FinTech Webinar Series:IP Portfolio BuildingWhat Should Financial Institutions and FinTechCompanies Be Doing?

March 6, 2013

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Speakers

Russell BruemmerPartnerWilmerHale

Wayne KennardPartnerWilmerHale

Larissa ParkCounselWilmerHale

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Reasons for the Webinar

� Challenges of electronically transacting business for financial industry members

� Assistance in controlling market share

� Partnering between financial industry members

� Complications of the global marketplace

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Different IP Protection Methods For FinTech Products/Services� Patents: Protect new and useful processes, machines,

manufactures, or compositions of matter and improvements thereof. (35 U.S.C. §101)

� Trademarks: Word, name, symbol, or device used to identify and distinguish the source of goods and services. (15 U.S.C. §1127)

� Copyrights: Protect original works of authorship fixed in a tangible medium of expression (17 U.S.C. §102)

� Trade Secrets: Protect information that a company takes reasonable measures to protect from public disclosure, and this information derives independent economic value from not being publicly known. (18 U.S.C. §1839(3)(A), (B))

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What Can Be Protected And How?

� Computer- and algorithmic-based products/services

– Patents, Copyrights, Trade Secrets

� Names and logos associated with products/services

– Trademarks, Service Marks

� Databases used with products/services

– Copyrights, Trade Secrets

� Proprietary products/services

– Copyrights, Trade Secrets

� Screen displays for products/services

– Copyrights

� Materials describing products/services

– Copyrights

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Terms and Definitions

� FinTech Patents:

– Business Method Patents that are computer-based or computer-implemented

• Algorithmic-based systems and methods

• Electronically controlled trading systems and methods

• Electronically controlled e-commerce systems and methods

� FinTech Copyrights

– Copyrighted Software Programs

– Screen Displays/GUIs for Customer/Client Use

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Terms and Definitions

� FinTech Trade Secrets

– Algorithms and Source Code Programs for Carrying Out the Functionality of FinTech Product/Service Offerings

� Territory

– Worldwide

– United States Only

– Country Specific

– Market Specific

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Competitor Threats

� Competitor Development of Products and Services

– IP Protection for home grown technology

� Buying Patent Positions

– Example: Software/Electronic Space

• Apple/Microsoft/RIM/EMC/Ericsson/Sony

$4.5 billion for 6000 Nortel Patents (July 2011)

• Google

$12.5 billion to buy Motorola (August 2011)

• Microsoft

$1 billion for 800+ AOL patents (April 2012)

� Purchasing Patents Out of Bankruptcy Proceedings

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Competitor Threats

� Licensing

– Patented and Copyrighted Technology

• In-licensing

• Cross-licensing

• Patent pools

• Standards-based licensing

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Brief IP Protection Drill Down

� Patents

� Copyrights

� Trade Secrets

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Business Method Patents: Worldwide

– United States:

• Claims contain computer-implemented or similar language with ties to a computer structure

– Europe

• Business methods are per se unpatentable

• Computer-based systems and methods must be disclosed in the patent application specification to have a chance to obtain patent protection

• Software must cause a “further technical effect”

– Asia

• Korea: Most business method friendly

• Japan: Patentable if business method contains a technical aspect that is tangible and real

• China: Classified as computer programs and must provide a technical solution

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Copyrights

� Rights vest in the software–based product/service offerings upon creation, including screen displays/GUIs

� Registration important for software-based product/service offerings under the special rules of the U.S. Copyright Office (Tool: U.S. Copyright Office Circular 61)

– Without Trade Secrets

– With Trade Secrets

� Access to Statutory Damages

– $750-$30K per occurrence without proving actual damages (can be increased to $150K per occurrence for willful infringement)

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Trade Secrets

� Associated with software-based or computer-based product/service offerings

– Black box algorithm/process for actually carrying out Company’s proprietary trading and financial transactions, or e-commerce

– Uncompiled source code

� Safeguards to protect Trade Secrets

– Access to, and accountability control for, Trade Secret software and underlying algorithms

– Employee exit interview acknowledgement of access to Company Trade Secret information

– Notification to new employers of ex-employee’s access to the Company’s Trade Secrets (unspecified)

