Is there a Fintech Patent War on the Horizon?

Megan La Belle - Catholic University of America

-- Historically, financial institutions have relied on trade secrets and first-mover advantages, rather than patents, to protect their inventions. But as my co-author, Heidi Schooner, and I showed in an earlier study, "Big Banks and Business Method Patents," banks started breaking from these patterns over the past two decades or so and increasingly are seeking patent protection for financial inventions. Initially, financial institutions were primarily building their patent portfolios as a defensive measure—i.e., to protect themselves from infringement suits. Yet, with the furious rise of fintech in recent years, it appears that the purpose for patenting is changing and that banks are starting to take a more offensive posture.

In "Fintech: New Battle Lines in the Patent Wars?", our follow-up article that is forthcoming in the Cardozo Law Review, we explore this new phase in financial patenting with particular attention to USAA v. Wells Fargo, the first bank-on-bank patent infringement litigation, which recently resulted in a $300 million verdict for USAA. In two separate trials, the jury found that Wells Fargo infringed USAA’s patents covering various aspects of its remote deposit capture technology, and awarded $200 million in damages in one case and $100 million in the other. What is more, the court is currently considering USAA’s motion to enhance damages on the grounds that Wells Fargo’s infringement was willful—so the ultimate payout to USAA could be much greater.

Does USAA v. Wells Fargo signal the beginning of a patent war in the fintech space? It’s certainly possible, as we discuss in our article. Although the seven-year battle between Apple and Samsung over smartphone technology is probably the best-known patent war, it certainly wasn’t the first. Patent wars have a long history in the United States with inventions like the telephone, sewing machine, airplane, laser, and diapers all being the subject of prolonged litigation. Why patent wars erupt in certain industries is hard to pinpoint. Some technologies are so valuable that war is worthwhile. On the other hand, if the patents at issue are of questionable validity, accused infringers may fight back instead of taking a license.

In the end, there are many factors that contribute to the outbreak of patent wars, so it’s difficult to predict what technology will be at the center of the next big one. But that doesn’t stop commentators from trying. There has been speculation about patents wars erupting over the internet of things or cannabis technology in recent years. The explosion in technological advances related to the automobile industry has also generated a good deal of chatter about the possibility of a looming patent war. Or maybe, as our article explores, the next major patent war will surround financial technology. Even before the coronavirus, reliance on fintech was increasing at a rapid rate. But now the pandemic is driving fintech use even higher around the world—for example, a recent study shows a 72% rise in the use of fintech apps in Europe. Even small businesses like farmers markets that have long relied on cash have turned to fintech systems as a result of coronavirus. The pandemic, of course, is also negatively affecting many fintech companies and the long-term impacts remain unknown.

In the meantime, tech giants like Microsoft and Google, along with financial institutions like Bank of America, have been building their fintech patent portfolios for years. The question now is what they will do with those patents. Perhaps the pandemic will provide patent owners with insight about which technologies are the most valuable and worth going to war over. Or maybe the current economic crisis will reshape the fintech space in a way that avoids a patent war. Only time will tell, but we will be watching the developments closely.

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