FINTECH INNOVATIONS ARE DIFFICULT BUT NOT IMPOSSIBLE TO PATENT

By John Syekei Monday, October 01, 2018
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While it is not impossible for fintech developers to successfully secure patent registrations in respect to innovations relating to blockchain and cryptocurrencies, they should be keenly aware of the many pitfalls they may encounter. Only a fraction of the patent applications lodged in the United States – where most attempts to protect fintech-related IP have occurred – have been granted.

Despite an increase in patent-filing activity, few patents have been granted. 2017 figures for the United States show that the IP authorities granted patents for only 11 out of 160 smart contract applications and for only 61 out of 511 blockchain applications. Patent applications for cryptocurrencies were also given short shrift, with fewer than 15% accepted.

The main reason most applications were rejected is that they did not reveal anything new. Different countries have operational differences in how they examine inventions for patent-eligibility, but novelty is key. The problem is that most cryptocurrencies are based on existing platforms. As a developer, you would have to show you have done something in the underlying platform that is unique.

With blockchain and cryptocurrency innovations, the novelty test is all the more pertinent given their decentralised character and the fact that the underlying technology is sometimes public, in some cases based on open source software, or otherwise not private. Further, critics against monopoly in matters related to cryptocurrencies argue that exclusivity – which is what a patent essentially grants –is the antithesis of everything decentralised currencies stand for.

However, if a fintech developer has indeed created something new and wants to protect it, there are IP protection options other than patent registations to consider. These include the utility model protection, copyright, trademark or trade secret protection. However, each of these comes with its own pros and cons.

Utility model has limitations

Utility model protection is only available in some countries. The most notable markets being the UK and the US, do not offer utility model protection. The process of applying for this protection is not as rigorous as that which applies to patents. The applicant only needs to show that the invention is new and industrially replicable. There is no need to go to a lot of effort to distinguish it from existing innovations.

In Kenya, for example, this form of protection is issued on the basis of the application only and not through substantive examination or checks on claims made.

The disadvantage is that utility model protection is not very strong and is easily revoked if challenged. There are not enough stress tests. The advice we give to clients is that it is good to have this protection, but they need to question whether it can be enforced under a revocation challenge.

Treating an invention as a trade secret may seem like an attractive common law remedy as protection comes without registration, but there are many drawbacks. To be considered a trade secret, an invention has to meet certain conditions, particularly around keeping it a secret, which can be easier said than done. Trade secret protection may also prevent collaboration with other entities and does not protect against the development of the trade secret by third parties.

Copyright the most challenging to enforce

Copyright protection is another possibility, but this is likely to be very difficult to enforce. Bearing in mind that the pre-dominant source code for Blockchain technology is publicly available and therefore a related invention cannot be held back from the public. Custom-developed proprietary source code is a different matter. But we would still ask a developer, ‘Exactly what is it that you claim copyright over?’ It could be very difficult to convince a court that a source code is absolutely owned by someone unless developed wholly in-house.

An interesting twist on the use of proprietary source code, however, is the resistance this could provoke in the marketplace. “One of the currencies that landed in the United States threatened to move away from open source and there was a significant backlash.

Protecting the brand is key

While developers may encounter hurdles in claiming technological ownership of a blockchain product or cryptocurrency, they should not overlook the importance of protecting their brands. While registering a trade mark would protect the brand only and not the technology, the developer can still fully commercialise, contract commercially with clients and offer commercial services.”

Filing a trade mark through the Madrid system (for the international registration of marks) is possibly the “most prudent” way to protect a blockchain or cryptocurrency brand in as many jurisdictions as possible.

Consider each case on merit

Whatever IP protection options a fintech developer considers, it is vital to understand the legal requirements, capacity and constraints of the jurisdiction concerned.

Many African registries do not have the technical expertise to examine the claims that patent applicants make, for example. At the same time, they may not permit an invention devised in that specific country to be pursued elsewhere without approval from the local registry. This is the case in Kenya. There are ways to overcome these hurdles, such as by convincing the registrar that it is not possible to get a proper examination in Kenya or by committing to commercialising the invention in Kenya and not outside. The point being that as always in Africa, there are many nuances in the IP frameworks of different countries and no one-size-fits-all approach.