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Intellectual property protection for financial services Back  
Intellectual property is a double-edged sword for financial services businesses. Those who have realised its benefits have added significant value and a competitive edge to their operations. Those who have fallen foul of it are most likely still counting the cost. Financial services companies who have not yet appreciated the relevance and importance of intellectual property to their businesses would therefore be well advised to consider the increasing interrelationship between IP and financial services.

Although intellectual property (or ‘IP’ as it is better known) may in the past have been the preserve of the music, luxury consumer goods and pharmaceutical industries, the potential impact on, and relevance of IP to, financial services was recently brought into sharp focus by litigation instigated against the European Central Bank for its alleged infringement of a third party’s anti-counterfeiting technology patents. This event has prompted financial services companies to realise that they are not immune from attack and must therefore assess their litigation exposure and overall IP position.

Intellectual property
An essential pre-requisite to assessing an operation’s IP position is to fully understand what IP encompasses. Although IP is a term which many would consider they are familiar with in a business context, experience has shown that it tends to be used and understood in very different ways. It is, therefore, important to clarify at the outset exactly what IP is.

Whereas at law the concept of property is generally used to refer to physical objects, a separate branch of the law - intellectual property law - has developed which relates to and recognises creations of the mind. National and international laws and conventions have recognised the rights subsisting in those creations as ‘intellectual property rights’.
Statutory intellectual property rights cover two main areas:

• Industrial property, which includes patents, trade marks and designs; and
Copyright and related rights.

However, it is important to be aware that intellectual property also encompasses areas such as know-how and trade secrets, and that more than one type of IP right may be relevant to the same creation.

The cross-over
Financial services businesses are innovators in a number of areas and constantly generate ideas, business processes and methodologies. They also tend to have large IT infrastructures and create computer programs, technology platforms and user interfaces. In addition, they generate vast amounts of financial data, databases, algorithms, indices, and brands.

All of these may be IP assets that can be protected through registration (i.e. by obtaining a patent or trade mark registration), and assets that can add value and be a source of revenue if licensed. Registration of IP may also provide both a sword and a shield in the context of disputes and litigation.

Even if a business does not have significant IP of its own, awareness of IP issues can alert it to the potential for infringing third party IP, and in this regard it should be borne in mind that such infringement can, in certain circumstances, constitute a criminal offence in this jurisdiction, for example, under section 140 of the Copyright and Related Rights Act, 2000.

Following the seminal decision in State Street Bank & Trust Co. v. Signature Financial Group Inc. in the US in 1998, when State Street was held to have infringed some of Signature’s patents relating to a mutual fund price reporting system, patents were catapulted to the top of every financial institution’s priority list. “Patent troll” became a word that struck fear into the heart of every financial institution - it being a reference to those companies whose business it is to stockpile patents and then seek to enforce those patents against other potentially unsuspecting companies. Financial institutions have proved popular targets for patent trolls. But litigation risk is not the only patent issue - patents may also constitute valuable assets.

• A patent is a legal right that protects an invention. It allows its owner to prevent others from using the invention generally for up to 20 years. Patent proprietorship, therefore, often results in an effective monopoly in the relevant sector.
• Irish and European patent legislation provides that in order to be patentable an invention must overcome four hurdles.
• The invention must be novel, that is, it cannot exist already.
• The invention must constitute an inventive step. In other words, an invention will not be patentable if it was simply an obvious step forward from what was already known in the relevant field.
• It must be capable of industrial application.

Finally, an invention must have patentable subject matter.
Provided an invention can overcome the first three of these hurdles - which is not always the case - whether a financial system or product has patentable subject matter is often the critical legal issue. This will ultimately depend on the nature of the system/product and the territory in which registration is sought, but such patents may not actually be as difficult to register as is often thought.

