Big Banks and Business Method Patents
The banking industry and the patent system are longstanding American institutions whose histories date back to the founding of this country. Historically, however, the paths of these two institutions rarely crossed. Although financial firms have been increasing their innovative output for decades now, until recently they relied on trade secrecy, first mover advantages, and other business mechanisms to protect and monetize their intellectual property — not patents. Through a convergence of circumstances over the past several years, that pattern has changed. The shift began when the Federal Circuit decided that business methods — banks’ primary mode of innovation — are patentable subject matter. That decision triggered an increase in the number of business method patents issued by the PTO, and, correspondingly, a surge in patent infringement litigation targeting big banks. When the banks found little success in court, their powerful lobby persuaded Congress to include a special carve out for financial patents in the America Invents Act — the comprehensive patent reform legislation enacted in 2011. Meanwhile, as the financial industry sought legislative favor to ward off future infringement suits, many of the big banks built substantial patent portfolios of their own. This Article explores this nascent relationship and considers some potential implications of growing bank involvement in our patent system. It suggests that the intersection of these institutions could yield some benefit, for example by improving the publicly available information regarding financial innovations. Yet, more pointedly, it warns of possible harms, especially if big banks use their political and economic power to disproportionately influence patent reform and innovation policy in the future.
Research on Financial Innovations: An Interdisciplinary Review
The financial industry offers a unique setting to study innovations. Financial innovations (FIs) have fueled the growth of economies, markets, and societies. The financial industry has successfully become the breeding ground for innovative services, processes, business models, and technologies. Three market developments are disrupting the industry and opening up a new era for the financial services industry. Disruptions from within and outside the industry offer new generations of radically-innovative services. Moreover, new generations of consumers differ from previous generations in their needs and wants and look for innovative ways to handle their financial needs. Finally, significant developments related to financial innovations have emerged in Asia and developing countries. In light of these market disruptions, this study systematically reviews the academic research literature on FIs in two phases. The first phase provides a quantitative review of 546 journal articles published between 1990 and 2018. This analysis found that disciplines differ with regard to the employed research methodologies, the units of analysis, sources of data, and the innovations they examined. The analysis found a positive trend in the number of published articles during this period. However, studies have primarily focused on the US and Europe and less so on other parts of the world. In the second phase, the study synthesizes the extant research on FIs and maps them in five research areas: firms' introduction and adoption of FIs, financial innovation development, the outcomes of financial innovations, regulations and intellectual property, and consumers. This synthesis further identifies research gaps in the available research that highlight future research opportunities in light of the three market disruptions.
The Private Costs of Patent Litigation
This paper estimates the total cost of patent litigation to alleged infringers. We use a large sample of stock market event studies around the date of lawsuit filings for US public firms from 1984-99. We find that the total costs of litigation are much greater than legal fees and costs are large even for lawsuits that settle. Lawsuits cost alleged infringers about $28.7 million ($92) in the mean and $2.9 million in the median. Moreover, infringement risk rose sharply during the late 1990s to over 14% of R&D spending. Small firms have lower risk relative to R&D.