Are Canadian financial institutions missing the boat?
A look at the patent trend in the banking industry shows that Canadian financial institutions have not yet begun to file patent applications for business methods or software. While it has not yet been decided by the powers that be (ie, the courts and/or the Canadian Intellectual Property Office (CIPO)) whether software/business methods constitute patentable subject matter in Canada, US financial institutions appear to have adopted a “better safe than sorry” approach. This has given them a long head start and puts Canadian financial institutions in a precarious situation.
US financial institutions have recognised the significant potential available for patenting the types of services they offer. Examples of software/business method patents applied for at the US Patent and Trademark Office (USPTO) include:
- a process for creating a financial plan for funding of college education (US Patent 7,158,978);
- a preferred credit information data collection method (US Patent 7,139,734); and
- a method for facilitating real estate transactions (US Patent 7,152,037).
Within the USPTO’s patent classification system, Class 705 is defined as “data processing: financial, business practice, management, or cost/price determination”. This is the generic class for any invention relating to the performance of data processing operations in which there is a change in the data, or for the performance of calculation operations where the apparatus or method is designed for or utilised in the practice, administration or management of an enterprise, or in the processing of financial data. In this class are many patents owned by financial institutions and directed towards methods and devices used by them in their day-to-day business.
The number of patent applications in Class 705 has grown from fewer than 1,000 in 1997 to more than 6,000 in 2006, peaking at around 8,800 in 2001. The USPTO is having such a hard time keeping up with the large number of filings in this class that the waiting period to begin the examination process is anywhere between 60 and 120 months. When a large number of these patent applications issue, patent infringement will be a serious concern for anyone looking to do business in the financial sector in the United States.
For this reason, Canadian financial institutions cannot afford to be passive in the area of patent filings. Graph 1 illustrates the filing practices of a number of large US financial institutions selected randomly based on name recognition and relative size of the organisation. What stands out from this data is not only that these organisations are actively filing and obtaining patents in the United States, but that they are also filing patent applications in Canada. By comparison, graph 2 shows the filing practices of large Canadian financial institutions. Most do not have a single patent or patent application.
The Canadian patent system makes it easy for US financial institutions to file there too. Fees are relatively low, with the filing fee standing at C$400. Once a filing date is obtained, no further expenses need be incurred for five years, except for the annual maintenance fees (C$100 per year for years two to four and C$200 per year for years five to nine). A request for examination (costing C$800) must be filed before the expiration of the five-year period, after which the applicant may wait another two or three years before receiving a first examination report from CIPO. This gives applicants approximately eight years coverage at very low cost while they wait to see whether the law will change.
Given that most Canadian financial institutions do not operate in the United States, the incentive to file patent applications there is much less. Such a practice could potentially result in an additional source of revenue in the form of licensing and/or royalties, but the gains would be small relative to the cost and effort.
The result is that Canadian financial institutions are not prepared for an eventual change in patenting practices for software/business methods. Many patent practitioners believe that when the Supreme Court of Canada is forced to issue a decision on this matter, it will have no choice but to recognise that the Patent Act does indeed allow for this type of subject matter. At that moment, the floodgates will officially be opened and Canada will likely follow in the United States’ footsteps and witness a dramatic increase in the number of patent applications filed for this particular subject matter.
However, when this day comes Canadian financial institutions will not be prepared. US financial institutions will then have the right to exclude their Canadian counterparts from certain practices, some of which may be core to the operation of a financial institution. The right to exploit a patented method will come at a price, in the form of licensing and/or royalties. That price could be significantly reduced if Canadian financial institutions act now: the best bargaining chip for a patent licence is another equally useful patent licence to grant in exchange.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
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