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Fintech – understanding the role of patents

Who said “We are a technology company”?

  • Goldman Sachs
  • Barclays
  • JP Morgan

The question sits at the heart of Fintech – technologies that will disrupt and transform the future of banking. The answer is all of the above.

Last week, Nigel Swycher CEO of Aistemos joined a panel of experts at law firm CMS focussing on “Innovation in the cloud: reducing IP risk for Financial Services”. These are a few takeaways from the session. Nigel’s contribution analysed the patenting strategy of the major banks. It’s a bizarre picture. Banks employ 10,000s of IT specialists – but own between them less than 5,000 patents. And Bank of America own half of these. Comparing banks to tech companies in the same areas makes the point:

Source: Cipher

IBM own 5X more Fintech patents than all the banks put together. The point being that banks need to be more active in this area and collaborations and Fintech acquisitions are high up on banks’ strategic priorities. A copy of the Cipher Fintech Report can be downloaded below.

Clive Gringras, Head of Technology at CMS, chaired the panel beginning with the positive message that we are getting clearer and clearer guidance on how FS regulators view moves to the cloud and other digital transformations. But a blessing from a regulator is not the end of the considerations.

This set the scene for Nicolas Schifano, Microsoft. The starting point is that 60% of data will be in the public cloud by 2025. His presentation explained the complex mix of proprietary and open source technologies required to implement cloud solutions, and the different categories of risks to be managed, including security, privacy and IP. There was a gentle reminder that innovation through the ages was synonymous with patent wars (e.g. from barbed wire to the light bulb) leading to a review of a range of risk mitigation strategies. Microsoft’s contribution to the mix is Azure IP Advantage, which offers a combination of indemnity, patent pick and a springing licence (the latter being a bit like LOTNet).

Dominic Dryden, technology partner at CMS, picked up the contractual theme with a reminder that transitioning to the cloud requires the usual levels of due diligence (know what you need) and appropriate risk allocation. As an adviser seasoned in acting for the banks, there was perhaps no surprise that he provided guidance on allocating risk to the supplier.

The Q&A was lively including a discussion of IP insurance. If the patent risks are largely unquantifiable, and there are no adverse selection issues, insurance looks like a viable solution. The analogy was drawn with cyber insurance, but this did take over a decade to go mainstream.

The seminar and associated Cipher Fintech report highlights that IP risk is not about fault. No-one chooses to infringe a third party patent, but some litigation is inevitable. While the banks are new to patenting and IP risk management, the market has developed solutions to ease the way. Nigel had this to say: “My advice is to engage with patents. Anything else is just asking for trouble”.

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