Open banking: thoughts on intellectual property and data portability

Vincent Caron [1]
ROBIC, LLP
Lawyers, Patent and Trademark Agents

With the start of public consultations in January 2019, the announcement of Canada’s Digital Charter and the very recent publication of a report by the Standing Senate Committee on Banking, Trade and Commerce, it is safe to say that the adoption of an open banking system has garnered particular attention in Canada in the first half of 2019.

Open banking system

In a nutshell, an open banking system allows better control by clients of financial institutions with regards to the data collected in the context of their relations with the institutions. This initiative aims particularly to improve the services offered to consumers and their autonomy, as well as to stimulate innovation, competition and the development of companies operating in the financial technology sector (or Fintech).

An open banking system generally addresses the position of financial institutions from several angles, including allowing customers to demand that certain types of financial data be shared with authorized third-party financial service providers. It also allows these third parties to access banking systems to make payments or other types of transactions on behalf of customers, all through application programming interfaces (APIs). Since the enactment in January 2018 of the Payment Services Regulations 2017 in the United Kingdom, many countries have adopted measures to establish an open banking system, and it appears that Canada will soon join the bunch.

It goes without saying that the establishment of an open banking system would involve many concerns, including free competition, data protection and IT security. However, in the discussions surrounding these initiatives, intellectual property and data ownership issues are often marginalized.

Opportunities and downfalls for Fintechs

For Fintechs, the introduction of an open banking system is the bearer of good news for the most part, since it allows easy access to a large amount of information and functionalities. In the past, these were only partially available to them through a range of data mining techniques, licences and various agreements with financial institutions. Fuelled by various global initiatives, this sector has experienced particularly strong growth in recent years, having already attracted nearly US$6.3 billion in investments in the first quarter of 2019 alone.

Despite the interesting opportunities presented by an open banking system for Fintechs, it may be difficult for them to distinguish themselves in a highly competitive and overstretched market in which financial data is made equally available to most competitors. To remain competitive, Fintechs must effectively protect their intangible assets and avoid intellectual property slip-ups at all costs. After all, if there is one constant that applies to Fintechs in areas as diverse as insurance, transactions, real estate, capital markets and compliance, to name a few, it is that they generally make extensive use of third-party data. This reality must be considered when developing a good protection strategy.

In Canada, compilations of data may constitute works as defined in the Copyright Act and thus be subject to copyright, provided that they are fixed in a material form and are original in the composition in their expression of  talent and judgment of their author (unlike raw data, which is not protectable by copyright).As such, Fintechs that compile data from an open banking system in an original way, such as comparing different financial products, will generally be able to benefit from copyright on them, as well as on the source code and algorithms for generating them, which are also protectable as literary works.

It is still important to remember that copyright does not prevent third parties from developing the same work independently or from achieving a similar result by developing different codes and algorithms. For this reason, some Fintechs may wish to benefit from patents, which are powerful intellectual property rights that grant monopolies to their owners on the inventions which they are subject to. This is certainly an option worth considering for Fintechs who wish to protect themselves from their competitors or develop new sources of monetization based on their inventions, however several legal and strategic considerations must be considered.

Firstly, a very large number of patents related to this sector have been filed worldwide in recent years, which inevitably makes it more difficult to obtain new patents. Notably, technology related to online payment or blockchain are often described as “minefields” due to the complexity and large amounts of patents filed. Secondly, the admissibility of software inventions for patent protection is still the subject of debate in many jurisdictions. In Canada, it remains possible to protect them by patents, as demonstrated by the landmark decision Canada (Attorney General) v. Amazon.com, Inc. 2011 FCA 328 on Amazon’s “one-click” system, but the eligibility of software as a patentable subject matter remains relatively sensitive. Finally, let us not forget that patent applications may eventually become accessible to the public, whether the patents are granted or not. For these reasons among others, Fintechs must remain cautious, and consult with competent professionals when considering obtaining patents for inventions using data from an open banking system.

Moreover, it is no secret that the financial sector is one where having an excellent reputation for reliability, integrity and security is essential to success. Given the large costs associated with developing this reputation and increasing a customer base, which is characteristic of this sector, Fintechs would benefit from developing distinctive trademarks that allow them to protect their investments and protect themselves against third-party claims.

Based on the above, the expected adoption of an open banking system in Canada will bring opportunities for many financial sector players, including Fintechs. More so, those who succeed in positioning themselves strategically and proactively, particularly through intellectual property rights, will reap the greatest benefits.

A New Era of Data Portability

From a more theoretical point of view, an open banking system goes hand in hand with data portability movement, a newly introduced concept in the Canadian Digital Charter mentioned in the introduction. Far beyond mere financial data, this concept will undeniably be applied to other spheres of the economy in the coming years. Above all, it will affect our relationship with data, which has already been significantly shaken by the enactment of the General Data Protection Regulation and by various modernization projects underway around the world.

Among many issues, that of data ownership is a critical one, especially at a time when data is referred to as the new oil. Paradoxically, this issue is rarely addressed in Canadian law and in comparable jurisdictions.

In fact, the protection of an individual’s interests regarding data often involves a set of rights recognized by different laws. For example, strategic or sensitive data may generally be protected by confidentiality, while compilations of data may be subject to copyright as described in the previous section.

Moreover, if Quebec law has customarily recognized certain types of data with economic value as intangible personal property that could be the subject of a property right, it is possible to question the real scope of this right in a context where laws grant prerogatives that would normally be reserved for the owner to several people, as is the case in an open banking system.

More generally, the underlying increase in data portability with an open banking system is sure to generate substantial legal debate, significantly influence how data ownership is approached, and the means that will need to be deployed to protect these valuable assets in the years to come.