Moving into the fintech market could relieve them of their dependence on traditional institutions and generate new revenue streams by bringing new users and consumers into their ecosystem.
He says that Facebook’s development of payment technologies is perhaps one of the most prominent examples of such a move.
“Creating that technology is the easiest way to increase revenue on an otherwise diminishing social media model,” he says.
Litigation leverage?When asked whether the spate of patent fintech filings by high-tech firms might lead to a litigation surge against traditional financial institutions, in-house sources were in two minds.
The credit and payments senior IP counsel says there is definitely a risk that such a surge could happen because companies will inevitably seek to leverage their IP to assert a competitive position.
He argues that companies such as Apple and Google currently see themselves as financial complementors rather than as competitors in the financial market – even though areas of their R&D overlap with those of banks and financial services firms – and might not choose to litigate for that reason.
“You can see why they might have that view when a company such as ours issues credit cards that need to function in Apple’s wallet software but is not making its own wallet program.”
On the other hand, he says, one could foresee a situation where a large tech company might enforce its fintech IP against a non-traditional competitor. He points out that global supermarket chain Walmart was looking at making its own payment wallet, and it would be easy to see how Apple might sue the retailer if it ended up infringing Apple’s patent.
“The pieces and parts are moving and change rapidly – so whether it’s looking at industrial design patents on a graphical user interface, it would be challenging to clear every single aspect of any type of product"
The US’s Section 101 patent eligibility law, which has made software patents difficult to get since the Supreme Court’s 2014 decision in Alice, might also have been a deterrent to big tech companies from suing financial institutions because of the threat of having their patent invalidated, according to the senior IP counsel.
But here again, he says, this situation might not hold tech companies back for very long.
“The courts and the USPTO have had five years to work out what Alice means and that time has given patent owners more confidence to assert their rights without the fear of invalidation so long as they meet the correct criteria.”
Some sources believe that the high-tech move into fintech might cause a spate of financial-related patent litigation, but perhaps in a less direct way. The senior IP counsel of a large US bank says it is possible that the litigiousness of big tech companies might cause an increase in court actions in the industry, but that perhaps it is more likely that said litigation will spring up between bank vendors.
He explains that now Apple and IBM are coming to the table with thousands of patents, vendors might ramp up patenting so that they can more easily do deals with those companies. But once those firms’ portfolios have reached a certain size, there will be pressure to monetise those rights.
“You may see this ratcheting up of rights; and at some point, someone will have a bad quarter and try to find more revenue. That could be how it all starts, rather than Apple just being a fireball and suing people.”
Lester at Equifax says that businesses might need to think about the litigation that might arise from smaller tech companies filing fintech patents as well. She points out that financial services firms already get sued regularly by non-practising entities for patent infringement and, should start-up companies go bankrupt and sell off their patents to these organisations, they could be empowered to do even more damage.
There is a possibility that financial services firms might kick off a litigation war by starting actions against tech companies using their patents – but this seems less likely. Tech companies have large patent numbers behind them, and financial firms haven’t developed litigious cultures because they’ve traditionally all worked together in various partnerships, which would make a court case financially unviable.
Financial companies also have the challenge that any infringing big tech company could be a client. The fintech chief IP council points out that companies such as Apple are listed entities, and as such it might be difficult for the business to enforce its rights against such companies.
Fintech findersFrom an FTO perspective, it is not only the sheer number of fintech patents that poses a challenge to counsel at traditional financial institutions.
Lester at Equifax points out that it is much harder to determine relevant prior art for, and clear solutions in, the tech space because they are not physical products that can be easily reviewed.
“The pieces and parts are moving and change rapidly – so whether it’s looking at industrial design patents on a graphical user interface, it would be challenging to clear every single aspect of any type of product,” she says.
“I try to focus on the aspects that could be the most novel or if I know a competitor has developed something similar.”
The credit and payments senior IP counsel agrees that there are certainly challenges when it comes to software FTO, particularly when programs are developed so quickly and their claims presented in multiple different ways.
Patent Strategy wrote about this challenge in an article published last week.
The domination of big tech companies in the fintech patent space is a concern for financial companies, but one that might prove to be unwarranted.
Those companies might choose to start litigating in the financial space, but they may well not – and, instead, it may well be bank vendors that kick off a new spate of litigation and add to that started by NPEs.
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