Financial Services Regulation

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Unravelled: Fighting to protect Fintech innovations

3 December 2014

Written by Senior Associate and Patent Attorney Lester Miller

Fintech has exploded. It's obviously short for financial services technology, and it extends from startups to IT investment and tech innovation by major banks, in areas of personal finance, payments, capital markets analytics and others. After fighting through the technical difficulties and business cases, Fintech innovators face a fight against lack of information, prejudice and the law to protect themselves from copying.

Getting match fit

It wouldn't be too long before the inventors of a new bottle opener or butter knife thought about whether a talk with a patent attorney would be appropriate. But I've found that many of those in the finance sector who have legitimately made an efficiency gain in a financial process, usually via an app, don't think that their innovation is in the right ball park for patents, and the best way to protect themselves from copying is by moving quickly to market, relying on high regulatory barriers to entry and gaining a trusting following.

More rumours abound: patents are expensive to apply for, they take a long time to be approved and they can't be enforced without a drawn out litigation costing millions of dollars. Where would one find a Fintech patent attorney anyway?

Getting in the ring

But Fintech patents have exploded. In just one corner of the Fintech octagon, 'payment architectures, schemes and protocols' (IPC G06Q 20/00) there are more than 40,000 patents and patent applications worldwide. Yes, there is an International Patent Classification for payments.

We have been quick to adopt the term 'manufacturers' in relation to financial service providers. Interestingly, the Australian Patents Act 1990 defines the threshold for a patentable invention as a 'manner of manufacture'. The nation's landmark case on the matter says that can be any artificially-created state of affairs of benefit in a field of economic endeavour. Of course not everything fits, but it's a very broad definition. If they meet the threshold, they will be tested as to whether they are truly novel as at the date of filing, and for the presence of a scintilla of inventiveness. (A scintilla is no larger than an iota, or a spark.) There is a 20-year monopoly available as a reward for those who go through this process.

Serious organisations are donning the gloves. I have recently become aware of a Bank of America patent (US patent 8,811,711) in which a computer uses a video stream from a smartphone to remotely 'read' pages of financial documents to complete a transaction. The app reads the papers on your desk as you wave the phone over it, then it asks for more information if required, waits for it, then processes the transaction.

The same bank has applied for a US patent for a visualization tool called 'Face Retirement Tool' to encourage retirement saving. The app takes a photo of your face and ages it to help you see yourself older, so that you might think about whether you have enough saved for that old person in the (modified) photograph.

The patent application, like many recent app-based ones in the US and Australia, has received a couple of exploratory jabs in the form of some objections during examination based on court decisions (Alice Corp) coming down against the 'abstract idea' arguably embodied in some app-based inventions. But when app inventions are comprehensively described and carefully claimed so that it is clear enough that they include technical subject matter, the same courts have commented on the patentable nature of app patents and decided in favour of them.

New belts

High regulatory barriers will keep competitors away for only so long. Any new Fintech innovation project should be assessed for patentability to maintain shareholder value for the investment. As for those other rumours: a recent Fintech patent application we drafted had the patent application service charges at, generously, about 0.004 per cent of the project's cost. For the potential benefit of a lack of competition for twenty years, that can be excellent value.

A provisional application for a patent can be prepared within a few days (ideally within a couple of weeks) and a divisional innovation patent can be prepared, filed and asserted against a third party infringer to stop using/copying the process illegally in under eight weeks. Finally, patents can be a deterrent to competitors in more ways than just the actual commencement of Federal Court proceedings: customers enjoy being part of innovative companies, particularly where that company reaches their goals of wealth creation or debt reduction faster from the greater profitability associated with protecting their Fintech IP.

Other articles in this edition of Unravelled

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Bank technology failures: A new frontier for regulatory intervention?
The UK's regulatory authorities have imposed the largest ever fines in Europe for technology failures in the financial services industry following a serious IT incident affecting more than 6.5 million customers in the UK. It should serve as a cautionary tale for Australian financial institutions. Read more>>

Opportunities for financial services from the China-Australia FTA
The Australian and Chinese governments recently announced the conclusion of negotiations on the China Australia Free Trade Agreement. According to DFAT, China's financial services commitments under the agreement represent one of the most substantial market access undertakings China has agreed to with any FTA partner. Australian financial services providers should consider the opportunities that the deal presents. Read more>>

Taxation of certain unit trusts – 'attribution' model to replace 'present entitlement'
You may be forgiven for having lost track of the proposed reforms to the taxation of managed investment trusts (or MITs) given that this initiative has been 'announced' by successive Federal governments since 2010. Finally though, an exposure draft of new legislation is expected to be released before Christmas that will include a 'third' regime that is intended to provide greater certainty as to the tax transparency (or flow through treatment) of qualifying MITs. Read more>>

The disallowance of the FoFA Streamlining Regulation – what has been missed in all the noise?
The Senate's disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 was messy. However, the same could be said of the process by which FoFA was originally enacted. Read more>>

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