Is the Use of Patents Promoting the Creationof New Types of Securities?

Abstract

Has there been a change in the level of innovation of financial methods subsequent to the State Street decision that allowed the award of patents to protect such methods? Ten years following the issuance of State Street, the patentability of business methods is still so controversial that the Federal Circuit has recently considered overruling its own precedent by rehearing In re Bilski en banc. The goal of the patent system is to promote innovation. If an increase in the level of innovation of financial methods is not present, the adoption of this form of intellectual property to protect creativity in the industry is unjustified and, potentially, even harmful. Indeed, it is important to ascertain the correct balance between encouraging innovation on the one hand, and leaving enough “raw material” upon which individuals can build new ideas on the other. A first step in accomplishing this objective is to understand whether the patent system is “doing its job” or, in other words, whether the provided protection is actually inducing innovation in a specific industry.

In this article, the author presents an empirical study of innovative types of securities that have emerged over the past 25 years. The author also investigates the patent practice of the financial industry and identifies the patent applications submitted and the patents issued on different types of securities. Finally, the author discusses her findings and concludes that, recently, creators of new types of securities have shown less interest in the patent system.

Nevertheless, the rate of innovation in this field has remained constant. At this time, the available data are not sufficient to reach an entirely conclusive determination with respect to whether the patent system has affected the design of new types of securities. However, the results are still of great significance and cast doubts on the soundness of the State Street decision, at least to the extent that it involves the financial industry. By deciding In re Bilski, the Federal Circuit now has the opportunity to readdress the issue of the patentability of this subject matter in a way that more closely reflects the goal of the patent system as it is described in the Constitution.

Keywords: State Street, financail innovation, In re Bilski, innovative types of securities, patent applications on securities, patents on securities, inoovation and securities

JEL Classification: K39