I Thought Banks Didn’t Like Financial Software Patents?

Senator Chuck Schumer (D-NY) has been a vocal critic of financial service software patents.

As part of our ongoing Companies We Follow series, last week we profiled the recently issued patents granted by the United States Patent and Trademark Office to the Bank of America, as well as the recently issued patents granted to JPMorgan Chase. As you might expect, both Bank of America and JPMorgan Chase seek patents on various innovations related to financial transactions, cybersecurity and identity theft technologies, smart card technologies and smartphone applications. Not too shocking really.

What really caught my attention, however, were the patent claims that Bank of America and JPMorgan Chase are both receiving. What is particularly interesting is that these companies are receiving what can only be characterized as software patents, which further explicitly claim computer implemented business methods. It is at least a little surprising that these types of patents are still being issued after the Supreme Court’s decision in Alice v. CLS Bank. This also isn’t the first time that we’ve noticed that big banks are continuing to get software patents issued in what for most others is an extremely hostile environment for computer implemented methods, computer systems and especially for financial service business methods. Perhaps this is the luck of the draw, perhaps applicants who are not big banks are being swept up in the unprecedented scrutiny that the USPTO is secretly placing on numerous applications, or perhaps the big banks just find themselves dealing with patent examiners who unapologetically work for the Patent Granting Authority. Still, one has to wonder.

Truthfully, the fact that big banks are getting software patents on claims written explicitly to cover computer implemented methods is quite ironic. The banks were the ones who pushed for what is known as covered business method patent review (CBM), which is a variety of post grant review (PGR) that came into being in September 2011. Post grant review is only applicable to patents granted on applications examined under the first to file provisions of the America Invents Act (AIA).{1}

In general terms, this means that PGR is only available to challenge patents issued on applications filed on or after March 16, 2013. This, however, was not acceptable to those facing what they believed to be specious infringement allegations. Inter partes review (IPR), which could be brought against a patent issued at any time, wouldn’t give them an opportunity to raise the issue of patent eligibility, PGR would. Some lobbied heavily for a solution, particularly big banks. They wanted to bring PGR petitions right so they could go back to the Patent Office in a proceeding to invalidate claims that were being accused of infringing through arguments that the claims obtained were not patent eligible. Thus, CBM was born.

CBM, which overwhelmingly looks and feels like post grant review, is available for any patent issued at any time but only so long as the patent is a business method patent that doesn’t have some technological aspect.{2} In practice this means that CBM is only available to challenge financial software patents.{3}

The main proponent of CBM has been Senator Chuck Schumer (D-NY). He has taken near complete ownership of the covered business methods issue, both when it was being originally passed as part of the AIA, and with respect to attempts to expand CBM during the latest round of patent reform efforts, which stalled in 2014 after the Supreme Court issued two decisions relating to fee shifting. Schumer is so dedicated to the issue of CBM review that he reportedly killed the nomination of Phil Johnson to become the Director of the USPTO because Johnson did not support expanding CBM. Johnson did, however, support the AIA completely and is on record supporting most of the rest of the President’s proposed patent reforms.


The big banks have backed Schumer for years, which makes sense since he is the senior Senator from the States of New York, which is where all the bankers are located (i.e., on Wall Street). But given all the vitriol aimed at software patents, particularly those in the financial services sector, there is a real irony that big banks are able to get software patents that explicitly cover computer implemented methods in the wake of Alice v. CLS Bank when so many others aren’t. So much of this anti-software patent hysteria was started by the big banks but they seem unaffected. That is an unfortunate theme in America. The big banks on Wall Street destroyed the economy with reckless disregard and yet not a single person went to jail and big bonuses continued to be paid to the very bankers and executives responsible for the economic meltdown that lead to the Great Recession.

So what changed? Why are the big banks even seeking software patents if they are so inherently evil?

The big banks never thought they needed patents because they never saw themselves as technology companies. They are banks that use technology, but they did not see themselves as technology companies in any real research and development way. That meant that they only saw patents as a tax, assuming they chose to pay licensing fees, or as a roadblock that needed to be run. Banks couldn’t fathom patents being anything other than anticompetitive because they stood in the way of them simply doing what they wanted to do regardless of whether it might be infringing on a patent received by an independent inventor or small start-up company. After all, they are big banks. They can destroy the economy with impunity, with no repercussions whatsoever. Who are these pesky inventors to tell them they have to stop doing anything?

