Protecting FinTech Innovation
|An early form of FinTech|
A lot of money is going into FinTech (financial services technology) in this country and overseas nowadays including accelerator programmes promoted by our central bank and one of our major clearers (see the Bank of England's FinTech page and the Barclays Accelerator as well as details of the other accelerator programmes in the table below). But how is all that investment in FinTech to be protected if indeed it is to be protected at all? In an extract from a longer article in Gluon. Steve Findley and Vanni Torelli ask whether IP is so important to FinTech (see Fintech Startups – is IP important? The FinTech Times).
In view of the amounts of money involved, I should be very surprised if it were not. Findley and Torelli argued that of the top 35 FinTec h unicorns than 25% have filed for patents. I am not in the least surprised by that statistic. Most FinTech innovation will be software implemented. Software is difficult to patent in England and indeed the rest of Europe because of the exclusion of computer programs "as such" by s.1 (2) (c) of the Patents Act 1977 and art 52 (2) (c) of the European Patent Convention. Moreover, patents are expensive to get and maintain and even more expensive to enforce. There must be full disclosure as to how they work. A 20-year term is likely to exceed many times the economic value of the technology. The fact that less than 25% of FinTech unicorns have applied for patents does not mean that there is no legal protection at all. My guess is that the businesses responsible for such innovation rely on trade secrecy, copyrights and trade mark registration to protect their investment.
A trade secret is the antithesis of a patent. In contrast to a patent which is a monopoly of a new invention granted as a reward for disclosing the invention to the public, a trade secret is never disclosed to anybody except in confidence. The law of confidence is contained in a series of judges' decisions though we have an opportunity to codify that law in order to implement the Trade Secrets Directive (Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1) see The Trade Secrets Directive 16 July 2016). The basic principles of the law of confidence were set out by Mr Justice Megarry as he then was in Coco v AN Clark (Engineers) Ltd.  F.S.R. 415  R.P.C. 41:
"In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must “have the necessary quality of confidence about it”. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it."
Every patented invention starts off as a trade secret and many inventions stay secret unless they are published in patent applications or discovered by reverse engineering or through parallel research. In many fast moving technologies, like FinTech, that is long enough for the person responsible for the innovation to gain whatever commercial advantage he or she could reasonably expect. Trade secrecy is often the only way of protecting some intellectuals assets such as algorithms and business plans for new services.
Copyright prohibits copying of certain types of creative output. It does not prohibit the making of a similar work so long as such a work can be made without referring to the original. Computer code, databases, manuals, forms for inputting data and screen images for displaying it are all protected by copyright. Copyright subsists automatically in all of those works so long as, or to the extent that, they are not copied from an antecedent work and are made either by a British national or resident or a national or resident of some other country whose government is party to a multi- or bilateral copyright treaty with that of our own country. That is pretty well everybody since most countries are party to the Berne or Universal Copyright Conventions or TRIPS.
FinTech has created a wide range of new services such as cryptocurrency transactions, crowd funding and peer-to-peer lending. Reputation is important to such businesses and a trade mark is the obvious way of distinguishing them.
Anyone wishing to discuss this article or FinTech in general, may call me during office houses on 020 7404 5252 or send me a message through my contact form.
FinTech Accelerators and Incubators
Axel Springer Plug and Play Accelerator
Bank of England FinTech Accelerator
Capital One Growth Labs
Fintech Innovation Labs
Finance Innovation Labs
FinTech Hive, DIFC Accelerator Programme