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IP Protection Focus

� Patents

� Copyrights

� Trade Secrets

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Patent Litigation Snapshot

� Financial Patents Involved in Litigation

– Randomly selected approximated 1000 Financial Industry Patents in the areas of Hedge Funds, Alterative Trading Systems (“ATS”), Exchange Traded Funds (“ETF”)

• 8 involved in litigation

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Patent Litigation: Purpose

� To Prevent Others From Using Your IP

� To Provide a Resource Generator for Company

– Financial

– Access to Competitor Technology

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Financial Industry Litigation Risk

� Risk Low From Industry Members

– Reasons:

• Many close interrelationships of industry members

• The necessity to sue customers/clients to enforce patent rights

35 USC § 271(c): Contributing Infringement

35 USC § 271(b): Inducement of Infringement (Post Akamai Tech. v. Limelight Networks and McKesson Tech. v. Epic Systems(Fed. Cir. 2012)

� Higher Risk From Patent Trolls

– Reasons:

• No close interrelationships

• Only patents at risk

• America Invents Act impact on Patent Trolls: No Multiple defendant actions

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FinTech Development Cycle

� Software/Computer-based Product/Service Offerings

– Alpha Stage: Internal review and testing

– Beta Stage: Selected customer/client testing for product/service offering improvement and efficiency

• Under NDA or Confidentiality Agreement

– Production Stage: Licensing of customers/clients for financial transactions

• Public use

• Confidentiality clauses in licensing, subscription, etc. agreements

– Update Stage: Throughout the life of the Product/Service Offerings

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FinTech Development Cycle

� Software/Computer-based Product/Service Offerings

– Alpha Stage: Internal review and testing

– Beta Stage: Selected customer/client testing for product/service offering improvement and efficiency

• Under NDA or Confidentiality Agreement

– Production Stage: Licensing of customers/clients for financial transactions

• Public use

• Confidentiality clauses in licensing, subscription, etc. agreements

– Update Stage: Throughout the life of the Product/Service Offerings

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Patent Applications

� Provisional Applications (Alpha, Beta, Production, and Update Stages)

– Placeholder to provide a priority date for the disclosed invention

– Must file a Utility patent application within 12 months of the filing date of the Provisional Application

– Inexpensive and quick to prepare

• Includes one claim

� Utility Applications (During Beta stage before Production Stage; Update Stage)

– Comprehensive description of the invention and include comprehensive claim set

– Expensive and take time to prepare

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When to File Provisional Application

� Design/functional specification for new product/service offering developed and product/service offering ready for testing: multiple provisional applications may be filed

� Submission of a “no contest letter” to the Securities and Exchange Commission for new product/service offering

� Before submission to clients/customers for testing the new product/service offering (even under a NDA or confidentiality agreement)

� Before meeting with Joint development partners or other third parties

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Publicity of Patents

� Publicize issued patents of the Company to industry competitors on a regular basis, e.g., yearly, biannually

– Publicize the patent titles and short description of the subject matter

– Do not publish descriptions patent applications even when published because it may cause competitors to challenge the applications

– Product/service offering literature and GUI screen displays should include “patent pending” and/or list issued patent numbers

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Copyrights and Trade Secrets

� Copyrights

– Ongoing during Alpha, Beta, Production, and Update Stages

– Registration of important software product/service offerings

� Trade Secrets (Extremely Important)

– Ongoing during Alpha, Beta, Production, and Update Stages

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What To Do?

� Corporate Considerations

– Tool: Question Sheet

� Patents

– Patent War Chest

� Copyrights

– Development of Code

� Trade Secrets

– Internal Protection Procedures

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Corporate Considerations for IP Portfolio Building� Is there Management buy-in for IP Portfolio Building?

� Is there a C-Level Executive responsible for overseeing the building, protection, and enforcement of the Company’s IP Portfolio?

� Do you know the IP protectable Technology that the Company owns?

– Parent Company

– Subsidiaries/Affiliated Companies

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Corporate Considerations for IP Portfolio Building� Do you know the breakdown for the Company’s IP protectable

Technology?