This naive understanding of patents changed rather dramatically when tech companies like Apple started to creep into the banking space. A good example would be Apple Pay, which is a built on a technology that enable contactless payments through a smartphone or device. The banks might not like patents any more now than they did previously, but they have finally figured out exactly why patents are important. You want to protect the innovation you create yourself not only so you can practice it, but so that others who might want to creep into your marketplace can be prevented from doing so. As mobile device makers and software developers see the enormous profits banks make through various payment mechanisms they wanted a piece of the pie.

The law of economics is never wrong — if you are making money doing something there will be market entrants until the point where no additional profits can be realized. Patents upset the law of economics because with a strong patent portfolio that covers a desirable technology you can prevent market entrants. The quid pro quo for the disruption of the law of economics is that society gets the information on the invention and at the end of the patent term, which can come as early as 4 years after issuance of the patent, the technology can be freely used by anyone.

Suddenly the big banks, who never would have feared an independent inventor, small business, or even smaller banks, are staring at competitors that are far bigger and well financed than even they are. Apple, Google and Microsoft all boast larger market capitalization than any bank. Indeed, Apple is #1, Microsoft #3 and Google is #4 in the world in terms of market capitalization. As those companies move toward the financial services industry the big banks won’t be able to use their size to bully them around. So banks have finally wised up and understand that patents are important if they don’t want to eventually find themselves irrelevant.

But still, while banks have finally figured out that they need patents too, there still remains the question about exactly why they don’t seem to be suffering the same fate as so many others as they seek to protect computer implemented methods. Curious if you ask me.


{1} This likely sounds like a needless complex way of stating the applicability provisions. It is a complex way to say it, but not a needlessly complex explanation due to certain peculiar timing realities associated with the U.S. transition to first to file. It is possible that an application filed on or after March 16, 2013 can still be examined under the previous  first to invent regime. That would happen if the application filed on or after March 16, 2013, claims only subject matter disclosed in a patent application filed on or before March 15, 2013. Thus, not even all applications filed on or after March 16, 2013, are eligible for PGR.

{2} This statement lacks the legal nuance of a fuller explanation, but is sufficiently accurate in general terms for the purpose of this article.

{3} Said more accurately, a covered business method patent eligible for review under CBM is “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”


Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com.

Join the Discussion

5 comments so far.

  • [Avatar for Anon]
    December 8, 2014 01:36 pm

    Absolutely, Curious.

    Part of the problem is what I call the “capture effect” and the fact that large international corporations really are trans-national while patent law remains a national item.

    For transnationals who wish to be able to move assets around to a complete lowest cost factor, unbeholding to any one single nation, patents get in the way more often than they help. Sure, they may be useful, if you happen to be the one that happens to have the latest “it” thing under protection, and as a large corp, you have a better ability to play a sport of kings and keep-away from new (read that as generally cash-poor) start-ups.

    The problem is that these Uber-entities act as if they are beyond the law and have no compunction whatsoever as to any one country’s attempt to promote progress. If that progress comes at the expense of their own bottom line, that progress needs to be quashed. Period. Patents are inherently risky for this type of entity because such can create change and shield a new competitor from all of the traditional size-dependent competition factors that play in favor of the large, established entities.

  • [Avatar for Curious]
    December 8, 2014 01:26 pm

    For those playing the game, it has never been about “get rid of all patents” – instead it has been about get rid of all of everyone else’s patents, or, failing that, make it so patents are so weak as to not get in my way.
    Bingo … patents are just a business tool (for the sophisticated). You want your tool to be a competitive advantage and you want your competitor’s tools not to work as well. It always comes down to the $$$.

  • [Avatar for Anon]
    December 8, 2014 11:17 am

    For those playing the game, it has never been about “get rid of all patents” – instead it has been about get rid of all of everyone else’s patents, or, failing that, make it so patents are so weak as to not get in my way.

  • [Avatar for Richard L]
    Richard L
    December 8, 2014 11:06 am


    Nice Job on this

    Makes one really wonder what Schumer’s real motivations are… or is there really any question.

    Richard L

  • [Avatar for Anon2]
    December 8, 2014 10:37 am

    Are comments {1}, {2} and {3} supposed to be viewed by the public or are they internal editing notes?