|Head office of the Yorkshire Bank|
Although only three British companies were listed in the 2013 FinTech 100 rankings compared to 10 from India and many more from the USA our government aspires to make this country the world leader in financial technology (see "Plan to make Britain global centre of financial innovation set out by government" 6 Aug 2014). With over 42,000 people employed in the financial services in 2012 Leeds hopes to develop a local financial technology industry. As part of the International Economic Conference that took place shortly before the start of the Tour de France, Pinsent Masons hosted a half day seminar called "At the Forefront of FinTech" to discuss the opportunities for fintech businesses in the City Region. On 16 July 2014 the dotForge accelerator announced plans to set up the first fintech accelerator outside London in Leeds ("New “fintech” accelerator for Leeds" 16 July 2014 Yorkshire Post).
In Fintech The UK’s unique environment for growth UK Trade and Investment listed several advantages for the UK:
"– the presence of a large and technologically sophisticated customer baseAll that is very true but the UK does suffer one important disadvantage in relation to its global competitors which is that it is very difficult to protect investment in the development of financial technology in this country.
– London’s position as a world-leading centre for financial services
– good availability of business capital
– a supportive regulatory approach
– excellent financial services infrastructure, and
– London’s position as a global trading hub."
The problem is that s.1 (2) of the Patents Act 1977 declares that
"the following (among other things) are not inventions for the purposes of this Act, that is to say, anything which consists of -Much of the technology used in the financial services industry are computer programs. methods of doing business or the presentation of information. These exceptions are themselves subject to the following proviso:
(a) a discovery, scientific theory or mathematical method;
(b) a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever;
(c) a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer;
(d) the presentation of information......"
"but the foregoing provision shall prevent anything from being treated as an invention for the purposes of this Act only to the extent that a patent or application for a patent relates to that thing as such."Those words - particularly the last two - enable a skilful patent attorney occasionally to draft a specification for a software implemented invention that can be patented but that is not possible for all such inventions. Other countries that are party to the European Patent Convention which include all our EU competitors have similar statutory exclusions as their laws like ours have to correspond to art 52 (2) and (3) of the Convention; but there are no similar statutory exclusions in American, Chinese, Indian, Japanese or Korean patent legislation.
In his speech at the launch of the new trade body for FinTech, 'Innovate Finance' 6 Aug 2014 the Chancellor of the Exchequer said:
"We’re introducing the right tax regime for this new industry.The exclusion of many software implemented inventions from patent protection renders nugatory at least one of the incentives to innovation that the Chancellor of the Exchequer announced in his. Without a patent nobody can take advantage of the patent box.
- With major new incentives to encourage investment in start-ups
- Patent Box, so that if you invent in the UK you only pay 10% on those profits
- and now we will allow peer-to-peer lending in ISAs."
In Digital Opportunity A review of Intellectual Property and Growth Prof, Hargreaves advised the government to
"work to ensure patents are not extended into sectors, such as non-technical computer programs and business methods, which they do not currently cover, without clear evidence of benefit."HMG accepted that recommendation without demur in The Government Response to the Hargreaves Review of Intellectual Property and Growth:
"The Government will resist extensions of patents into sectors which are currently excluded unless there is clear evidence of a benefit to innovation and growth from such extension."There was no debate on the legal protection of financial technology during the passage of the Intellectual Property Bill through Parliament not even any detailed discussion of the topic during the extensive consultation on the implementation of Hargreaves' recommendations.
If they can't protect financial technology with patents then the new businesses that the Chancellor hopes to encourage including any that may be set up in Leeds will have to rely on other intellectual property rights. Traditionally software houses have relied on copyright and trade secrecy to protect their technology but that does not work terribly well with free open source software and decisions such as the judgment of the Court of Justice of the European Union in C-406/10 SAS Institute Inc v World Programming Ltd  WLR(D) 131,  EUECJ C-406/10,  BUS LR 941 do not help. That leaves trade marks that protect a business's brand but not its technology and the advantage of being first in the field.
In the USA there is extensive discussion on intellectual property protection of financial technology (see for example the slides for Wilmer Hale's webinar What Should Financial Institutions and FinTech Companies Be Doing? 6 March 2013 but I struggle to find similar discussion here. If I were a business angel or manager of a private equity fund I am not sure that I would be particularly happy with that.