– Patent only

– Copyright only

– Trade Secret only

– Combination Patent/Copyright/Trade Secret

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Corporate Considerations for IP Portfolio Building� Has IP Portfolio Building been incorporated in the Company’s

Business Plans?

– Incentives to Employees to innovate and disclose inventions to the Company

– Company ownership of third party developed IP

• Third party development agreements

• Jointly developed technology

– Adequate funding allocated for IP Portfolio Building

� Do you know the impact of Open Source Software on the Company’s Software-based Product/Service Offerings?

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Patents: Patent War Chest

� Puts Company in position to meet challenges from competitors both offensively and defensively

– Pros

• protects product/service offerings

• provides potential cross-licensing and settlement portfolio

• makes competitors consider Company’s IP Portfolio in their design decisions for similar product/service offerings

– Cons

• cost of patent prosecution in the first four years: $40-$100,000

Filing provisional application, filing US utility application (including limited prosecution), and filing PCT application (foreign countries)

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Copyrights

� Development of software-based Product/Service Offerings

– Embed Company copyright notices in uncompiled source code so it will be compiled with the program

� Place plain language Company copyright notices in the compiled program

� Register the software program in the U.S. Copyright Office under the Special Rules.

� Provide copyright notice on GUIs/screen displays

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Trade Secrets:

� Development of specific internal written procedures for the protection of the Company’s Trade Secrets

� Establish access control procedures for access to source code of the most important software-based product/service offerings

� Control the use of Open Source software as it relates to the Trade Secret portions of the software-based product/service offerings

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IP Portfolio Building

� Develop 3-5 Year Targeted Plan to Build IP Portfolio

� Actively Determine What is Currently in the Company’s IP Portfolio

– Tool: WilmerHale Technology Checklist for Company Managers and Counsel

� Determine the portions of the most valued Company product/service offerings that are not covered by the IP Portfolio

– Cover by Copyright only, or Patents and Copyrights

� Determine the Company policies for disclosing new product/service offerings to customers/clients and the public to ensure the ability to obtain the desired IP Protection

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IP Portfolio Building

� Establish Management’s desired use of IP Portfolio

– Maintain status quo relationships with customers/clients and competitors and reserve the IP Portfolio for defensive purposes

• Need significant IP war chest

– Use the IP Portfolio as an out-licensing revenue generator

• IP Portfolio developed with this mind

• Develop a Standard license for out-licensing at a reasonable fee/royalty rate

– Use IP Portfolio for offensive purposes

• Needs to be pointed at Competitor product/service offerings

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IP Portfolio Building

� Determine on periodic basis if any of the top Five Competitors in the Company’s product/service offering space infringe its IP Portfolio

– Review the viability of the enforcement of the IP Portfolio

• Patents

• Copyrights

Screen displays/GUIs

“Me Too” competitor product/service offerings

• Trade Secret

Protection policies are being properly implemented

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IP Portfolio Building

� Determine if the Company infringes the IP Portfolio of any of the top Five Competitors in the Company’s product/service offering space

– Consider design arounds

– Identify potential counter-claim assets in the Company’s IP Portfolio

– Draft new claims for pending patent applications to cover Competitor product/service offerings

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New Post Issuance Procedures under America Invents Act (AIA)� Supplemental Examination

– Patentee requests to (re)consider or correct information relevant to patentability

� Business Method Patent Review

– Special post grant review program for third parties who have not filed a civil action but have been sued or charged with infringement

� Inter Parties Review• Replaces inter parties reexam, changes threshold for instituting

review, adds limited discovery

� Post Grant Review• Opportunity to challenge validity of patent within nine months of

issuance—similar to European opposition proceedings

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Helpful Tools

1. WilmerHale Technology Checklist for Company Managers and Counsel

2. Corporate Considerations Question Sheet

3. U.S. Copyright Office Circular 61

Email address to receive these tools: Wayne.Kennard@wilmerhale.com

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Questions?

Russell Bruemmer

+1 202 663 6804

Russell.Bruemmer@wilmerhale.com

Larissa Park

+1 617 526 6081

Larissa.Park@wilmerhale.com

Wayne Kennard

+1 617 526 6183

Wayne.Kennard@wilmerhale.com

FinTech@wilmerhale.com