As banking and technology become more intertwined, expect a slew of dust-ups over who owns the intellectual property.
Banks already have a lot to consider in picking technology and vendors. What technology is the most cost effective? What is going to hold up the best in a quickly changing world? Will the customers value it? But they might also want to consider the patents, too.
If a solution or service a bank is using is found to have violated intellectual property rights, it could mean having to pay extra money in licensing fees, acquire replacement technology, or in a worst-case scenario, customer usage of the product could be disrupted. That goes for homegrown technology and tools purchased from vendors.
"If you are a banker relying on and leveraging technology developed in-house, hopefully your attorneys have done due diligence to ensure you are not violating someone else's IP," said Brian Knight, associate director of the Milken Institute. "And if you are using vendor technology, you have to be very mindful that their IP is clear, that they have the appropriate licenses. You don't want to run the risk of having the spigot turned off in the event of an IP lawsuit."
This issue was brought to the forefront last month at the conclusion of a nearly three-year intellectual property legal battle between the banking technology vendor giants Fiserv and FIS. In January of 2012, Fiserv filed a patent infringement lawsuit against FIS, alleging that FIS' Payments Manager products infringe on patents owned by Fiserv subsidiaries CheckFree, an online bill pay service, and CashEdge, a payments provider.
The U.S. Patent and Trademark Office's Patent Trial and Appeal Board ruled that all claims in Fiserv's asserted patents were unpatentable in late 2014. Fiserv initially disputed that ruling, but last month Fiserv dismissed its appeal and the suit has been settled without payment from either side.
FIS declined to comment beyond a statement it issued in a press release announcing the decision. In an emailed statement, a Fiserv spokesperson said that although the company disagreed with the 2014 ruling, "recent legal trends related to patent eligibility have led to similar rulings for software patents across numerous industries."
It added that the ruling would not hinder further development.
"The 2014 PTAB rulings have no impact on Fiserv products and services, and we continue to develop innovative and unique payment capabilities," it said.
Knight said that while banks are already required to do a hefty amount of due diligence before entering into a vendor relationship for compliance purposes, in this era of proliferating technology it is wise to pay even more scrutiny to patents that a vendor has to ensure they hold up.
While it may benefit the banks to be cautious, legal opinion is beginning to shift to protect technology innovation somewhat from patent lawsuits, as Fiserv noted.
A landmark case in this area was the 2014 decision in Alice Corp. v. CLS Bank, in which the U.S. Supreme Court ruled that patents on software related to an electronic escrow service were found to be unpatentable, since the patent's claims were drawn from abstract ideas.
"I think there's a movement in the courts and in Congress to restrict the scope of software patentability," Knight said.
Still, as banks rely more and more technology, the number of patents being filed is increasing.
"You're seeing now not just the newer fintech players, but the banks, especially the larger banks, filing more patents," said David Albertazzi, a senior analyst with Aite Group.
According to Relecura, a firm that provides patent analysis tools, of the top 20 the top financial technology patent holders, five are financial services companies.
In 2014, Bank of America received 232 patents, JPMorgan Chase received 95, Visa received 81 and MasterCard received 71, according to data from the patent office.
This is a trend that can be expected to increase as in-house development grows.
"I think everybody is trying to put their own stamp on how they are applying and utilizing technology," Albertazzi noted. ""There's a bigger appetite for protecting that IP, not just from the vendors but the financial institutions themselves."