In both the United States and Canada there has been an increase in filed and issued patents in the classifications covering financial service innovations.
As patent application filings increase in this area and applications mature into patents, the level of litigation in the financial services industry will increase accordingly. Combine this with the fact that financial patents in the U.S. are being litigated at a rate 27 times greater than that of patents as a whole (Josh Lerner, Trolls on State Street? The Litigation of Financial Patents, 1976-2005) and financial services companies appear to be facing substantial risks involving future patent litigation. Litigation can be expensive and winding up on the losing end could result in a large damage award or even a permanent injunction against the alleged infringing activity.
The best way to mitigate this litigation risk is for financial services companies to develop their own strategic patent portfolios. While patents are traditionally considered a way to exclude competition or to generate licensing revenue, they can also serve as an effective tool of defence. By aggressively seeking patents for a company's own financial product innovations, third parties can be prevented from obtaining patent rights that could later be asserted against the company. Having a strong patent portfolio can also discourage competitors from litigating and may also be used to cross-license in order to settle litigation or to provide the opportunity to use a competitor's technology.
In order for financial service companies to build a strong and strategic patent portfolio, they must revisit emerging products and systems and look for areas of innovation and invention. By developing systematic internal policies and procedures that identify promising innovations for patent protection, a financial services company may reduce the risk of litigation as well as enhance revenues by excluding competitors from key product areas and/or through licensing fees.