Banks bulk up on pa­tent pro­tec­tion

Banks race to beat the pa­tent trolls—and Sil­i­con Val­ley “If we don’t pro­tect our in­no­va­tions… we’re go­ing to be left be­hind”

Bloomberg Businessweek (Asia) - - CONTENTS - −Su­san Decker and El­iz­a­beth Dexheimer

Banks and Sil­i­con Val­ley are on a col­li­sion course, the fu­ture of fi­nance may be at stake, and one side is bran­dish­ing its most dreaded weapon: the Pow­er­Point pre­sen­ta­tion.

In Jan­uary dozens of govern­ment pa­tent ex­am­in­ers gath­ered in a sub­ur­ban Wash­ing­ton lecture hall to lis­ten to Bank of Amer­ica em­ploy­ees go through a slideshow. Hun­dreds more tuned in for a we­b­cast. The pre­sen­ta­tion de­tailed 25 ways banks dig­i­tally au­then­ti­cate such things as a cus­tomer de­posit­ing checks. It may sound ag­o­niz­ingly tech­ni­cal, but for banks, doc­u­ment­ing ev­ery de­tail of what they do has be­come crit­i­cal. As Sil­i­con Val­ley en­trepreneur­s dream up ways to dis­rupt the fi­nan­cial-ser­vices busi­ness, bankers and Wall Street com­pa­nies are tak­ing pa­tents very se­ri­ously.

“There is so much in­no­va­tion in fi­nance right now that if you want to stay ahead and main­tain an edge, you have to pa­tent it,” says Linda Coven, a bank­ing and pay­ments an­a­lyst at re­search firm Aite Group.

The big­gest U.S. banks, in­clud­ing Bank of Amer­ica, and pay­ments net­works such as MasterCard are ap­ply­ing for more pa­tents than ever be­fore on ev­ery­thing from mo­bile wal­lets to blockchain ledgers sim­i­lar to those used for the dig­i­tal cur­rency bit­coin. Banks and pay­ments com­pa­nies were awarded 1,192 pa­tents over the past three years, 36 per­cent more than the prior three-year pe­riod, ac­cord­ing to re­searcher En­vi­sion IP.

They’re also host­ing sem­i­nars for the U.S. pa­tent of­fice to head off what the in­dus­try sees as bad pa­tents that cover age-old bank­ing prac­tices. By show­ing the ex­am­in­ers how the in­dus­try al­ready op­er­ates, the banks hope the of­fice won’t grant pa­tents to ap­pli­cants with sim­i­lar ideas.

Tech com­pa­nies from Ap­ple to Google have for years fought pa­tent wars over smart­phone fea­tures, search tech­nol­ogy, and com­puter chips. Banks largely ig­nored the pa­tent of­fice and gained a rep­u­ta­tion for keep­ing their in­ter­nal pro­cesses to them­selves.

That se­crecy has be­come a prob­lem. In 2011 the na­tion’s banks and stock ex­changes were sued by an in­de­pen­dent pa­tent owner over the way they en­code and trans­mit data re­lated to bil­lions of trans­ac­tions ev­ery day. Banks spent mil­lions of dol­lars to suc­cess­fully fight the claim.

Af­ter a few dozen suits like that, banks de­cided they needed to in­ter­vene be­fore pa­tents were is­sued. “There was this frus­tra­tion of ‘Why is that pa­tent out there?’ ” says Sean Reilly, gen­eral coun­sel of Aske­lad­den, a group set up to ad­dress pa­tent is­sues by the

Clear­ing House, a pay­ments com­pany owned by the big­gest U.S. banks. Bank of Amer­ica and JPMor­gan Chase are among the com­pa­nies scour­ing old com­puter files and boxes of doc­u­ments to cre­ate a data­base that shows the

evo­lu­tion of mod­ern bank­ing prac­tices.

A 2014 U.S. Supreme Court rul­ing found that au­tomat­ing a con­cept or prac­tice wasn’t enough to win a pa­tent. But the fo­cus on claim­ing in­tel­lec­tual prop­erty isn’t only about fight­ing law­suits over ex­ist­ing pro­cesses. Banks also want to beat back com­peti­tors as they and tech-driven star­tups ex­per­i­ment with ways to lend, make trades, and con­duct mo­bile bank­ing.

“It’s all stem­ming from the fact that banks are no longer your stan­dard brick-and-mor­tar com­pany that holds your money,” says Bi­nal Pa­tel, a pa­tent lawyer at Ban­ner & Wit­coff. “They’re touch­ing pretty much any­thing that Sil­i­con Val­ley seems to be touch­ing.”

Banks of­ten team up with tech com­pa­nies—JPMor­gan did a deal with on­line len­der On Deck Cap­i­tal to of­fer small-busi­ness loans—but they know to­day’s ally may be to­mor­row’s ri­val. “There’s cer­tainly the sug­ges­tion that, ‘If we don’t pro­tect our in­no­va­tions like the Sil­i­con Val­ley in­no­va­tions, we’re go­ing to be left be­hind, and they’re go­ing to take over our in­dus­try,’ ” says Jeff Berkowitz, a pa­tent lawyer with the firm Finnegan.

Bank of Amer­ica has won the most pa­tents among U.S. banks in re­cent years, with an ac­tive port­fo­lio of more than 3,000. Th­ese in­clude pa­tents cov­er­ing blockchain­s, a wear­able fi­nan­cial in­di­ca­tor such as a watch, and au­to­mated teller ma­chines that can be op­er­ated by a smart­phone. MasterCard ap­plied for 500 last year, 10 times the num­ber in 2010, ac­cord­ing to Colm Dobbyn, head of the com­pany’s pa­tent pro­gram.

The pa­tent of­fice wel­comes the at­ten­tion. The Bank of Amer­ica sem­i­nar was part of the agency’s ef­fort to pro­vide more tech­ni­cal train­ing for ex­am­in­ers. Bris­tolMy­ers Squibb, Google, and Tesla have also held ses­sions for pa­tent of­fice work­ers.

Un­til a 1998 court rul­ing opened the door to more busi­ness-method and soft­ware pa­tents, most fi­nance pa­tents weren’t al­lowed. Once they were, the pa­tent of­fice still didn’t have ac­cess to in­for­ma­tion on how fi­nan­cial com­pa­nies op­er­ated. Some­times the com­pa­nies them­selves strug­gled to doc­u­ment the things they had al­ready been do­ing be­fore a pa­tent ap­pli­cant came along.

Michael Zoppo, a pa­tent lawyer with Fish & Richard­son, re­calls a case over an au­to­mated ver­sion of some­thing trad­ing-pit work­ers had been do­ing for years. “No­body writes that down,” he says. “They talk about it over drinks. It’s a cul­tural is­sue with the in­dus­try.”

The bot­tom line Wall Street and Sil­i­con Val­ley are in­creas­ingly in the same busi­nesses, and that’s driven a big in­crease in bank pa­tents.

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