What You Should be Thinking About Intellectual Property Risk and Innovation
- Innovation is driven by ideas and intellectual property worth billions of dollars.
- Financial institutions should assess their risk and protect their intellectual property in the same way they maintain cyber security—proactively.
- Conversely, as financial institutions race to keep up with technological changes and market demands, they must guard against missteps that could violate others’ patents, trademarks, and licenses, which could result in costly lawsuits and reputation gaffes.
The financial industry is awash in innovators and innovation. While we watch the latest product launch and see the buzz of the next big thing, driving those changes are ideas—intellectual property worth billions of dollars that companies protect through patents, trademarks, and licenses.
While financial technology companies and Silicon Valley often get most of the press as leading progress, in reality, banks, savings associations, and credit unions lead in creating new technology, products, and processes. These new processes are changing how consumers bank and how financial institutions conduct their businesses. And they lead in patenting those innovations too.
Bank of America publicized receiving 512 patents in 2021.[i] J.P. Morgan Chase has nearly 2,000 active patents[ii] on subjects as diverse as “Quantum erasure channel error correction for quantum communication and sensing.”[iii] While heavy industry and electronics still make up most of the top 100 patent-receiving companies, more banks are cracking that list with Capital One falling just behind Porsche in 2021, for example.[iv]
For financial institutions, intellectual property has become an important asset class whether enabling unique business value through proprietary technology and processes or through the revenue generated by licensing that capability to the industry. With so much at stake, financial institutions need to consider the risks to their intellectual property and the risks they will be infringing on others.
What Should Financial Institutions Do to Protect Their Intellectual Property?
Just as a branch secures its assets and locks its doors, financial institutions should take proactive care to protect intellectual property, patents, and trademarks. Despite the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014)—that some suggest diminished the value of patents and their enforceability in the financial space—patents remain an important tool in protecting intellectual property for financial institutions. The high court’s decision recognized that at some level “all inventions . . . embody, use, reflect, rest upon or apply … abstract ideas” and the decisions should not be used to upend all of patent law. For financial institutions, the ruling highlights the importance of carefully drafting patent applications to avoid being rejected as merely patenting abstract ideas.[v]
Patents and licenses give companies the right to sue for infringement, but it is largely the patent holder’s responsibility to identify infringement and make a claim for harm caused. Financial institutions should integrate intellectual property risk assessment into their enterprise risk planning. They should maintain active monitoring of patents and licensed materials and understand their value. Banks need clear policies regarding the application, maintenance, and inventorying of their patents and intellectual property. They should establish procedures for detecting and acting on potential violations. Afterall, you may have invested tens of millions of dollars in research and development. You do not want to pay for a competitor’s progress.
Intellectual property theft can occur in many ways. Documents and work products can walk out the door with untrained or malicious staff. Cyber breaches can result in stolen technology. Most often, other industry participants simply imitate what they think is successful. While flattering, it may also lead to patent violations.
When a company suspects a patent violation or license breach, executives should weigh the legal options, costs of defending their patents and ideas, and the impact to their operations and reputation to determine the best course of action. If they do not have patent law and intellectual property expertise, companies should consult reputable firms that do.
What Should Companies Do to Avoid Violating Patents?
While protecting your intellectual property is one side of the coin, companies also risk infringing on others’ patented ideas, processes, and technologies. In economic conditions where yield is tight and competition high, the pressures to find an edge, reduce costs, and generate better revenue can be overwhelming.
A shortcut to launching a new product or simply two great minds thinking alike can lead to liability that can cost companies millions in damages and lost time for inadvertently violating another’s patent. Patent infringement costs companies billions of dollars each year in awarded damages with 5,000 to 6,000 patent cases filed each year. In 2020 alone, U.S. courts awarded $4.67 billion to patent holders.[vi] Damages are not the only costs to a company. Litigating a patent infringement case runs up to $4 million on average and takes up to three years to come to trial. While incentive is high for both parties to settle, with nearly 97 percent of cases resolved outside of court, the potential costs can be material.[vii]
In addition to legal costs and damages, imagine the business impact facing a company that is ordered to cease offering a core product or service because a key component is determined to violate a competitor’s patent.
Companies need to actively assess their technology and processes for infringement and include that process in their regular risk assessments. They must also take care to ensure business partners and service providers avoid intellectual property theft and limit liability to that third party risk. In particular, companies should consider the risk of infringement during the research and development phase of creating new products.
Executives should establish strong policies and procedures to prevent patent infringement on the part of their employees and third-party vendors. They should create effective controls that limit liability, ensure vendor contract agreements address the issue, and clarify ownership of proprietary technology and processes. Companies should also conduct due diligence of services and technologies acquired through business combinations and vendors to avoid potential liability and reputation risk.
While companies have the right to and should responsibly defend their intellectual property, companies should also be aware that “patent trolls” actively seek out infringement to extract a toll, defending someone else’s property.
Despite such care, companies may find they have encroached on another’s protected intellectual property. When that occurs, companies should carefully assess their legal liability. They should assess the risk to their operations and reputation and pursue a resolution in the most reasonable means possible before the courts become involved. If the suspected violation involves a new product or service, companies should proactively seek to resolve the issue prior to launch to minimize liability whenever possible.
Put Patomak’s Banking Expertise to Work
Patomak has deep experience in helping banks and other financial institutions manage risks and respond to developments in the banking industry. Contact us to learn how Patomak can help you navigate these challenges and help you meet your business goals.
[i] “Bank of America Sets Record-Breaking Year for Patents in 2021.” Bank of America. February 24, 2022.
[ii] “JP Morgan Patents – Key Insights and Stats.” Insights. GreyB. Accessed August 10, 2022.
[iii] “FLARE Program Patent Applications” J.P. Morgan Chase. Accessed August 10, 2022.
[iv] “Top 300 Organizations Granted U.S. Patents in 2021.” Intellectual Property Owners Association and Harrity Analytics. January 26, 2022.
[v] Stephen T. Schreiner and Brendan McCommas. “Intellectual Property: The Patentability of Financial Processes After the Supreme Court’s Alice Decision.” The Banking Law Journal. October 2014. pp. 777-785.
[vi] Branka Vuleta. “25 Patent Litigation Statistics – High-Profile Feuds about Intellectual Property.” Legal Jobs. August 6, 2021.
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