This Article has been written by Ms. Khushboo Sharma, a 5th year law-student of Vivekananda Institute of Professional Studies, Delhi.
Abstract
As the world evolves around us, there is a change in every business and sectors of employment. The FinTech sector is no exception, it is rather one of the most growing financial businesses around the Globe. However, great power comes with great responsibilities and challenges, therefore, the FinTech agreements today need strategic protection in order to safeguard its intellectual rights. In this article we are going to discuss as to what is FinTech, what IP strategies exist for its protection and its scope in the upcoming years.
Key words: FinTech, Intellectual property, Protection, Agreements, Licensing
Introduction
Fintech is a short for Financial Technology. It is referred to as the firm’s using of new technology as against the traditional methods of financial transactions or methods. Fintech can be used in different fields having financial character such as banking, investing, insurance, etc. Some examples of fintech may include: Trading platforms, mobile banking, peer-to-peer payment services, etc.
The fintech sector in India has witnessed incredible growth lately. It has ever been specializing innovative products and services for its customers. It is evident that both the traditional financial institutions and start-ups are competing and constructively working together in order to create improved fintech services. In such a scenario it becomes crucial for the companies to distinctively define and take prudent steps to protect the Intellectual Property rights involving the registration and documentation. This becomes rather important when these institutions work with multiple third-parties.
Such institutions in order to protect their IP rights, allow such use by permitting under license and collaborative arrangements.
WHAT IS FINTECH?
As discussed above, Fintech is a portmanteau of two words clubbed together – Finance and technology. Is a fast-developing sector that makes use of technology to improve financial services. The evolution of technology, especially in the domain of big data and quantum computing, artificial intelligence, blockchain, and network/mobile connectivity, is setting free a renewed stream of innovations in this sector, thereby directing the creation of new services and products.
Earlier, Fintech was related only to the computer technology used for the most important basic systems of banks, financial institutions, and trading companies. But as of today, it offers more consumer-centred options, such as chatbots and AI interfaces and softwares, that help clients to do various activities such as detection of frauds, and maintenance of operational and other expenses. Its key enabling technologies include cloud computing, cryptocurrencies, data and analytics, mobile platforms, and many more.
FinTech paves the way for brand-new market opportunities or gives a competitive edge to traditional offerings. It creates implications for various stakeholders, which may include major financial institutions, hedge funds, insurance companies, ratings agencies, institutional investors audit and accounting firms, technology companies, consortiums, not-for-profits, regulators, as well as start-ups.
Presently, big institutions around the globe are making substantial investments in upgrading or substituting already existing technology systems with new FinTech innovations, which ranges from payments, lending, regulatory, blockchain, audit, and compliance. For this, Companies employ technology like distributed ledgers, encryption, automation, blockchains, and many others to perform tasks that otherwise would have been impossible with traditional methods of finance.
INTELLECTUAL PROPERTY IN FINTECH LANDSCAPE
Intellectual property is considered as a saviour of innovation. It also provides competitive advantage in fintech start-ups. Fintech is a sector that is described as the sector of technological advancements in financial services, that relies majorly on software, data analytics, algorithms, etc.
Owing to this, protecting intellectual property through licensing and agreements is of utmost importance for the success as well as the overall sustainability of such companies delivering fintech products and services.
WHAT AMOUNTS TO INTELLECTUAL PROPERTY IN INFOTECH
The Intellectual property rights revolve around the concepts of copyright, patents, designs, trademark and their protection that originates from someone’s intellect. The InfoTech though having some characteristics of Artificial Intelligence is not fully dependent on it for everything it comprises of. In other words, it simply means that in the field of finance-technology, the person giving inputs in related process must have some rights over his work.
FINTECH LICENSING AND AGREEMENTS
Licensing and agreements are primary mechanisms with the aid of which, fintech companies protect their intellectual property. These contracts specify the terms under which the technology or IP is used, shared, or commercialized. They adequately establish the rights and responsibilities of the parties interested, safeguarding the interests of the owner of such rights while allowing the licensee to employ the technology for mutual benefit.
Below mentioned are different types of important agreements in the fintech sector in India:
- Non-Disclosure Agreements (NDAs)
The NDA commonly puts forth the terms of confidentiality and duration of confidentiality. These agreements are used to safeguard confidential information that is usually communicated among the fintech companies and their partners, or other stake-holders.
- Licensing Agreements
In a Fintech business, it is common that these companies would require certain use of technology or software in order to operate their business and for the same reason licensing agreements may be useful.
Such agreements set out the terms and conditions according to which these companies would make use of such technology and also specifies the duration of license.
- Merchant Agreements
These are the agreements that are undertook by the company and the merchant facilitating online transactions in the course of the business. Merchant Agreements usually include details regarding terms of payment, dispute resolution process, and provisions relating to fee and chargebacks, etc.
- Affiliate Agreements
These agreements are used when a company involved in a fintech business enters in a partnership with an affiliate company in order to promote its good and services.
- Escrow Agreements
Escrow Agreements are used by the fintech companies in order to facilitate online transaction pertaining to purchasing and selling of assets. Such agreement is helpful to provide a secure way to hold funds as well as assets in trust until and unless the terms of transactions are met in total.
- Intellectual Property Agreements
When a fintech company wishes to use or license its intellectual property, such agreements take place. These agreements include patents, trademarks or copyrighted materials. These agreements also specify duration of license including any limitations on use and other similar terms.
