MCCANN FITZGERALD:The financial services sector is becoming painfully aware of the importance of intellectual property issues, writes Grace Smithand Anna-Marie Harty

The importance of intellectual property to the worlds of music, luxury consumer goods and pharmaceuticals has been well documented and will be obvious to most. Less apparent, though increasingly important, is the relationship between IP (as intellectual property is better known) and the financial services sector. However, companies in this sector are becoming more aware of the substantial benefits of and risks associated with IP, and these risks in particular are spurring them into action.

The current litigation against the European Central Bank for its alleged infringement of a third party's anti-counterfeiting technology patents has prompted financial services companies to realise that they are not immune from attack and must therefore assess their litigation exposure and overall IP position.

In order to fully appreciate the value of and risks associated with IP it is essential to first understand exactly what IP encompasses. Experience has shown that IP is a term often bandied about, but rarely fully understood.

The type of property that is familiar to most people are physical objects. Intellectual property, on the other hand, relates to creations of the mind, and rights subsisting in those creations are referred to as "intellectual property rights". Statutory intellectual property rights cover two main areas: industrial property, which includes patents, trade marks and designs; and copyright and related rights.

However, intellectual property also encompasses areas such as know-how and trade secrets, and more than one type of IP right may be relevant to the same creation.

Businesses in the financial services sector are constantly generating technology platforms, financial data, brands and much more. All of these may constitute IP and have the potential to add significant value or create a revenue stream, particularly if registered (ie by obtaining a patent or registered trade mark).

In addition, registration of IP may provide both a sword and a shield in the context of disputes and litigation. Even if a business does not have significant IP of its own, awareness of IP issues can also alert a business to the potential for infringing third party IP, and in this regard it should be borne in mind that such infringement can, in certain circumstances, constitute a criminal offence in this jurisdiction.

Patents have recently been the focus of significant litigation concerning financial services businesses which have been accused of infringing a third party's IP rights. But litigation risk is not the only patent issue - patents may also constitute valuable assets.

A patent is a legal right that protects an invention. It allows its owner to prevent others from using the invention, and because patents generally last for up to 20 years, patent proprietorship often results in an effective monopoly in the relevant sector.

Whether financial services companies can register patents in respect of their financial systems and products will ultimately depend on the nature of those systems and products and the territory in which registration is sought, but such patents may not actually be as difficult to register as is often thought. Recent cases on the question of patenting financial systems and products would seem to suggest that the key to obtaining patent protection in the financial services sector will often lie in any technological aspect of the relevant systems and products, for example, the use of new technology platforms such as the internet.

But obtaining patent protection may not be the most appropriate step in all cases. When considering patent strategy, financial services companies will need to consider that their products' lifecycles may often be shorter than the patent grant procedure. As against that however, merely applying for a patent can act as a deterrent to competitors who might be thinking about "piggy-backing" on another company's technology. Patent applications can also be a valuable marketing tool in the context of a new financial product launch by distinguishing that product from existing products.

The risks of not registering patents or of infringing third party patents are significant. Failure to protect innovation through patent registration may mean that competitive advantage is lost to other financial services businesses.

Also, financial services patent litigation in the US, and particularly the groundbreaking case concerning State Street Bank and its alleged infringement of a third party's patents, has demonstrated that because of their resources and high transaction volumes, financial services companies are tempting targets for those who perceive that their patents have been infringed and seek to be handsomely compensated. To date, many such claims against financial institutions have been successful.

IP is also relevant to branding - and brand focus is now more important than ever in the financial services realm.

Although branding is relatively straightforward where physical products are sold, service providers have to work harder to differentiate their brand from those of their competitors in order to characterise the uniqueness of their service.

The market for financial services has changed significantly and gone are the days when customers had a bank for life. We live in an era of online banking and trading and footloose customers, so cultivating brand loyalty is more difficult than ever. Companies spend huge sums of money building up their brands, and that investment should be protected.

Registration of trade marks is the best method of protecting brands. For financial services businesses, trade mark protection will either take the form of securing individual national registrations in the countries in which the business operates, or where a brand is used across the European Community, businesses may opt for a Community Trade Mark registration.

But registration alone is not enough. Financial services companies also need to control authorised use of their brands by third parties, such as financial intermediaries, to ensure that the brand is not diluted and irreparably harmed.

It is also essential that they are vigilant in policing potentially problematic third-party trade mark registration and unauthorised trade mark use. In particular, companies need to guard against phishing attacks and monitor use of their marks on the internet.

Financial services businesses need to become aware that IP is relevant to almost everything they do, and must be factor that into all business decisions. Far from being an unusual combination therefore, financial services and IP are intertwined, and those who realise this too late will be left counting the cost.