In recent years, Japan’s financial market has seen a rapidly increasing demand for contactless and non-face-to-face services. The outbreak of covid-19 further accelerated the shift from cash-based transactions to digital payments, strengthening the overall movement towards a cashless society.
As a result, financial services that can be accessed without visiting bank branches or physical stores have developed rapidly, and Japan’s fintech market is expected to expand even further in the coming years.
The field of fintech is extremely broad, covering various sectors such as:
- Smartphone payments (QR code payments, mobile wallets, etc.);
- Cloud accounting services (accounting software for SMEs, tax filing support, etc.);
- AI-driven credit scoring (automated credit evaluation for individuals and corporations);
- Blockchain-based international remittances and smart contracts;
- Robo-advisers and automated investment management; and
- Automation and personalisation of insurance services.
In these sectors, not only traditional financial institutions such as banks, securities firms and insurance com-panies are active, but IT companies and startups are also entering aggressively, leading to significant changes in the
industry structure.
Patent strategy: Offence and defence
Hiroyuki Ohno
Partner at OHNO & PARTNERS
in Tokyo
Tel: +813 5218 2365
Email: ohnoh@oslaw.org
For fintech companies, obtaining patents has multiple strategic benefits as shown below.
Patents go beyond these general benefits. They can also establish a deterrence effect, creating a “cold war” between competitors:
- Without its own patents. A company faces the risk of being sued unilaterally, restricting its business operations.
- With its own patents. Both parties hold offensive and defensive options, leading to a balance of power.
Patents in fintech are strategic assets not only to limit competitors’ freedom to operate, but also to protect a company’s business.
Fintech and patent relationship
Fintech combines finance and technology with the goal of providing convenient and efficient financial services. However, the field has unique characteristics that make patent strategies directly tied to a company’s survival.
Easily imitated technologies and business models. Innovation in fintech occurs rapidly, and most solutions are implemented as software or applications. This gives rise to challenges:
- UI/UX is publicly visible, making it easy for competitors to copy in a short time; and
- Standardisation of API (application programming interface) integrations allows competitors to access the same financial infrastructure easily.
As a result, even if a company initially captures market share, without legal protection through patents competitors can quickly follow, making sustainable differentiation difficult.
Patenting financial services and their limitations. Many financial services have characteristics similar to “business methods”, making it difficult to obtain patents when the invention is defined in a way that can be perceived externally as a business activity.
Patents for internal processing methods are easier to obtain but difficult to enforce in practice. Therefore, it is strategically advantageous to focus on “visible” aspects of services that can be identified and proven in enforcement actions.
However, in examinations by the Japan Patent Office, financial services themselves tend to be regarded as abstract, and patent applications are sometimes rejected on grounds such as lack of invention applicability (violation of the body of article 29, paragraph 1 of the Patent Act).
Achieving both patentability and enforceability remains a core difficulty in this field. Obtaining “visible” patents requires specific techniques in drafting the specification and in responding to office actions.
freee Inc v Money Forward
Patent disputes between fintech companies are already occurring in Japan. A notable example involves freee Inc and Money Forward over their cloud accounting services.
(1) Filing lawsuit (October 2016). freee filed a lawsuit in the Tokyo District Court, claiming that Money Forward’s “MF Cloud Accounting” service infringed its patent.
(2) Core dispute. The implementation of the automatic journal entry algorithm:
(a) freee’s patent. Keyword-based system and reference tables;
(b) Money Forward. Machine learning-based system.
(3) Judgment (July 2017). The court dismissed freee’s claims, ruling that Money Forward’s method did not use the “tables” specified in freee’s patent.
This case shows the challenges of software patent litigation, where internal processes are difficult to verify.
Since Money Forward’s algorithm was internal, freee had to speculate about
it before filing the lawsuit. Following Money Forward’s rebuttal, freee was unable to overcome the hurdle of proof and lost this case. This highlights the importance of focusing patents on visible, externally verifiable aspects of services for effective enforcement.
Recent patent application status
According to a report titled Recent Trends in Business-Related Inventions, published by the Japan Patent Office, the above points shown in the table can be observed. Please also see HERE.
Recent report on filing
PayPay, a leading mobile payment provider, has rapidly increased its patent filings. PayPay has reportedly filed a large number of patents in a short period, reaching a scale that surpasses the combined total of the three major megabanks in terms of financial patent applications.
This trend reflects key insights:
- IT companies are taking the lead in intellectual property strategy over traditional financial institutions; and
- Companies that have built a patent portfolio early in the cashless payments market are more likely to secure a competitive advantage.
Conclusion
Fintech transcends the traditional boundaries of the financial industry, where speed and innovation are paramount. At the same time, business models are easily imitated, making patent-driven differentiation and defence essential.
Companies must adopt two complementary perspectives:
(1) Offensive strategy
(a) Acquire strategic patents that deter new competitors and secure market dominance.
(b) Use patents as negotiation leverage in partnerships, capital alliances and M&A activities.
(2) Defensive strategy
(a) Protect core technologies and services with patents to prevent imitation.
(b) Build a foundation for cross-licensing to reduce litigation risks.
As Japan’s fintech market is expected to expand, patents can be a management challenge that directly influences business strategy (for example, PayPay has reportedly filed many patents in a short period of time).
As evidenced by the rising patent grant rate, patents for internal processing are relatively easy to obtain. However, patents for internal processing are difficult to enforce, as shown in the case of freee v Money Forward.
Companies that take the initiative to build a patent portfolio – particularly those that efficiently acquire patents with externally visible content (the so-called “visible patents”) – are certain to lead future competition.
OHNO & PARTNERS
21/F Marunouchi Kitaguchi Building
1-6-5, Marunouchi, Chiyoda-ku
Tokyo, 100-0005, Japan
Tel: +813 5218 2331
Email: ohnos@oslaw.org
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