Patent Risk Digest

July 2016

A monthly update on market activity, legal developments, and policy related to patent litigation
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Patent Suits Target Financial Services Companies

The widespread development and adoption of new technologies related to financial services is at the heart of a number of ongoing patent infringement litigation campaigns, targeting financial institutions as well as companies in other sectors that use similar technologies in their basic operations.

The innovation occurring in the arena of financial services spans areas like digital marketing, online payments and mobile banking, crowd sourced funding, peer-to-peer lending, and high-speed trading platforms. At a time when overall venture funding has slowed, funding for venture capital-backed fintech companies reached new highs for the first quarter of 2016, according to a report from KPMG and CB Insights.

With this higher rate of investment comes advancements in service offerings, new products, and new companies, and in some cases, established companies operating their businesses in new ways. And with this new operational efficiency comes risk. For patent trolls, this kind of development and innovation creates opportunity. For companies that create or simply use these new technologies, a lawsuit brought by a patent troll diverts time and resources away from growing their businesses towards managing litigation.

Widely-used Technologies in the Crosshairs

Often the technologies at issue in fintech-related cases are less than obvious. While it might seem that patent trolls would sue financial services companies over technologies most central to their businesses, these lawsuits also often focus on more common technologies—those that companies across most sectors use in their basic operations.

Take, for instance, CryptoPeak Solutions. CryptoPeak alleges that the security systems on certain companies’ websites infringe on a patent it owns. Since July 2015, CryptoPeak has sued a total of 65 companies. The defendants are diverse, representing banks, credit card companies, and investment advisors, but also hotel chains, retailers, communication service providers, and social media platforms. But these companies all have something in common: they all use similar security systems on their websites.

In another example, Phoenix Licensing, a patent troll that has sued more than 140 companies since 2007, began its campaign by suing banks and insurance companies claiming that they infringed on several direct marketing patents it owns. The patents cover customized email communications—core marketing technology that connects financial services companies to their customers and prospects. Seeing additional opportunity, and further proving that any company that employs this technology could be at risk, in 2013 Phoenix expanded its campaign by suing additional banks and insurers, and also wireless communications companies, airlines, hotel chains, retailers, and cable providers.

Specific Key Technologies Targeted

Sometimes, though, patent trolls focus their campaigns specifically on the technologies that are critical to the operations for financial services companies. In June 2015, EncodiTech launched a campaign targeting 11 defendants that each offered ATM and/or electronic payment platforms for allegedly infringing on a patent that covers secure peer-to-peer communication between devices. Proving that trolls are always looking for fertile ground, it evolved its campaign, expanding its scope beyond ATM and electronic payment platforms to banks and credit card issuers, and further, to companies outside of the financial services industry to companies like E-commerce and streaming media providers. EncodiTech launched this latest wave of litigation in December 2015, bringing the total number of defendants to 33.

Because there is an abundance of issued patents that cover overlapping technologies, financial services companies have no way of knowing what their patent litigation risk looks like. Patent trolls use this lack of transparency to their advantage. While recent changes such as the Supreme Court’s Alice decision and the advent of IPRs and CBMs, provide some tools to address this risk, financial services companies will continue to innovate and grow—with their customers relying more heavily on their technology. By insuring early with a trusted third-party expert, companies can get a handle on the complexities of their patent risk and better prepare for what lies ahead.