This article has been compiled by Ms. Rishita Jha, a 1st year student of LLYOD LAW COLLEGE , Uttar Pradesh.
ABSTRACT
The aim of the article is to study the necessity, advantages & disadvantages of Patent filing by Fintechs in India. In the exponentially growing Fintech market, a Fintech patent is important to maximise the commercial value and establish protection for investment in your innovation. In addition, a Fintech patent can enable the patent owner to license the application to other parties. Even banks and traditional financial institutions have become increasingly welcoming of Fintech and are filing patent applications for their own Fintech infrastructure. The main challenge in filing a Fintech patent is in the framing of the invention. Subject matter objections can arise where a patent application fails to show that the innovation is more than an abstract idea.
INTRODUCTION
Although traditional banks continue to command the financial market, but with the advancing technologies, AI (Artificial Intellegence), ML (Machine language), etc. there emerged a fusion of Financial operations & technolgical Solution — “The Fintechs” which bloomed in India around 2007-08 and became well established into market from around the time of Corona pandemic that completely restricted human movement and made them dependable to tech based banking solution. Also many studies Shows theat the younger generation is more intrigued by the financial Services provided by tech giants and no longer stipulates physical banking default service providers.
In this age of evergrowing & evolving technologies and fastest growing market of Fintech in India, there is no doubt that within few more years the idea of digital banking will if not subside then surely will be most used alternative and one-stop solution to various physical banking services.
The services offered by fintechs are no doubt easily accessible, less cumbersome to use and offers services round the clock thus propelling the exponential growth of the sector. Start-ups that are conceived to be the forerunner of India’s ambition to be a production led economy, is heavily dominated by the Fintech service providing companies. Thus it is the demand of time that these start-ups must be given a even playing ground in the market and simultaneously Safeguarding both Service providers and users against any illicit activities like data theft, Privacy control, money Laundering, etc. Fintechs are idea & technology driven dynamic industry and with the growing compitition it is very often the case of Intellectual stealing. There are more than one technological pillars for flourishment of Fintechs like their source code, Softwares, hardwares, user interface, etc. For any start-up especialy related to fintech, it is utmost important to secure their idea, innovation & identification.
GROWTH OF FINTECHS
FinTech is one of the most emerging approaches as it is driven by the rapid adoption of cutting-edge technologies in the financial industry services like money transfer, digital payments, funding platforms, alternative lending, financial software. Here are some of the major trends that are the reasons behind why is Fintech growing.
(A) Technology ->
Technology is one of the main reasons behind the fintech industry’s growth. Each day new technologies come into the fintech market. As they operate almost entirely in a virtual realm, all the financial services have been transformed by technologies like AI, ML, AR/VR, Blockchain, Cloud Computing, etc. Algorithms and machines have enabled the financial sector to automate processes that were previously carried out by humans. Basically, fintech services have changed the traditional approach in many ways and eventually, it has brought advantages like –
* More productive – Traditional banks didn’t only get automated services that can fasten their daily operations, but also gave spare time that can be used in focusing on banking strategies and innovation. These things have helped traditional banks completely automate and make a mark in the fintech market. Besides, it also helps in increasing the productivity level.
* Cheaper – With new technologies coming into the picture, experts from fintech companies who can help the banks to offer digital banking features and stay at a very high productivity level are needed. With the help of techies, banks go digital and save a lot of money that can go behind physical offices. Besides, they can also save on staffing as everything goes digital the requirement for staff members reduces. All these benefits make the global fintech market rise higher and higher.
* Accessible to everyone – As fintech adoption increases, banks are offering a broad range of financial services through mobile apps and websites. This means that fintech investments have removed intermediaries like bank managers and brokers which eventually helps in having direct access to banking services and information.
