Financial services are a massive industry that encompasses commercial banking, investment banking, credit cards, insurance, securities brokerage, financial planning, and other money management industries. Making up about 20% of the S&P 500’s market capitalization, financial services is the largest industry in the world in terms of earnings. While it may be surprising that large financial companies file patents at all, or even have in-house intellectual property departments, there is no shortage of innovation in business methods and financial tools being developed and patented by these and smaller financial services companies.

A little more than a decade ago patents in the financial services industry were quite scarce and so-called business method patents are still rarely accepted in the European Patent system. In recent years, financial business method patents have become increasingly common. Part of the impetus for this trend has come from the fact that the financial services industry has continued to blend modern information technology with traditional financial services, but the 1998 Federal Circuit court ruling in State Street v. Signature Financial Group was even more influential for the financial services industry than the advent of the technology boom.

The State Street opinion provided the catalyst for the past decade’s explosion of IP activity in financial services and general business method patents by stating that a claim is patentable if it “involved some practical application and it produces a useful, concrete and tangible result.” In 1983, 34 patents were issued in class 705 (where business methods are typically assigned) and in 2000 that number ballooned to 727 patents. Though protecting developed intellectual property assets is important, it is also vital for companies to act defensively and avoid infringement of the many recent patents in the financial services industry.

This autumn, however, the Supreme Court is expected to consider In re Bernard L. Bilski and Rand A. Warsaw after a Federal Circuit court rejection of the validity of a patent claim related to hedging risks in commodities trading that was originally filed by Bilski in 1997. The court held that th patent application failed the “machine-or-transformation test” thereby rejecting the precedent set by State Street. Bilski points to stricter guidelines for the future of business patents, but the details will not be clear until after the Supreme Court decision.

Still, strong intellectual property strategies are important for financial services companies to maintain a competitive advantage by protecting their own assets and being aware of the intellectual property climate in the financial services industry. Among such strategies is the choice for companies to pursue a patent for a particular method or to maintain it as a trade secret. Although Bilski may limit the prevalence of business method patents, innovations in financial services will continue to occur and will continue to be patented.