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Do FinTech Patents Have a Future?

February 22, 2017

Every day brings a new flurry of articles about FinTech (“financial technology”) startups and their potential to be disruptive forces. Traditional banking and financial industry players are said to be at great risk. However, many of them have seen this coming and are preparing to defend their turf. Many incumbent financial institutions are acquiring or incubating small FinTech players or funding their own internal innovation departments.

The buzz around FinTech has meant a number of articles discussing FinTech patents and the rush to get potentially valuable claims. It is not only the startup community chasing these potentially valuable patents; indeed, many of the most active patentees in technology applied to banking, payments, lending, insurance, trading, etc., are incumbent financial institutions in banking, payments lending, insurance, trading, etc.  Companies like Bank of America, Visa, State Farm, and Goldman Sachs are accumulating large patent portfolios.

Despite the recent hype, the truth is that FinTech patents are not a new phenomenon. FinTech patents have been behind some of the key cases in the battles over patentable subject-matter over the last ten years. For example, Canada’s only case in the past 35 years on computer-implemented subject-matter was the Amazon.com Inc. v. Commissioner of Patents decision in 2011.  That case involved a FinTech patent: a method of facilitating “one-click” purchasing through the Amazon.com website.  In that case, the claimed method was deemed proper subject-matter for a patent.

In the United States, the seminal 2014 Supreme Court of the United States decision in Alice Corp. v. CLS Bank was about a computer-implemented system for reducing settlement risk in a trading contract. In the Alice case, the patent was invalidated as being directed to unpatentable subject-matter. Other FinTech patents invalidated in recent years by US courts include a computer-implemented method of hedging in the energy trading industry, a method of price optimization through automatic estimation and measurement of demand to set a selling price for a product; software for helping a consumer track expenditures against pre-set spending (budget) limits; and a computer-implemented system to enable borrowers to shop anonymously for loan packages from a variety of lenders.

Most of the post-Alice cases have gone against FinTech patents. What does that say of the value of a FinTech patent? Does that mean that the current rush into FinTech patents is a wasted effort?

In short, no. Applications being written today (and indeed, over the past few years) are being crafted in light of the changes in US law. The purge of existing patents that has occurred (and continues to occur) is partly a backlash to the permissiveness of the US patent system of the 1990’s and 2000’s. The pendulum swing to invalidity of software-implemented patents, particularly FinTech patents, is partly due to a “weeding out” of older dodgier patents.

Today the applications being crafted in the FinTech space are much more focused on presenting the innovation from the point-of-view of its technical achievement and the consequent improvement in operation of a computing device, and not from a customer or user experience point-of-view. Many patent drafters may adopt a more European-style problem-solution approach to telling the story in the patent. All of which is to say that the applications that are being filed and the patents granted for FinTech innovation today will be much tougher to invalidate than those patents that been subject to court decisions in the post-Alice years.