(B) COVID-Driven Contactless Payments ->
The biggest benefit of fintech investment has been observed after the pandemic. COVID has completely changed the FinTech sector. In the year 2020, financial institutions saw the biggest ever wave of new accounts in mobile payment and banking apps. Governments around the globe are encouraging contactless payments to be safe from COVID infection. In addition, the increased usage of eCommerce, telemedicine, and e-learning has contributed to the increasing demand for online payments.
(C) Regulations ->
One of the reasons that are driving fintech growth is regulations. Every institute in the financial sector is subject to regulatory obligations but some of these regulations are not rigid and this helps the financial technology companies to come up with new fintech products with greater agility. Besides, nowadays, governments of many different countries are actively encouraging digital banking.
(D) Expansion Beyond Traditional Financial Services ->
Nowadays, with the increasing demand for digital banking solutions, many financial technology companies are exploring new technologies and services that can offer core banking services at lower rates. These firms had dedicated R&D division to find solutions for a new disruptive, high-growth potential technology. The main goal behind all these things is to offer the customer a larger base to perform their financial activities and help banks carry out fintech funding.
(E) Maturing ->
As the fintech industry is growing, a new phase in its development is coming through. The reason behind the financial technology sector being mature is that the financial software development companies are becoming more sophisticated and have greater access to capital. Besides, the companies are also hiring fintech developers that can work on the latest technologies like artificial intelligence, blockchain, and cloud computing for creating financial apps for their clients.
WHAT DOES PATENT PROTECTS ?
A patent is an exclusive right granted for an invention, product or a process that provides a new way of doing something, or offers a new technical solution to a problem. Patentability of any invention needs to fulfill certain criteria such as Usefulness, Novelty and Non obviousness. It provides protection for the invention to the owner of the patent for a limited period, i.e 20 years.
Other than software in it’s computer language form all other aspects say it be hardware, software attached hardware, semiconductive material, special arrangements of machine, etc. are all eligible for patenting.
PATENTS FOR FINTECHS ->
If science, art, and technology are the engines of human progress, Intellectual Property (IP) is the protector ensuring that human creativity gets its due through IP rights. IP rights have encouraged creators, innovators and inventors motivated to solve real-world problems with the use of their imagination and creativity.
The Indian Patent Office (IPO) has not issued separate guidelines to examine AI-related inventions. These inventions are examined as per the Computer-Related Inventions Guidelines 2017 (CRI guidelines). That is, AI-related inventions are examined based on the subject matter exclusions defined in Section 3(k) of the Indian Patents Act, 1970.
Advantages of Patents in FinTech
(A) Gain market share
(B) Patent applications are significantly valuable and can attract investments from potential investors in the market.
(C) Unlike copyright, patents can protect the functionality of the invention. A FinTech patent prevents third parties from exploiting the method, process and/or apparatus protected by the patent. This allows patent holders to exercise monopoly on their invention in terms of commercialisation or licensing. This creates a valuable revenue stream that boosts the company’s profile substantially.
(D) Changes in FinTech law are quite dynamic thus, it is always suggestable to tile patent as it would provide some liberty in methodologies of use of technologies.
(E) A patent owner also has the following options to enforce its rights in India:
> An Anton Piller Order – the Court can appoint a local commissioner on the request of the Plaintiff or otherwise to hold or seal infringing materials or accounts in the Defendant’s premises;
> A Mareva Injunction – the Court can restrain the Defendant from disposing of its assets within India until the trial ends or judgment in the patent infringement action is passed; or
> A John Doe Order – the Court can order search and seizure in respect of an unknown Defendant with the cooperation of the local commissioner and police, if required, to raid any premises where infringing activities are suspected to be carried out.
CHALLENGES ENCOUNTERED IN THE DEVELOPMENT OF PATENTS IN INDIA
- Section 3 of the Act adds certain new parameters for patentability of an invention which are over and beyond the international standards. Section 3 explicitly states that inventions relating to derivatives of medicinal and surgical processes, agriculture, plants, and animals in isolation among other things are non-patentable. As a result, these inventions are subjected to higher scrutiny and patent holders face a greater challenge.
