Why financial services firms need to get smarter about the patent secondary market…

Patents have become a lot more important in the financial services industry over recent years. However, this has not translated into active monitoring of the secondary market. In this guest blog Allied Security Trust’s Linda Biel argues that by failing to keep a close eye on what is selling and who is buying in the wider technology space, financial services firms are missing a trick and potentially leaving themselves vulnerable to attack. This is what she has to say:

We’ve all heard about the secondary patent marketplace: the ups and downs, the marquee transactions, rising prices, falling prices, increasing supply; the trends seem to change every year. As we analyse those who typically participate, the industries that comprise the most active sellers are traditional high tech: computer software and services, electronics, communications and semiconductors. Financial services is at the bottom of the list. 

So if you’re developing your IP strategy at a financial services firm, is it worth the effort to monitor the secondary market? It would seem logical to conclude that because there aren’t many sales in your industry that there isn’t much danger to your company from the secondary market – and this is indeed the conclusion reached by many IP counsels at financial services firms I’ve spoken with. But actually, it’s not a correct conclusion.

Let’s see why.

At first glance, an analysis of patent sales by financial services companies over the past nine years seems straightforward enough. Sales peaked in 2011 (excluding an unusually large asset sale from American Express to Intellectual Ventures in 2011 and again in 2014), with approximately 200 sales. Asset sales in 2015 were back down around the levels seen in 2007.

So given that during this four-year time frame there were more than 5,000 assets in the market and only 200 came from financial services companies, it’s understandable a financial services company might conclude that the level of relative inactivity in asset sales in their sector means that they don’t need to make IP protection – including monitoring secondary market activity – a top priority.

But this data doesn’t show the full picture.

The real story is actually more nuanced and suggests a more substantial risk to financial services companies from assets that have changed hands. If we look at just some of the sources of transacted assets that eventually ended up in litigation against financial services companies over the same time period, those sources are from many industries beyond financial services. Xerox, AT&T, Verizon, HP, Kodak, EMG Technology, Schlumberger, Muramoto, BT, BAE Systems – these are just some of the companies that have sold assets that ultimately landed in litigation against financial services companies. And they just keep putting assets up for sale.  

If we look at a couple of recent examples of NPE activity against financial services companies, we can get a better sense of the types of the very real threats they face to their IP that originated from the secondary marketplace.

In 2015, Elizabeth Dyor sold assets to an NPE, Finnavations. Finnavations then sued Bank of America, Capital One, HSBC, PNCBank, JPMorgan Chase & Co and 12 other financial services companies.

But the assets don’t always have to change hands to pose a problem. In 2009, Leigh Rothschild put assets up for sale but couldn’t find any buyers. Eventually, Rothschild ended up forming an NPE that asserted against financial services companies that included Citibank, Bank of America, JP Morgan Chase & Co, Wells Fargo and Mitek.

These stories echo many conversations I’ve had all too often with financial services companies who have encountered an unexpected assertion or litigation that stemmed from secondary market activity. Many of these companies were unprepared or at least not as prepared as they could have been to meet the challenge because they had not considered the range of threats to their IP, leaving themselves exposed to costly litigation.

So if you’re a financial services company and haven’t factored in secondary market activity to your IP strategy, where should you begin?

I believe that a good offensive IP strategy starts with a great defence. You can mitigate the risk of patent assertions and litigation in a number of ways. A good place to start is to monitor developments in the secondary marketplace, to access materials that a seller may be using including claim charts that they may have on your company, and eventually to consider securing patent rights that are available on the open market.

So while it is perfectly reasonable for financial services companies to conclude that they don’t need to monitor the secondary market if they consider only asset sales by other companies in the industry, a deeper dive into the data tells a different story. There is more activity and therefore more threats to a company’s IP than meets the eye. The Dyor and Rothschild efforts will increasingly be the rule rather than the exception, so financial services companies need to consider developing a more holistic IP approach that better protects their IP from the challenges that lie ahead.

You may also find Linda’s article on Joff Wild’s IAM Blog page by clicking here.