Fintechs and the protection of their intangible assets

By Mauro Ivan C. Ribeiro dos Santos, Dannemann Siemsen

According to the blog Finnovation, specialising in innovations in the financial services area, between October 2017 and May 2018 the number of Fintechs, which according to BACEN’s definition “are companies that promote innovations in the financial markets through the intensive use of technology, with the potential to create new business models” (1), increased by 22%, totalling 377 ventures in Brazil.

While the website Fintechlab, also specialising in this segment, published an article on August 13, 2018, indicating the existence of 453 financial startups in operation in Brazil.

Although the term Fintech is mainly associated with startups, it should be noted that at present all major financial institutions are also involved in this sector.

The Central Bank of Brazil (BACEN), in view of the growth in this market, published Resolution 4,656 in April 2018, which regulates direct credit Fintechs (SCDs) and peer-to-peer lending Fintechs (SEPs) and it reports that there are Fintechs in Brazil operating in the following categories:

Payment methods
Financial management
Loans
Financing
Investment
Insurance
Debt negotiations
Cryptoassets and Distributed Ledger Technologies
Foreign exchange
Multi-service

Recent data made available through the Radar FintechLab/August2018 survey show that most Fintechs in Brazil are concentrated in the category of payment methods (26%). In second place comes financial management Fintechs (17%), in third loans (17%) and in fourth (9%) insurance.

In these four main categories, in summary we have that payment-method fintechs are those committed to presenting technological solutions that facilitate and increase security in buying and selling. They are companies such as MOIP, which acts as a payment intermediary for virtual shopkeepers, or ASAAS, which specialises in creating, sending and managing collection and payment slips.
Financial management Fintechs aim to manage finances and personal and business budgets. This is the case of GRANA, which specialises in the control of personal finances, and NIBO, which provides solutions for companies, including cash flow controls and accounting integration.

Loan Fintechs, in turn, are credit providers, many of them specialising in personal microfinance such as EasyCredito, while others are focused on loans to companies such as BIVA. Until very recently, these Fintechs did not have permission from BACEN to act independently, requiring the intermediary of a bank to offer their services. However, with the publication of the mentioned resolution, these Fintechs were given the freedom to grant credit without the mediation of banks.

The fourth, among the main Fintech categories that dominate the national market, is insurance. They are also called Insurtechs and are intended to provide consumers with swifter, more personalised and accessible insurance contracting platforms. This group includes, for example, BIDU, an online recommendation, comparison and insurance contracting platform.

Regardless of the category in which they are included, Fintechs have the intensive use of technology, mainly in the development of software, artificial intelligence and data processing, in common.

Any Fintech with a good management model should be concerned about the protection of its intangible assets, especially those that invest heavily in the development of their own innovative processes.

Let us take, for example, a financial management Fintech for personal finance and wealth management. This activity involves a vast amount of data, algorithms, statistics, graphs, foreign exchange variations and other financial issues that are generally handled through complex computer programs. These programs can be purchased externally under license agreements. However, Fintechs with a highly innovative profile end up developing their own programs that, from their creation, will have, regardless of any public registration, protection granted by the Law for the Protection of Computer Programs (Law no. 9,609/98) and the Copyright Law (Law No. 9,610/98 - Article 7, XII).

Although registration of computer programs is not mandatory, this benefit can be advantageous, since it guarantees those who register proof of authorship and ownership of their creation important factors in the event of legal disputes involving acts of unfair competition, imitation, unauthorised copying and other unlawful acts.

The National Institute of Industrial Property (INPI) is the body responsible for registering computer programs (2). INPI, in view of the growing demand in this area, published Normative Ruling 074 on September 1, 2017, which establishes new procedures relating to the registration of computer programs. From this Ruling, registration became exclusively online, relying on digital certification processes and encryption to guarantee the accuracy and confidentiality of the data presented.

In addition to computer programs, Fintechs can develop other intangible assets that add value to the business and as such deserve protection. For example, most Fintechs interact with their consumers through applications available on mobile phones, tablets or desktops. The way these screens are visually configured, resulting in the user interface, can be subject to copyright protection.
Many Fintechs can also benefit from the protection afforded by the Industrial Property Law, which regulates the ownership of trademarks, patents, industrial models and industrial designs (Law No. 9,279/96).

