The torrid pace of innovation in the financial industry, especially in the mobile-payment sector, brings problems as well as opportunity. One of those problems is patent issues.

Patents are designed to protect the inventor from unauthorized use of intellectual property. Today’s financial services industry is much different than it was a decade ago, perhaps even five years ago, with the rise of mobile technology leading the upheaval. Start-ups use patents to attract investors and established businesses use patents to protect themselves from future infringement claims.

Mike Connor, an intellectual property (IP) lawyer with Alston&Bird, says that making matters more complicated are patent trolls, who file for patents and, when they are successful, sue companies using the patented technology. Defendants in recent years involving financial industry-related infringement complaints include Starbucks Corp., eBay/PayPal, Bank of the West and Capital One, he says.

Connor says the financial industry is traveling the same path as the mobile telecom industry in the 1990s: the rapid advances in technology, the race to corner markets with that technology, the protection of patents and the litigation for perceived or actual violations.

He says if a financial institution does not already have a patent plan, it must. If it invests in its own innovation, or uses another’s idea or product, what is its strategy?

“IP is much more valuable and prominent than it was just a few years ago,” he says. “I think any company doing business in this area needs to have a comprehensive IP plan, a way to plan to protect this investment. Also, they need to be cautious about others’ rights — work around it, pay for a license, or make a case that the right is invalid.”

For smaller companies with no budget for innovation, Connor says deals with vendors need to include indemnity provisions.

Aite Group senior analyst Nancy Atkinson says patent infringement has the potential to be a major issue in the financial industry. Is it worth it to settle with a plaintiff to avoid lengthy legal battles, or is there a cross-licensing deal to be made? Atkinson says the complications multiply in the financial industry because with many products, "you’re not necessarily inventing something you can put your hands on,” she says.

"Mostly it’s how a process gets done," she says, "and there are generally-accepted approaches to doing that in the industry, and sometimes people have tried to patent those in a way that seems rather false to people in the industry. The patent office is not full of folks who understand the financial industry.”

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry