Banks and Insurance Companies Seek Patents for New Financial Services


New technologies frequently result in changes in the laws and their interpretation. The modern age, with its rapidly changing technology, has resulted in waves of litigation in which old principles are applied to new technology and new principles are developed when there is no concept or tradition that can be reasonably applied. Intellectual property is one such area of law, as the creators of software have sought protection for their creations by claiming different kinds of IP protection such as copyright or patent protection.

State Street Bank

A new Federal Circuit decision has opened the floodgates for patents on new financial services that are enabled by software (and it seems that all new financial services are enabled by software). State Street Bank v. Signature Financial, 47 USPQ2d 1596, (Fed. Cir. 1998). Among businesses stampeding to the Patent and Trademark Office (PTO) will be those wanting to patent new software enabled telecom infrastructure for delivering old services, such as Internet and modem based remote banking, and billing systems.

Whole financial industries, that never were involved with patents, must now develop their own financial service patent portfolios, or lose market share and cash flow in the rapidly reorganizing financial industries. These new players include banks, insurance companies, savings and loans, mortgage companies, securities brokers, insurance agents, credit card companies, mutual fund managers, commodities traders, and others. The nimble in these industries have, in the last few years, already begun to get and enforce financial service patents. But now this strategy will become a flood, not a trickle.

The Decision

In the State Street Bank decision, the Federal Circuit ruled that Signature Financial's patent protecting its software system for financial record keeping was patentable subject matter. The software system was for a mutual fund that invests in stocks traded in more than one foreign currency and thus computer software tracking of currency fluctuations is required. State Street's software patent claims were sufficiently broad so as to prohibit other mutual funds of this type because such funds are so software dependent. The Court's reasoning in the case is very broad and destroys the two last remaining attacks on software patents in general, and financial service patents in particular. That is, the Court lays to rest the "business method" attack on software patentability, and effectively guts the "mathematical algorithm" attack on software patentability. This puts the Federal Circuit decision directly in line with recent revisions in the PTO's own Manual of Patent Examining Procedure.

On the Horizon

A look at the early financial service patents that preceded the State Street Bank decision shows us the subject matter of the coming wave of patent applications. We see already a few software enabled patents for mutual funds, credit card accounts, integrated billing systems, annuity contracts, insurance products, artificial intelligence systems for making insurance underwriting decisions and loan decisions, home banking, remote banking, remote securities trading, program trading algorithms, e-commerce, e-cash, smart cards, home shopping, and more.

The owners of these patents will be able to enjoin competitors from copying their services, collect damages for infringement, and obtain cashflow from patent license royalties from their competitors.

Businesses who already have financial service patents include individuals, small start ups, and giant firms.