Intellectual property strategy for FinTech
January 2017 | SPECIAL REPORT: INTELLECTUAL PROPERTY
Financier Worldwide Magazine
Similar to other traditional industries, a digital revolution for financial services is underway. Financial technology (FinTech) has for decades improved financial processes. In the Information Age, the FinTech landscape is quickly evolving with new 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.
Indeed, large institutions may be making significant investments upgrading or replacing legacy technology systems with new FinTech innovation ranging from payments, blockchain, lending, regulatory, compliance and audit.
Companies can leverage technology such as distributed ledgers, blockchains, encryption, automation and others to perform tasks which otherwise would have been impractical or impossible with traditional methods. These technologies are starting to gain in capability and acceptance and it is important to understand how evolving jurisprudence and regulatory activities apply to FinTech innovation.
Intellectual property for FinTech
Traditional financial institutions and start-ups are both competing and constructively working together to develop and deploy FinTech products and services. Companies should clearly define and protect their intellectual property with registrations and documentation, 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.
Copyright automatically extends to computer code, visual interface features, audio, video guides, application programming interface (API) structure and other works. Computer code may cover particulars such as source code, pseudo code, machine code and purpose-built hardware or firmware. Copyright is an important intellectual property asset for a FinTech company, particularly if the program design provides computational and usability efficiencies.
FinTech companies may also benefit from placing digital locks on copies of their works to provide additional security. Circumvention of digital locks is an offence in some jurisdictions and may provide relief against unauthorised parties. FinTech companies should be vigilant with policies for developers incorporating third-party copyright, even if inadvertently, as it may impact ownership of the technology and freedom to operate. Employees or a contracted developer, for example, may incorporate third-party source code without authorisation which may impact ownership.
Brands may include a word mark, logo or icon protected as registered or unregistered trademarks, the latter of which can prevent competitors from unlawfully passing off on or diluting the goodwill of a brand. FinTech companies develop their brands with quality customer service and trust to establish goodwill in their brand with customers and the general public. A strong brand helps FinTech companies differentiate their products and services from competitors. Given that FinTech companies are often stewards of important financial assets and documentation, a reputable brand may be of paramount importance to customers.
Trade secrets are common law rights that provide protection over secret business information, and may protect material such as confidential backend server processes, code and ‘secret sauce’. Trade secrets require no formal registration, but companies must also take reasonable steps to keep it secret. In turn, the protected information may be protected for an unlimited period of time as long as it is kept secret and has commercial value. Misappropriation (e.g., unauthorised use) of trade secrets is regarded as unfair business practice.
For example, departing employees may carry forth trade secrets that may be utilised for unfair competitive advantage. These trade secrets may take various forms such as customer lists, source code and technical documentation, among others. In Canada, the protection of trade secrets is provided by the common law, and, in the United States, trade secrets are currently protected by state law through state adoption of the Uniform Trade Secrets Act (UTSA).
Nonetheless, trade secret protection has limitations, particularly if relied on as protection for vital company assets. Trade secret rights may be difficult to establish or enforce, and enforcement may be practically ineffective against third parties who obtain the invention indirectly from an unauthorised discloser. Trade secret protection may prevent collaboration and integration with other entities in developing FinTech products and services. Trade secrets also do not protect against independent development of the secret innovation by third parties.
Industrial designs can be used to protect the ‘look and feel’ of physical articles such as electronic cards, transaction machines, as well as computer interfaces and icons. Design protection can be a valuable asset, especially if a given feature helps promote the distinctiveness of the brand, products and services, or increases the usability of a product.
Patents provide a mechanism to exclude others from making, using or selling the patented technology, which may help companies obtain or maintain market share, and protect research and development investments. Patents can provide a competitive advantage and may also be used defensively as a negotiation tool. For example, an organisation may protect core innovation in response to assertions of patents by third parties by cross-licensing with another organisation. Patent publications can also be cited against subsequently filed applications to prevent grant.
Unsurprisingly, any technology development strategy should consider if patent protection is available for core technology innovation. Companies should also be aware of other publications and litigations, as competitors and other players may have their own patents or pending applications. In contrast with trade secrets, granted patents may be enforced against third parties that make, use or sell the claimed invention, despite independent development. Obtaining patent protection, however, may be a costly and lengthy endeavour in comparison to other IP rights.
Nonetheless, international treaty systems are available to help delay expenses, while still providing the ability to leverage an earlier priority date to protect rights over important innovations. Given the quickly evolving FinTech market, obtaining early priority dates is of the utmost importance in view of the ‘first to file’ nature of the patent system.
Generally, patents are granted worldwide for new, useful and non-obvious inventions of patentable subject matter. Computer implemented inventions are under a greater level of scrutiny and not all financial technology-related innovations are per se patentable. The jurisprudence determining whether financial technology is indeed patentable subject matter is constantly evolving. Patent offices, along with the courts, have struggled with establishing clear delineations of what is patentable and what is not patentable.
Where FinTech companies are preparing patent applications covering their latest innovations, a detailed review of the guidance and jurisprudence is required. Highlighting salient technical features, such as technical advantages and practical implementation details, can increase the likelihood of success during patent examination. The description should highlight discernible effects of the FinTech.
An IP strategy for FinTech development and deployment will layer intellectual property rights to protect different aspects of the FinTech. Companies can clearly define and protect their intellectual property with registrations and documentation. Clear agreements on intellectual property rights should be established between third parties.
Maya Medeiros is a lawyer at Norton Rose Fulbright LLP. She can be contacted on +1 (416) 216 4823 or by email: firstname.lastname@example.org.
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