Market Scan

Patent Update

7,290,706  Automated banking machine multiple sheet detector apparatus and method 

7,290,704  Method and system relating to a multi-lateral trade engine for payment transactions

Patent Update

7,287,005  Method for supplementing descriptors for online banking transaction statements

7,284,695  Check accepting and cash dispensing automated banking machine system and method 

Headlines: Banking 2.0

Bank of America:  Small Business Owners Now Have a Forum to Network and Learn from Each Other;

Gartner Identifies the Top 10 Strategic Technologies for 2008;

Gartner Says Five Major Trends Will Force IT Organizations to Change the Way They Support Workers

Patent Update

7,280,981  Method and system for facilitating payment transactions using access devices 

US Banker Comments on Business-Method Patents

Vincent Roccia, in an Op-Ed for the September issue of US Banker, says that patent litigation and patent licensing fees for business-method patents in financial services are here to stay.  Mr. Roccia calls on banks to follow the lead of telecommunications and pharmaceutical companies to "build your patent portfolio and become part of the intellectual-commerce stream."  In other words, build revenue streams from the bank's own patent portfolio to off-set the litigation and licensing fees the bank is paying for use or infringement on the other end.

It should be noted that Mr. Roccia is an attorney with the firm of Woodcock Washburn and stands to benefit handsomely from more "intellectual-commerce" litigation and licensing deals.

Patent Awards

Delinquency-moving matrices for visualizing loan collections

Method for electronic payment

Point-of-sale billing via hand-held devices

Patent Award Update

7,272,259    Systems and methods for capturing handwritten information using handwriting analysis (Asignee:  Computer Sciences Corporation)

7,270,264    Cash dispensing automated banking machine with interlocking sheet metal parts (Asignee:  Diebold)

Patent Award Update

Market Scan now monitors the U.S. Patent Office.  Whenever a new patent is awarded for banking or payments innovation, Market Scan will publish the patent number, patent description, and assignee (where applicable).

7,269,575     System and method for processing foreign currency payment instructions contained in bulk files (Asignee:  JPMorgan Chase)

7,269,256     Electronic-monetary system

7,267,265     Cash dispensing automated banking machine maintenance system and method (Assignee:  Diebold Corporation)

7,267,264     System and method for verifying the authenticity of a check and authorizing payment thereof

Commentary: Courts Raise The Bar for Banking Innovation Patents

In the August 30 edition of the NY Times, Brent Bowers reports on recent patent litigation which will raises the bar for banking and payments patent awards.  The NY Times article can be found by clicking here (registration required). The following excerpt from the courts decision hits on the most relevant points:

"The ‘281 patent is INVALID because it is OBVIOUS and ANTICIPATED. The patent-in-suit, simply put, is a computerized method for securing debt with future credit card receivables.  While the patent inventor, Barbara Johnson, implemented an aggressive marketing and business development program that brought this financing method to widespread use, she did not invent a new business method. Rather, Johnson built on long-established prior art, packaged the idea in a new way, and marketed it aggressively.

There are multiple prior art references, not considered by the PTO when issuing the patent that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc. In KSR, the Supreme Court opined “[w]hen a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one. If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.”  127 S. Ct. 1727, 1740 (2007). The Litle & Co prior art, the LeCard program, the Transmedia program, and the prior art Reserve Accounts were all available in the field at the time of the purported invention. Johnson merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.

The Supreme Court ruling in KSR Int'l Co. v. Teleflex is significant  because banking and payments are networked industries.  In networked industries, most significant innovations must be adopted by the entire network to be effective, not just one or a few nodes.  As a result, most innovations in banking and payments necessarily build on earlier innovations, i.e. "prior art."  AdvanceMe, Inc vs. RapidPay, LLC was apparently the first application of the Supreme Court ruling to financial services.

Patents have played a larger role in banking innovation of late.  In the case of remote deposit capture, a company called Data Treasury has made suing for patent infringement its primary business.  Companies that pursue such tactics (e.g. litigating patent infringement while making no effort to develop or market the product itself) are often referred to as "patent trolls."   Data Treasury has been pursuing patent litigation against major banks and software vendors in the same east Texas court.  Some have settled for undisclosed sums.  AdvanceMe vs. RapidPay does not bode well for Data Treasury's patent infringement suits.

Although some will argue that this development is bad for small inventors and innovation, I expect that a higher bar for patent awards will be good for banking innovation as it will discourage frivolous litigation that slows the deployment of innovations throughout the banking and payments networks.  For most of its history, the banking industry has done a pretty good job of innovating with little emphasis on patents.  Again, in networked industries most network participants need to adopt the innovation for it to be effective, so vigorous patent defense may actually be counter productive to the innovator.

In other patent news, Deibold announced it has been granted several patents that enable mobile phones to interact with ATMs and Bottomline Technologies announced it has been granted several patents for "capabilities for preventing check fraud and enabling the secure authorization of electronic disbursements by validated users throughout the enterprise."

Commentary: Vendors Critical to Banking Innovation

James Gardner, Head of Research and Innovation at TSB Lloyds, has an interesting post on a recent innovation forum involving several global banks.  Mr. Gardner's comments on the role of vendors in the innovation process capture one of the main dilemmas in banking innovation:

"We also looked at the role of vendors in the innovation process. Some of the group expressed the view that using vendors was a great way to de-risk the whole innovation thing. The idea is that vendors should be spreading the risk of their propositions across many customers and, therefore, that the incremental risk to a particular bank should be less. An alternate view was expressed however: that vendors, by virtue of this risk sharing behaviour, would not be able to drive specific competitive advantage for an individual bank, and that the process of innovation was best left as an internal one with pieces being bought in as necessary."

While it is true that global financial institutions, some U.S. based money center banks, and the occasional regional or community bank are capable of bringing innovations to market without vendor assistance, these innovations tend to be incremental in nature (e.g. Bank of America's Keep the Change) and are often fleeting. 

Banking is a highly networked industry.  As such, most game-changing, disruptive innovations (e.g. Image Exchange in the U.S.) require participation of all network participants (e.g. banks, vendors, payment networks, regulators).  The thousands of regional and community banks in the United States simply could not compete without vendor participation in the innovation process. 

Even U.S. based money center banks, shackled to massive I.T. groups for which innovation is a secondary concern, frequently turn to vendors for innovation.  To capture competitive advantage from their vendor innovations, money center banks have lately taken to making equity investments in strategic vendors which often lead to outright acquisitions.  For example, JPMorgan Chase's acquisition of Fisacure followed several other bank acquisitions of vendors in the medical banking space.

For banks with deep pockets, internally developed innovations can pay-off as they build on one another  over time.  Bank of America's on-line consumer banking website and Wells Fargo's small business website are good examples of many incremental innovations, individually of little consequence, adding up to a significant competitive advantage when considered in the whole.

Mr. Gardner's post can be read in its entirety here:

http://bankervision.typepad.com/bankervision/2007/08/our-first-innov.html