Let us start with industrial designs, which are the ornamental plastic shape of objects, resulting in a new and original external look, and that can be used for manufacture on a commercial scale. A classic example of the importance of ornamental shapes applied to industrialised objects is in APPLE’s products, among them the iMac, MacBook, iPod, iPad and iPhone. Turning to the field of Fintechs, those for payment methods should be interested in the subject, since many of them work with electronic cards and financial transaction machines that have new and original ornamental features, helping to distinguish the company from its competitors and, thus, contributing to customer loyalty. An example of this is the Fintech Cata Company, which developed CataMoeda, a coin collecting machine, where the amount deposited is exchanged for vouchers, banknotes, mobile credit topups and other services. The company already has six patent and industrial design procedures associated with its machine being prosecuted at INPI.

While an industrial design protects the design, that is, the external appearance of an object, a patent protects an invention that results in a new technology. In order for an invention to be patentable, it must meet the requirements of novelty, inventive step and industrial application, with the exceptions established in Article 10 of the Industrial Property Law.

Fintechs that develop new technology based on blockchains should be aware of this possibility of protection. For example, at the end of last year BANK OF AMERICA applied for patent protection in the United States for a blockchain-based system whose main feature is to facilitate the transfer of large amounts of data. MASTERCARD, also in the US, has applied for a patent for blockchain technology to protect identity data. And the digital payment company SQUARE was granted a patent in the same country to protect a system that allows merchants to accept cryptocurrencies as an alternative payment method.

In addition to blockchains, special mention should be given to the expansion of new technologies for customer service systems through artificial intelligence (e.g. BIA Bradesco Artificial Intelligence), fraud detection systems through artificial intelligence, biometric systems for security and accessibility, and carrying out operations through voice recognition systems. All of these technologies, and many others, can result in patents which, in turn, enhance the company’s commercial value.

Having made these brief considerations on the protection of Fintechs’ intangible assets by means of industrial designs and patents, the importance of trademark registration should also be remembered, which in essence guarantees the origin and quality of the product or service carried out by the company. Most Fintechs are startups, that is, companies that are now starting their activities. The choice of trademark to identify their products and services to the consumer, differentiating the company from its competitors, is a fundamental element in a successful business strategy. Again, INPI is the body responsible for this registration. After filing and prior to granting, the trademark passes through an examination process, during which third parties or INPI itself may raise objections based on similarity and the possibility of confusion with previous signs, as well as other legal impediments. Therefore, before filing the trademark at INPI, it is important, whenever possible, to assess the availability of the trademark and the risk represented by signs previously filed or registered in the name of third parties.

Finally, some considerations about confidential information, also called business secrets, are appropriate. This is knowledge developed by an individual, company or public entity in the course of their activities capable of affording its holders a competitive advantage over their competitors. Therefore, in the highly innovative and competitive context in which Fintechs operate, this is an issue that also deserves attention.

Any knowledge can be qualified as confidential information as long as it obeys two basic principles.

Firstly, as the name itself states, knowledge must be confidential, that is, it cannot be in the public domain or obvious to a person skilled in the art. Knowledge, to qualify, does not need to be complex; it may be intrinsically simple and nonetheless apt for protection. Furthermore, it must be emphasised, the combination of knowledge already in the public domain can bring about a business secret.

The second principle is based on the need for the company to take reasonable precautions to keep the knowledge secret. There is no consensus on the precautions to be taken, however. The question, therefore, depends on a case-by-case assessment.
In conclusion, it can be seen that the financial services sector is undergoing a huge and rapid transformation, driven by agile companies focused on the intensive use of new technologies, resulting in highly valuable creations that are apt to be protected through intellectual property rights, which can increase the competitive advantages and better position a Fintech in the market.  

(1) https://www.bcb.gov.br/pre/bc_atende/port/fintechs.asp?idpai=FAQCIDADAO#1
(2) http://www.inpi.gov.br/menu-servicos/programa-de-computador