Like other traditional industries, a digital revolution for financial services is underway. Financial technology or “FinTech” is an accelerating technical sector. Competitors are forming constructive partnerships to collaborate and efficiently develop and deploy new FinTech products and services. Open collaboration and interoperability can be built on clearly defined intellectual property boundaries. Patents for core technology provide a mechanism to exclude others from making, using or selling the patented technology. A company may permit use of patented technology by third parties or contribute to a patent pool using various licensing arrangements. However, recent case law and patent office guidelines make obtaining global patent protection for FinTech more complex.
FinTech is transforming finance to supplement or replace traditional services, business models, and providers. FinTech may create brand new market opportunities or give a competitive edge in relation to traditional offerings. This may have broad ranging implications for diverse stakeholders, including major financial institutions, insurance companies, hedge funds, institutional investors, ratings agencies, audit and accounting firms, regulators, technology companies, consortiums, not for profits, and start-ups. Large institutions may be making significant investment upgrading or replacing legacy technology systems with new FinTech products.
The FinTech sector broadly covers payments, investment, currency, audit, trading, regulatory compliance, artificial intelligence, secure ledgers, tokenization and other digital innovations.
Digital wallet technology is already in public use and will eventually be widespread. Digital cards include credit cards, debit cards, public transportation cards and other value cards offered by different companies. Mobile technology companies and retailers are entering the payment space with Smart phone payment tokens and applications.
Digital payments like PayPal™ are widely available on e-commerce platforms. Shopify™, an e-commerce platform provider based in Ottawa, raised $131-million in its recent initial public offering. A digital currency secured with encryption is a crytocurrency, with Bitcoin™ being the most widely used. Bitcoin™ is a combination of four technologies: (1) a decentralized peer-to-peer network; (2) a currency-issuing system; (3) a transaction verification system; and (4) a public ledger relying on the block chain network.1 Block chain technology is changing payment and secure transaction ledgering services. Public block chain technology may be used under open license with transparency to help third parties understand the technology offering and associated security levels to build interoperable, trusted solutions. Private and hybrid block chain networks are also being developed.
New lending, investing or fundraising models are emerging. Crowdfunding platforms like Kickstarter™ enable an organization or individual to reach out directly to a community to raise capital for a business, product or any creative endeavour. SeedsUp™ is a Canadian equity crowdfunding platform for limited private placement offerings for early stage businesses. The Lending Club™, a peer-to-peer lending platform, was the biggest tech IPO of 2014 raising $865 million on the New York Stock Exchange, valuing its business at $8.5 billion.2
FinTech generates financial inclusion and opens new markets. Microfinance solutions provide small amounts of financing to new customers that may not have been qualified for traditional funding sources. Many people worldwide do not have access to traditional banks, for example. M-Pesa™ is a mobile-phone microfinancing service. The money transfer service launched in 2007 by Vodafone™ for Safaricom™ and Vodacom™, the largest mobile network operators in Kenya and Tanzania. New Personal investment solutions are also emerging, like the low-fee automatic rebalancing system by Toronto start-up Wealthsimple™ which recently raised 10 million in Series A funding from Power Financial Corporation.3
Traditional financial institutions and start-ups are both competing and constructively working together. Collaboration may accelerate creation and deployment of FinTech products and services. Companies should clearly define and protect their intellectual property, especially when working with multiple third parties. A company may then control use of its IP rights including permitted use under licensing and collaborative arrangements.
Intellectual property protection for FinTech
FinTech is protected by different intellectual property rights. Copyright automatically extends to computer code, visual interface features, audio, video guides, and other works. The technology brand may include a word mark, logo or icon protected as registered or unregistered trademarks. The underlying core technology is often protected by a combination of patent and trade secret rights.
Patents provide a mechanism to exclude others from making, using or selling the patented technology which may help obtain and maintain market share and protect research and development investment. Patents provide a competitive edge but may also be used defensively to protect core innovation. Competitors or other players may have patents or pending applications and it is prudent to be aware of other publications. The technology development strategy should consider if patent protection is available for core technology innovation.
FinTech - patent eligible?
Patent portfolios are often developed from a global perspective. Generally, patents are granted worldwide for new and non-obvious inventions of patentable subject matter. Recent case law and patent office guidance on patentable subject matter make patenting FinTech more complex.
In 2014, the United States Supreme Court held invalid claims to a computer-implemented, electronic escrow service for facilitating financial transactions as being an abstract idea and ineligible for patent protection.4 In the wake of this case, the United States Patent and Trademark Office continues to provide detailed examples of patent eligible and ineligible subject matter including a stock market client application that opens when the device is online.5
In Canada, the Federal Court of Appeal held the Amazon.com “one-click” buy interface feature to be patentable subject matter.6 After this decision, the Canadian Intellectual Property Office issued the patent for a method in a client system for ordering an item. Shortly after, the Office issued examination guidelines on patentable subject matter for computer implemented inventions.7
Practical legal and technical evaluations of core innovations provide guidance on whether patent protection is available and suitable for a given FinTech solution. The subject matter of the patent should not be directed to an abstract idea. Technical implementation detail should be considered. FinTech innovation may generate discernible or tangible results or transformations which should be identified in the patent document.8 Patent eligible inventions may solve a computer problem in a way that provides a technical advantage and practical application. For example, the FinTech innovation may enhance security, improve resource usage, increase network reliability, generate inventive display interface features and so on. The FinTech may be rooted in computer technology that is more than a general purpose computer doing routine generic functions. The patent claims should avoid merely using a computer to implement a long standing economic principle. Instead, computer problems and solutions should be highlighted.
Ultimately, each FinTech innovation should be independently evaluated for its unique facts. The growth of the FinTech sector is accelerating. Like any other technical industry, companies need to protect their core innovation with a thoughtful IP strategy and diligent asset management.
1 The Standing Senate Committee on Banking, Trade and Commerce, Digital Currency http://www.parl.gc.ca/Content/SEN/Committee/412/banc/
2 The Future of FinTech and Banking http://www.fintechinnovationlablondon.co.uk/media/730274/
4 Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014)
5 Federal Register Notice July 2015 Update on Subject Matter Eligibility http://www.uspto.gov/patent/laws-and-regulations/
6 Amazon.com, Inc. v. Canada (Attorney General) 2011 FCA 328
7 Canadian Intellectual Property Office – Examination Guidelines Respecting Purposive construction (PN2013-02) and Computer implemented inventions (PN2013-03)
8 Amazon.com at paragraph 66.