We will discuss these agreements in detail in other sub-heads mentioned below:
STRATEGIES FOR PROTECTION OF INTELLECTUAL PROPERTY IN FINTECH AGREEMENTS INCLUDE-
- Copyright in InfoTech
As per the Law on Copyrights in India, the copyright extends to computer code, visual interface features, video, APIs and other similar works. Computer code sometimes covers particulars such as pseudo code, source code, machine code and purpose-built hardware, etc. Copyright is a necessary intellectual property asset for fintech companies. It is particularly indispensable if the program design provides computational and usability efficiencies. The author of a software in InfoTech service has a special right in relation to that computer programme. A computer programme is considered as a literary work in the law, the owner of such work enjoys the same protection as well as possesses the commercial rental right on it.
In cases where companies employ developers, they should be vigilant with the policies for developers that comprises of third-party copyright, as it may affect the ownership of the technology and freedom to operate. Hence, the rights on such works may be frequently open to violation, hence, the companies are required to be pro-active while putting effect to any agreement.
- Trademark in InfoTech
Trademark associates a name of the product/ service to its quality or goodwill. Therefore, Even the Fintech companies require their name, brand, work to be able to represent their goodwill and in case, there is a case of infringement on such right it becomes difficult to retain goodwill as some other company may pass-off using their name which could have long-lasting negative impact on the reputation of the former firm.
A solid brand helps FinTech companies differentiate their products and services from its competitors. As it is a fact that fintech companies deals with financial assets and documentation, a reputable brand is considered of a paramount importance to customers.
The developer of a domain name may claim for its protection. A domain name or a brand name is abused when a person uses the same without authorization. The registered trademark offers a protection from passing-off or cyber-squatting, hence it is absolutely mandatory for one to get their domain name registered.
- Patents
In order to protect the innovation relating InfoTech, companies must definitely opt for patent protection. Patenting basically provides a mechanise that exclude other competitors from making, selling or using the patented technology. Patenting technology helps a company to gain competitive advantage and protect R&D investments
In comparison to trade secrets, granted patents can be enforced against those third parties that make, use or sell the claimed invention, in spite of independent development. It is also to be noted that computer-based inventions are subject to great scrutiny and not all FinTech innovations are per-se patentable. Moreover, the patenting process is considered to be a costly and lengthy process which may make it impossible for some to make advantage of it.
- Trade secrets in InfoTech
A trade secret refers to technology, equation, method, strategy, data synthesis, or a computer programme (collectively referred as proprietary information).
These are confidential facts and are used by a company to have a competitive edge. This is an inside advantage which is vital to any company and is not open to disclosure. The competitors try to acquire it by unethical means and therefore, needs protection. In India, protection of the trade secrets is based on principle of equity, actions for fraudulent misrepresentation and responsibilities arising out of contracts.
The possessor of the Trade secrets of a company retains certain rights over such secrets, only he has the sole rights to use and exploit such confidential information on a condition that the privacy is maintained. However, it is unfortunate that no explicit legislation on the regulation of trade secrets is there in India as of now. However, Indian courts do appreciate the need of defending such trade secrets through common law practice.
- Industrial designs
Industrial designs in the Infotech field Is attributed to the look and feel of the products such as transaction machine, electronic cards and services like computer icons and interfaces. Protection of such designs is of great importance much similar to the trademarks as it also intends to create distinct appearance and identification of the product so offered as a part if transactions.
SCOPE OF FINTECH IN NEXT 2 YEARS
As per the latest report issued by EY, it is observed that over 550 FinTech start-ups altogether received a funding of $22 billion in the duration of an eight-year period spanning from the year 2014 to 2022. Furthermore, it is supposed that by the yar 2025, the overall FinTech market opportunity in India could be estimated to be as high as $1.3 trillion. Therefore, it is clearly evident that FinTech is on the growth, and remains to play a vital role in the Indian economy in the upcoming years.
In another report, KPMG estimated that the investment in the ESG FinTech companies (both ESG-native those pivoting to ESG) by the end of the year 2022, would have reached $6 billion, and it was calculated that it will double in 2023 and would grow as high as $28 billion by the year 2025.
CONCLUSION
From the article it is understood that FinTech is an ever-developing sector not only for India but Globally also. The Protection of Intellectual Property holds immense importance for Fintech companies as the subject matter of their day-to-day work requires protection from being getting stolen/cheated. If due protective measures are not taken care of, it can result in catastrophic downfall of the company as a result of losses. Such financial losses may be attributed to breach of confidentiality or misuse of inside information, the repercussions of which would largely impact the firm’s reputation; hence due diligence must be maintained at all times.
REFERENCES
The sources for the information are cited as links given below:
- https://www.financierworldwide.com/intellectual-property-strategy-for-fintech#:~:text=Intellectual%20property%20for%20FinTech&text=Companies%20should%20clearly%20define%20and,under%20licensing%20and%20collaborative%20arrangements.
- https://timesofindia.indiatimes.com/blogs/voices/the-future-of-fintech-4-key-practices-that-will-drive-growth/
- https://economictimes.indiatimes.com/tech/startups/over-3000-recognised-fintech-startups-operating-in-india-government-informs-parliament/articleshow/102530463.cms
- https://www.iiprd.com/intellectual-property-rights-for-fintech/
- https://www.linkedin.com/pulse/important-agreements-fintech-sector-india-kontractgenie/
- https://corporatefinanceinstitute.com/resources/wealth-management/fintech-financial-technology/