- Computer-related inventions ->
Section 3(k) of the Act bars the patenting of computer programs and algorithms and such pre-existing objection makes the decision taken by the patent officers inconsistent as the standard of forming their own views of the hardware are different.
- Patentability of mere derivatives or discovery of a new form of substances ->
Section 3(d) of the Act restricts the patentability of a mere derivative or discovery of a new form of a compound. A derivative in order to be patented has to be shown to make a significant difference in therapeutic efficacy of the parent compound.
- Process of Litigation ->
Chapter XVIII of the Act lays down the provisions pertaining to the suits regarding infringement of patents.
According to Section 104 of the Act, a District Court is the Court of first instance in case of a patent infringement claim. Further, in case any counter-claim for revocation of the patent is instituted by the Defendant, the same shall be transferred to the High Court for decision. Only five High Courts can entertain law suits in the first instance under original jurisdiction. Further, under the Commercial Courts Act, not all District Courts can judge over commercial lawsuits and such cases can only be decided upon by the High Court. Lack of Judicial Officers to deal with such technical issues of Patent is one of the biggest challenges in Patent Litigation. The major challenges that come with patent litigation are:
- Backlog and time for final decision :
The primary challenge in enforcement of patent rights is the already existing backlog of cases before the Courts. Though the Commercial Courts Act, 2015 have been established to expedite the matters related to IP however, the massive backlog acts as hurdle for the inventors in speedy settlement of dispute.
- Subject matter experts :
Section 115 of the Act provides for the appointment of an advisor to help and assist the Courts in providing technical help and guidance. However, such an appointment does not help in the decision process as it is not used frequently. The provision is an opportunity for the application of technical and legal knowledge but has not been implemented.
- Difference of opinions
Patent granting has a subjective element and it is the discretion of the patent examiner. However, when it comes to litigation, such subjectivity only leads to more complications and increases litigation.
Understanding the concept of IPR as a whole requires technical knowledge and such technicalities are usually not a part of litigation. Therefore, the difference in the understanding of subjective elements can lead to potential complications, which in turn would only increase litigation.
- Section 115 of the Act states that a scientific advisor can be appointed to assist the Courts for providing technical opinions as and when required. However, this particular provision is not frequently used by the Courts.
CONCLUSION
Fintech encompasses all manner of developed software and apps used in the finance sector, as well as the infrastructure used to run these programs. This includes banking, insurance, point-of-sale, security and transaction technologies, amongst others. In truth, the boundaries of what may/may not be referred to as Fintech are hard to define and legislation of what is considered patentable is similarly in flux. Thus, Fintech patent applications should be carefully considered and drafted based on a clear understanding of current software patenting law in the jurisdictions of relevance.
Probably the most famous example of a Fintech patent is the 1-Click purchase technology developed by Amazon. Whilst conceptually, the technology is not complex, it bypasses several processes in purchasing items online, making purchasing easier for Amazon’s customers. Another example of a Fintech application is the use of biometrics for mobile payment apps, as in the case of Apple’s Touch ID to make purchases using Apple’s mobile wallet (Apple Wallet), application store (App Store), and multimedia store (Itunes).
CITATIONS
- https://www.wipo.int/edocs/mdocs/tk/en/wipo_iptk_ge_14/wipo_iptk_ge_14_wipo_presentation_1.pdf
- https://ipindia.gov.in/history-of-indian-patent-system.htm
- https://www.baxterip.com.au/specialisations/fintech-patents
- https://indiaai.gov.in/article/insights-into-the-rise-of-ai-patent-trends-for-2023
- https://amlegals.com/challenges-in-patent-development-and-patent-litigation-in-india/
- https://ipindia.gov.in/writereaddata/Portal/ev/sections-index.html
- https://www.indiacode.nic.in/bitstream/123456789/1993/1/A1999-47.pdf
- https://www.patentpc.com/
- https://sagaciousresearch.com/blog/why-important-file-patents-fintech/