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Intellectual Property: How to Protect Your Fintech Innovation

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Peter Arrowsmith, Partner at Gill Jennings & Every discusses with Finance Monthly the implications of intellectual property in the FinTech world, how to best protect and how to go about the challenges involved.

Getting to grips with intellectual property (IP) can seem daunting for fledgling FinTech companies just pushing off the starting blocks. However, it’s a step that early-stage businesses, looking to disrupt the market with the latest innovation, cannot afford to overlook.

The IP needs of disruptive companies are different from those of the industry incumbent, but are no less important. Having a well-formed IP strategy is not only vital to protecting the technical innovation at the heart of many FinTechs’ disruptive aspirations, it also plays a critical role in helping startups prove themselves worthy of funding, as investors assess the company’s prospects and exactly what they are getting for their money. Moreover, for founders looking towards their eventual exit, a strong IP portfolio will go a long way towards making a company attractive to potential buyers.

What protection is available to FinTech companies?

FinTech companies will likely hold several types of IP that they can and should seek to protect. Trade marks, for example, provide vital security and protection for a company’s name and branding. In terms of protecting innovation itself, if it’s software-based one option is copyright for the relevant code. However, copyright is limited in that it only protects the specific expression of code that underpins a concept and creates an effect; it does nothing to prevent a competitor achieving the same effect using code that has been developed independently. Ultimately, if your innovation is based on a new technology or process, a patent is the best option for providing strong protection of innovation. With a lifetime of 20 years, it allows a company to safeguard their entire invention for the long-term while they gain a foothold in the market.

Patent challenges in FinTech

Securing a patent is often not as easy as FinTech companies would hope, because innovation in the industry is predominantly software-based. A quirk of UK patent law is that, while technical innovation is patentable, the 1977 Patents Act – the most up-to-date legislation – treated computer programs in the same way as works of literature, protectable only by copyright, rather than technical innovations in and of themselves. This old-fashioned definition throws up barriers against a whole host of inventions – from mobile banking apps to online payment methods and even cryptocurrencies, all of which are software-based.

In spite of this, the common claim that it is impossible to patent a software-based innovation is a misconception. The Patents Act states that computer programs and business methods are excluded only “as such”. This key phrase allows leeway in the patentability of solutions, including computer programs, if they can be shown to have a technical effect. With 10,000 European patent applications in computer technology filed in 2016 alone, it is clear that many software companies are successfully patenting their technology.

Securing a patent in FinTech

While a business method itself cannot be patented, by starting with the method and working backward through the technology that makes it possible, IP lawyers can often find a part of a process that can be. For example, the concept of a currency conversion app is non-technical and unlikely to be applicable for a patent, but an inventive use of biometric technology – such as iris scanning – within that app to confirm payment very well could be.

By patenting the underlying technology of the invention, organisations can prevent competitors from copying the innovative part of their business, thus giving “backdoor protection” for their overall idea. A good method for many disruptors is to submit a broad application for the concept, supplemented by a number of narrow applications that protect the technology that makes the concept possible.

The role of inventors/developers

However a product has been developed, it is likely that a team of developers or inventors has been involved. It is critical for all businesses, especially those where the invention has been developed by a team, to make sure that the company has proper rights to the invention. Usually this can be achieved by ensuring that all of the developers are employees of the business, or – if they are independent contractors – that their contract involves an assignment of IP rights. Investors performing due diligence on a company will often look at the ownership of IP first to make sure that the company actually owns what it claims as its core technology. While the inventors themselves should not have any rights to the invention, they are named as inventors in a patent application, and this can provide some much-deserved recognition, and can be a valuable addition to their CVs.

Where to start?

There is no single answer to the question of what a disruptive FinTech should be protecting first; the most important thing is to build an IP strategy around your business plan. Startups naturally don’t have the budget of the big banks, so they should think smartly about what they are trying to achieve, and what they need to protect to achieve it – typically, the core technologies that underpin the company, in the geographies that matter most. Filing a patent for every last idea the company has come up with is not cost-efficient or effective. Before you protect anything, ask yourself what purpose the protection will have for your business, and ensure you are getting the proper IP advice to guide you through your first steps.

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