Recent European case law on the question of patentability of financial systems and products would seem to suggest that the key to obtaining patent protection in the financial services sector may lie in focusing in the patent application on any technology aspect of the relevant systems and products. For example, the use of new technology platforms such as the Internet.
But obtaining patent protection may not be the most appropriate step in all cases. When considering patent strategy, financial services companies will need to consider that their products’ lifecycles may often be shorter than the patent grant procedure. In such circumstances, avoiding patent application and prosecution costs, keeping an invention secret and relying on the law of confidentiality to protect it, may prove a more attractive alternative. As against that, however, merely applying for a patent can act as a deterrent to competitors who might be thinking about ‘piggy backing’ on another company’s technology.

The risks of not registering patents or of infringing third party patents are significant. Failure to protect innovation through patent registration may mean that competitive advantage is lost to other financial services businesses. Also, financial services patent litigation has demonstrated that because of their resources and high transaction volumes, financial services companies are tempting targets for those who perceive that their patents have been infringed and seek to be handsomely compensated. To date, many such claims against financial institutions have been successful.

To the extent that financial systems or products are not patentable or where applying for patent protection is not appropriate in the particular circumstances, it is important to be aware that other IP rights may subsist in aspects of financial systems and products.

In this jurisdiction, copyright arises automatically upon creation of, amongst other things, “literary works” in permanent form. The definition of “literary work” is relatively easily satisfied, and so copyright will therefore be likely to subsist in much of the financial data, databases and computer programs generated by financial services businesses. Recent judicial dicta in the US (in the financial services copyright case of NYMEX v ICE) suggest that even settlement prices may constitute literary works, although there is currently no judicial authority on this issue in Ireland or the UK.

Taking market data as an example of copyright in action, copyright may be invoked to protect a competitor copying and re-using such data, or to justify licensing such data to a third party in return for a royalty.

Whether one institution is entitled to demand a licence fee from another in respect of financial indices used as the basis of investment products may also be determined by whether copyright subsists in the index. Index licensing is currently an important issue for financial institutions, but ultimately the question of whether a licence fee may be demanded in respect of use of an index will fall to be assessed on a case-by-case basis. Other rights which may be invoked, in certain circumstances, to protect financial systems and products are the database right and the laws of contract and confidentiality.

Trade marks
IP is also hugely relevant to branding, which has become an increasingly important facet of financial services operations.
Service providers have to work harder to differentiate their brand from those of their competitors in order to characterise the uniqueness of their service, and providers of financial services are no different. Changes to the market for financial services mean that branding is now more important than ever. Gone are the days when customers had a bank for life. We live in an era of online banking and trading and footloose customers. Cultivating brand loyalty is therefore more difficult than ever. Companies spend vast sums of money building up their brands, and that investment needs to be protected.

Registration of trade marks is the best method of protecting brands. A trade mark is a sign which distinguishes the goods and services of one business from those of others. Trade marks essentially act as a badge of origin.

For financial services businesses, trade mark protection will either take the form of securing individual national registrations in the countries in which the business operates, or where a brand is used across the European Community, businesses may opt for a Community Trade Mark registration.

Where trade marks are concerned, a number of legal issues need to be considered, including whether a mark is sufficiently distinctive to be registered. Marks which are merely descriptive of the services to which they relate will be refused registration. Companies also need to be mindful of the potential for their chosen trade mark to be refused registration or deemed infringing because it is identical or confusingly similar to an existing trade mark.

But registration alone is not enough. Financial services companies also need to control authorised use of their brands by third parties, such as financial intermediaries, to ensure that the brand is not diluted and irreparably harmed. It is also essential that they are vigilant in policing potentially problematic third party trade mark registrations and unauthorised trade mark use. In particular, companies need to guard against phishing attacks and monitor use of their marks on the Internet, otherwise they run they risk, not alone of their brand investment being wasted, but also of losing consumer confidence.

It is imperative that financial services businesses rank IP alongside, and regard it as integral to, other pressing business concerns such as increasing the growth and competitiveness of their organisations. The benefits of doing this are obvious - maximising the opportunities presented by IP. The risks of not doing so are significant - major disruption to business, irreversible damage to valuable brands, and potentially enormous costs.

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